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Yahoo
21-06-2025
- Automotive
- Yahoo
Government drops cases against ‘predatory' financial firms
One after another, the debtors were called to stand before the judge. First came Adrian Vega, a painter, and his wife, Natalie, a cleaner. Subscribe to The Post Most newsletter for the most important and interesting stories from The Washington Post. Moments later, Andrew Vanderhoof, a mechanic. In rapid succession, three more names were called. Each was being sued by Credit Acceptance Corporation, one of the nation's largest subprime auto lenders, for thousands of dollars. This scene played out last month in Rockford, Illinois, but it has been repeated in courtrooms across the country. Every month, Credit Acceptance files hundreds of lawsuits against borrowers. For two years, the Consumer Financial Protection Bureau, the nation's financial watchdog, has sought to restrain Credit Acceptance, accusing it in a lawsuit of making 'predatory loans to millions of financially vulnerable consumers trying to buy a used vehicle.' But the CFPB's enforcement effort stopped in April when the agency withdrew from the lawsuit. The CFPB's reversal in the Credit Acceptance case reflects how, under the Trump administration, the agency's new approach to enforcement may be felt by consumers nationwide. The agency's withdrawal left only its co-plaintiff, the New York attorney general, to continue the enforcement lawsuit, so any final ruling would affect only New York and not the rest of the country. The first out of the Rockford courtroom were the Vegas, appearing dazed. The judge had ordered them to pay the company $12,797.58. 'It's ridiculous,' Adrian said. His wife's eyes welled up with tears. 'Just … so frustrating,' she said. Credit Acceptance lends money at high interest rates - usually over 20 percent - to customers buying a used car from its network of dealers, which charge an unusually high markup, according to the lawsuit. It repossesses about a quarter of the cars on which it has issued loans, it said. Since President Donald Trump's second term began, the CFPB has moved to terminate or dismiss 18 such enforcement lawsuits, according to research by the Consumer Federation of America, a nonprofit advocacy organization. Those cases had accused banks, mortgage firms and installment lenders of financial abuses and deception. 'These retreats are gifts to predatory lenders and would-be fraudsters,' said Erin Witte, director of consumer protection at the Consumer Federation of America. 'They are being told over and over that they can keep on doing what they are doing.' In a statement, Credit Acceptance officials said 'we categorically reject the portrayal of our business practices as 'predatory.' For over 50 years, we have provided access to credit for individuals who are often overlooked by traditional lenders. … The vast majority of our customers are grateful for and satisfied with the service we provide.' The company disputed some of the specific allegations in the lawsuit and said it was unable to comment on some of the customer experiences reported in this story because it did not have the customers' consent. CFPB lawyers and the agency's press office did not respond to requests for comment for this story. On June 10, Cara Petersen, the acting head of enforcement for the agency, quit after sending a staff email denouncing the Trump administration's efforts to gut the agency. The agency's acting director is Russell Vought, the White House budget director and an author of Project 2025, the right-wing blueprint for reshaping the federal government. 'I have served under every director and acting director in the bureau's history and never before have I seen the ability to perform our core mission so under attack,' Petersen wrote. The Trump administration and its supporters have long campaigned against the CFPB, an agency established by Congress after the 2008 financial crisis. They have argued that the financial watchdog agency overstepped its authority during the Biden administration. Shortly after Trump's inauguration in January, staff from the newly formed U.S. DOGE Service set up shop at the agency's headquarters and the group's leader, Elon Musk, used his social media site X to post 'CFPB RIP,' along with an emoji of a tombstone. In April, the Trump administration attempted to fire 1,400 agency employees, but a judge suspended the move in March. - - - After the CFPB withdrew from the Credit Acceptance suit in April, Erin Kerber, the company's chief legal officer, issued a statement lauding the decision. The case 'never should have been brought in the first place,' she said. 