Credit Acceptance (CACC) Settles Car Loan Litigation For $ 27.2 Million

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Credit Acceptance Corporation CACC finally announces a lawsuit settlement with the Massachusetts Attorney General. In August 2020, AG Maura Healey filed a lawsuit with the Supreme Court of Suffolk County, claiming that the loan would violate state consumer protection and debt collection laws and regulations.

Credit Acceptance has allegedly issued unfair and deceptive auto loans to thousands of consumers in Massachusetts, provided investors with false or misleading information about their car securities offered, and participated in unfair debt collection practices.

Healy said in a statement, “Thousands of Massachusetts consumers, many of whom are buying cars for the first time, believed in CAC to help them with car loans, but were instead lured into costly loans, mired in debt and even lost their cars.”

According to this lawsuit, since 2013, Credit Acceptance has not informed investors that the loan pools, which were packaged and securitized, were supplemented with higher risk loans, despite investor claims to the contrary.

Moreover, in violation of state law, the company provided high-interest subprime auto loans to Massachusetts borrowers that it knew they would not be able to repay.

Because of this, the borrowers had to face loan ruin. They lost cars and down payments, and they were left with an average debt of $ 9,000. In addition, hidden finance charges were levied on borrowers, which caused the company’s loans to exceed the usurious rate ceiling of 21%.

It is noteworthy that in April 2021, the essential terms of the claim were made public, according to which Credit Acceptance agreed to pay $ 27.2 million to settle the claims. However, the auto lender admitted no wrongdoing.

The $ 27.2 million will be transferred to a trust controlled by an independent trustee, which will then be used in part to assist clients, as well as for debt relief and loan recovery for borrowers.

More than 3,000 Massachusetts borrowers are likely to be eligible for assistance, according to Healy’s office.

Notably, Healy has a long history of industry research on loan securitization practices in the subprime market. In 2017 Santander Consumer USA Holdings Inc. SC agreed to pay $ 25.9 million to allow the Attorney General to investigate a subprime car loan.

Our opinion

While Credit Acceptance has seen a steady rise in costs along with a deterioration in credit quality, which is expected to have a negative impact on financial performance, the company’s revenue is likely to continue to be positively impacted by higher finance costs driven by increased consumer demand. loans. Moreover, the increase in the number of dealers and active dealers (despite fierce competition) is a positive development for the company.

The company’s shares are up 70.6% this year, up from 48.1% growth recorded industry

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Credit Acceptance is currently rated # 1 by Zacks (Strong Buy).

Several other high-profile financial sector stocks are listed below.

American National Bankshares Inc. AMNB The company has seen a revision of its 11.3% profit estimate for the current year over the past 60 days. This year, its share price has risen 30.9%. The company is currently ranked Zacks # 1. You can see See the full list of today’s Zacks # 1 Rank stocks here

Community Trust Bancorp, Inc. CTBI Currently Rank 2 Zacks (Purchase). The Zacks consensus estimate of its current year earnings has been revised 9.9% upward over the past 60 days. Its shares are up 12.3% since the beginning of the year.

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Credit Acceptance Corporation (CACC): Free Stock Analysis Report

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Santander Consumer USA Holdings Inc. (SC): Free Stock Analysis Report

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The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.

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