Santander just got hit hard for approving thousands of subprime auto loans
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The attorney general of Massachusetts announced a $22 million settlement with Santander Bank on Wednesday over the bank's subprime auto loan securitization.
A statement from the office of Attorney General Maura Healey, a Democrat, called Santander "the largest packager of subprime auto loan securities in the US" and said the bank had facilitated "unfair, high-rate auto loans for thousands of Massachusetts car buyers." It's said to be the first settlement in the US involving subprime auto loans.
Santander also allegedly identified a group of dealers it called the "fraud dealers," and also continued to fund loans through them.
The settlement was part of a broader investigation of securitization practices in the subprime auto market by Healey.
There is concern on Wall Street that the US is on the precipice of an auto-loan crisis that could have devastating effects on the US economy, with parallels to 2008.
A recent report from Fitch Ratings, for instance, indicated that the US auto loan and lease credit loss rates weakened significantly in the second half of 2016. And they showed signs that they would continue to deteriorate.
"Subprime credit losses are accelerating faster than the prime segment, and this trend is likely to continue as a result of looser underwriting standards by lenders in recent years," said Michael Taiano, a director at Fitch.
As reported by Business Insider's Matt Turner on Monday, other firms have also picked up on this trend. Morgan Stanley, Mizuho, and Evercore ISI have all released notes sounding the alarm about the growing number of delinquent auto loans. They foresee consequences that could affect automakers, the economy, consumers, and one corner of the bond market.
The settlement with Santander will provide $16 million in "consumer relief" for the 2,000 car owners affected.
A joint investigation by the attorney general's offices of Delaware and Massachusetts found that Santander signed off on numerous loans to people with poor credit without evidence that those customers would have the wherewithal to make payments.
"In fact, Santander predicted that many of the loans would default, and allegedly knew that the reported incomes, which were used to support the loan applications submitted to the company by car dealers, were incorrect and often inflated," a news release by Healey said.
"Santander is the largest securitizer of subprime auto loans in the United States," the statement added. "Global ratings has reported that the company, with its related entities, has more than a 30% market share of this multibillion-dollar industry."
In a statement to Business Insider, a Santander representative said: "We are pleased to put this matter behind us so we can move forward and continue to focus on serving our customers. Santander Consumer is totally committed to treating customers fairly. In the last 18 months, our new management team has taken significant steps to strengthen our business practices and controls."