CFPB fines Santander Consumer for auto add-on product

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Santander Consumer USA in Dallas has agreed pay a $2.5 million fine and $9.3 million in restitution to auto loan borrowers to settle allegations that it deceptively marketed an add-on insurance product.

The Consumer Financial Protection Bureau said Tuesday that the subprime auto lender, a division of Santander Holdings USA in Boston, violated consumer finance laws by misrepresenting the guaranteed protection offered in an insurance product called S-Guard GAP. (Santander Holdings USA is a unit of the Spanish banking giant Banco Santander.)

The auto lender sold the GAP product to 44,180 consumers who had loan-to-value ratios above 125% at the time of their vehicle purchase, but the lender did not inform those borrowers that the GAP coverage was subject to a 125% LTV limit, the CFPB said in a 29-page consent order.

That meant that the GAP insurance would not cover the outstanding auto loan balance if a consumer suffered a total loss of their vehicle and their primary auto insurance was insufficient to cover the entire outstanding loan balance.

“Consumers who purchased S-GUARD GAP for a loan that had an LTV greater than 125% would not receive the 'true full coverage' Respondent advertised,” the CFPB said. “Thus, Respondent’s representations … constitute deceptive acts or practices.”

Santander also failed to properly disclose the terms of loan extensions offered to borrowers who had missed at least one payment on their auto loan, the order said.

The CFPB alleges Santander had made misrepresentations when marketing loan extensions to borrowers who had defaulted. The lender expressly said or implied that interest accrued during the extension period would be added to the end of the consumer’s loan. In fact, the interest was charged before any payments were applied to the loan's principal balance, the CFPB said.

Santander had enrolled consumers in more than 2.3 million loan extensions, the bureau said.

The CFPB is not requiring that Santander stop marketing or offering the GAP product. Rather, Santander is required to submit a compliance plan within 60 days detailing the steps it has taken to comply with the consent order.

Santander also has 60 days to approve a risk management program addressing issues with "unfair, deceptive and abusive acts or practices" related to auto loan origination or servicing.

Santander said it stopped offering its GAP product last year and was pleased to put the issue behind it.

"Strengthening compliance and consumer practices has been a key focus of ours, and we continue to make significant progress," the company said in an emailed statement. “Our voluntary agreement with the Bureau of Consumer Financial Protection resolves legacy disclosure and communications issues dating back to 2011, related to certain payment extensions, and our former S-Guard Guaranteed Asset Protection (GAP) product."

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