U.S. and New York regulators claim Credit Acceptance is using illegal and predatory practices that trick low-income borrowers into high-cost auto loans that lead to a debt spiral.
Shares of subprime auto giant Credit Acceptance Corp CACC, -11.61% tumbled about 12% on Wednesday after New York Attorney General Letitia James and a key U.S. consumer watchdog sued the lender, saying it has been illegally tricking low-income borrowers into high-cost car loans that lead to a debt spiral.
Credit Acceptance is one of the nation’s biggest publicly traded auto lenders, involved in financing more than $4.9 billion in auto loans in 2020 alone, according to the complaint. It has been a frequent issuer of asset-backed bonds tied to subprime car loans, where BB-rated bonds lately promise yields as high as 11%, according to FinSight data.
The bureau since has extracted billions in fines from lenders in the near $1.5 trillion U.S. auto-loan market, while recently warning it will be monitoring lenders engaging in illegal car repossessions after used-car prices soared in the pandemic.Wells Fargo WFC, +2.06% in December was ordered by the U.S. regulator to pay a $3.7 billion fine to settle claims of abusive consumer lending and collection practices, including on mortgage and auto loans.
A Credit Acceptance spokesman said the company believes it has complied with all applicable laws and regulations, while calling the complaint “without merit” and saying the lender “intends to vigorously defend ourselves in this matter.”
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