Monique Williams lost her job as a receptionist in a building in Detroit last year during the Covid-19 pandemic. Now she’s learning how difficult it is to get back on track from debt.
Perhaps her most difficult challenge, she says, was the expensive auto loan she took out in 2016 with Credit Acceptance Corp., the country’s largest company specializing in so-called subprime loans for borrowers with credit. is tarnished.
Williams said when she and her husband struggled to meet their obligations last year, she asked Credit Acceptance if she could temporarily pay a lower amount or postpone her payments. While the company offered Covid-19-related accommodations – stopping late fees and repossessions – postponements were not an option.
“I’ve been paying for this car for four years – over $ 12,000 – and I couldn’t even get a deferral,” Williams said. The car died in December 2019, she said, but around $ 2,000 on the loan remains unpaid.
Cars are essential for people to get to work, grocery stores and immunization clinics, but the government has provided no federal assistance just for auto loans during the pandemic. Stimulus checks of course helped borrowers avoid defaults, and some states ended foreclosures, but providing other accommodations, such as deferrals, was the responsibility of the lenders themselves.
There is no direct help for auto loans in part because, unlike student loans and mortgages, there is no federal regulation of auto loans, said John Van Alst, a lawyer at the National Consumer Law Center, a nonprofit organization that advocates for one-income Americans. Now, as the country reopens, lender homes are starting to disappear, and Van Alst has said car repossessions are on the rise among sub-prime borrowers. And when it comes to high-risk, high-risk auto loans, “there’s not a lot of headroom, and even the smallest thing can cause someone to default,” he said.
At the start of the pandemic, many lenders filled the void left by the government, offering deferrals and stopping late fees; As a result, defaults on auto loans fell last year to their lowest rate in 15 years, said Jonathan Smoke, chief economist at Cox Automotive, a company that provides services to the auto industry.
Acceptance of credit, however, did not offer such deferrals. The company says it has frozen reports on borrower credit reports and suspended late fees and collection activities, such as phone calls and repossessions, for 90 days for customers affected by Covid-19. After that, however, the borrowers must make their monthly payments; if they don’t, the lender’s website says, the company can take back foreclosures and late fees.
Credit Acceptance, founded in 1972, is the largest independent subprime auto lender in the country; it generated $ 1.7 billion in revenue last year. Since the start of the pandemic, the company’s shares have jumped more than 50%. The credit acceptance awarded stock grants to seven senior executives worth an estimated $ 55 million, according to regulatory documents.
Last summer, Massachusetts Attorney General Maura Healey sued accepting credit, saying its lending and collection practices were predatory and illegal in the state. The company announced Thursday that it had agreed to settle with Healey, paying $ 27.2 million.
“The credit acceptance provided loans to high-interest borrowers the company knew it couldn’t repay,” Healey told NBC News before the settlement was announced. “What I see as predatory about these practices is that they specifically target vulnerable people, people who may not qualify for normal loans, normal financial arrangements.”
At the time of the settlement’s disclosure, Credit Acceptance also announced the retirement of longtime CEO Brett A. Roberts. In a conference call with investors and analysts Thursday, Roberts said he was retiring for “personal reasons.” Former chief financial officer Kenneth Booth will replace him, the company said.
The credit acceptance did not immediately respond to a request for comment on the settlement.
Credit Acceptance’s regulatory filings show it is under scrutiny in 43 other states beyond Massachusetts and by the Consumer Finance Protection Bureau, or CFPB. A spokesperson for credit acceptance said before the settlement that the company was not discussing issues involving active litigation but intended to vigorously defend itself.
Williams is not the only borrower unhappy with accepting credit. As of March 24, the company had generated more than 150 customer complaints on the CFPB website, including those regarding its credit report.
From January 2018 to the middle of last month, the company said, CFPB data showed complaints about just its loans totaled 585. That ranked it No.5 on the list, behind Santander Consumer USA. , Ally Financial, Wells Fargo, and Capital One, all much bigger companies.
The spokesperson for credit acceptance said, “With over 1.7 million accounts processed, complaints are extremely rare,” totaling less than 4 per 10,000 customers per year.
In addition to Williams, NBC News spoke to eight other disgruntled credit acceptance borrowers; their loan documents show how expensive the financing of the business is.
Williams and her husband, for example, bought a 2008 Pontiac with 70,000 miles on the odometer for about $ 18,500. Together they deposited $ 1,000 in cash and borrowed the remainder from the Credit Acceptance at an interest rate of 22.9%. The cost of the car was $ 10,500, the contract says. Over the five-year life of the loan, Williams’ financing costs would add an additional $ 7,140.
The Williamses’ nearly 23% interest rate is common among accepting credit borrowers, and it is considerably higher than the 17.8% average of subprime borrowers charged last year, according to Experian.
But the rate is only the beginning of a borrower’s cost of accepting credit, according to the Massachusetts lawsuit. He said that accepting credit imposed hidden fees that added 37-68% to loans given to customers with low credit scores. The complaint also argues that accepting credit forced many borrowers to purchase vehicle service contracts that added, on average, $ 2,500 to their loans.
These practices inflate the final cost of a vehicle, according to the Massachusetts lawsuit. From 2013 to 2019, the average state credit acceptance customer ended up paying around $ 20,000 for a used car, more than two and a half times the cost of the vehicle to the dealership, or about $ 7. $ 800.
When customers defaulted, Massachusetts investigators alleged, the credit acceptance policy was to call them eight times a day to try to recover. Massachusetts law only allows two collection calls per week, according to the lawsuit.
In addition to high costs and aggressive collection practices, credit acceptance has also played a significant role in repossessions. In a 2015 conference call with stock analysts, Credit Acceptance’s treasury director Doug Busk said the company typically repossessed cars in 35% of loans in its most popular loan program.
No official source tracks US car repossession volumes, so this figure is difficult to assess. But it certainly sounds high; According to an estimate from Cox Automotive, only 2.06% of auto loans resulted in repossessions in 2015.
The Credit Acceptance spokeswoman declined to provide updated repossession figures. Of the nine credit acceptance customers surveyed by NBC News, three said their cars had been repossessed; two had filed for bankruptcy protection in part to prevent repossession.
When the acceptance of credit repossesses a car, the borrower must continue to pay the amount owed. This can include payments on a vehicle service contract that the borrower can no longer benefit from. While filing for bankruptcy protection helps stop a repossession, such a decision hurts a consumer’s creditworthiness.
Even as Covid-19 put its borrowers at risk, Credit Acceptance granted stock options worth an estimated $ 55 million to seven senior executives at the end of December. Regulatory filings show that the awards exceeded the amount of shares authorized for issuance under the company’s active compensation plan by a quarter of a million shares.
The recipients were Busk, the director of the treasury who spoke of repossessions; Booth, the former CFO and new CEO; Charles A. Pearce, the chief legal officer; Arthur L. Smith, Director of Analysis; Daniel A. Ulatowski, the sales manager; and Jonathan Lum, the chief operating officer.
Through the company’s spokesperson, the men declined to be questioned.
Scott Vassalluzzo is Chairman of the Compensation Committee of the Credit Acceptance Board and a Managing Member of Prescott General Partners, an investment firm which is Credit Acceptance’s largest shareholder. He said in a statement, “The options granted represent 100 percent of incentive compensation. The compensation committee and CEO believe this is a good deal for shareholders and a fair deal for executives given the makeup. , experience and background of the team. “
The credit acceptance shareholders will be asked to approve the share plan at its annual meeting later this year.