'We are proud to have provided over five million people with the opportunity to own a vehicle through our network of dealers.' The company and its supporters say such firms play an important role because they provide loans to people who may have nowhere else to turn. Critics say the loans set up customers for failure. For some borrowers, a Credit Acceptance loan has been the first step toward a financial setback. In 10 recent court cases filed in Rockford examined by The Washington Post, the borrowers bought cars at prices, set by the dealer, that were above fair market value. When customers failed to keep up with payments, their cars were repossessed. That, however, did not end the company's demand for payment. After the repossessed cars were sold at auction, proceeds did not cover their debt to Credit Acceptance. So even as they lost the car, often within a year, they still owed Credit Acceptance several thousand dollars. 'I was played,' said Erinn Compton, 31, a substitute teacher, who bought a 2014 Chrysler 200 with 95,000 miles two years ago for $8,034. The windows didn't work, she said, and when the driver's window wouldn't roll up, she tried putting in clear plastic. Credit Acceptance said the company had no knowledge of those issues and that Compton 'was present at the dealership to inspect the vehicle.' It was repossessed months later and the proceeds from its sale amounted to $2,200, according to documents. The company said it offered her a chance to resolve the remaining debt for less than was owed. She is being sued for $6,643. Jessie Garner bought a 2017 Hyundai Elantra with a loan from Credit Acceptance. The price for the car was more than $4,000 over the estimate of a 'fair price' from Kelley Blue Book, the auto research firm, assuming the car was in good condition. The engine blew four months later, he said. 'I paid $18,000 for a car I couldn't drive,' Garner said. The company sued him for $18,776. Ingrid Anderson purchased a 2013 Chevrolet Captiva Sport with 138,000 miles on it for $10,285. According to Kelley Blue Book, a fair price for such a car in good condition at that time was much less - about $6,524. Ingrid, who works the counter at Subway at a Love's Travel Stop, enlisted her mom, a church organist, to be a co-signer. Ingrid immediately noticed problems with the car, she said - it emitted black soot and the brake lines needed to be replaced. The car was repossessed. The company said it offered the Andersons a chance to resolve the debt for less than was owed, but they could not afford the offer. The company is suing them for $10,218. 'It's a scam,' said her mom, Carla Anderson, 62. Credit Acceptance said it was not aware of the car's condition and seeks to prevent unfair pricing and the sale of low-quality cars. Ingrid, who is 35 and lives in Tampico, Illinois, with her four children, said she was shocked by the company's methods. 'It's okay for a company to overcharge people with low incomes? Really?' said. 'I know they want their money. But I don't have it.' - - - Credit Acceptance was formed in 1972 by Don Foss, a used-car dealer who aimed to provide loans to car buyers who did not qualify for traditional financing. His was a winning formula. The company went public in 1992 and by 2018, Foss was a billionaire, with a net worth of $1.2 billion, according to Forbes. He died in 2022, and his daughter continues to hold about 15 percent of the company's shares, according to an April company filing. The company works through a network of 12,000 independent auto dealers who sign agreements with Credit Acceptance. They use the company's software to draw up loan contracts and receive marketing assistance. Under the Credit Acceptance system, each borrower's contract is assigned a score, based on personal and financial data, estimating how much the company can expect to collect on the loan. Most of the company's customers have poor credit scores and relatively low incomes - the median was $35,000 annually, according to the CFPB lawsuit. 'It's no secret that having a poor credit history can make getting approved for financing difficult,' according to the company's website. 'Credit Acceptance believes everyone deserves a second chance.' Over the years, the company's practices have been repeatedly criticized by state regulators and consumer watchdogs. In 2019, Mississippi Attorney General Jim Hood (D) sued the company, charging that it 'grossly overprices cars' and 'takes advantage of subprime consumers' desperate need for cars.' The company settled the case, paying $325,000 to Mississippi and making a $125,000 charitable donation. A spokesperson said the company did not grossly overprice cars and did not admit to wrongdoing or liability in the case. The next year, Massachusetts Attorney General Maura Healey (D) sued the company, charging that it 'recklessly ignored' that many of its borrowers probably would be unable to pay off the loan, meaning that those customers could lose the car to repossession and get hit with an average debt of $9,000. The company earned 'substantial profits' on the high-risk loans, the lawsuit said. The company settled that case, too, paying out $27 million for affected customers and legal costs. 'This matter was vigorously contested,' according to a Credit Acceptance statement at the time. 'However, Credit Acceptance believes it to be in the best interest of the Company to conclude this litigation.' In 2023, when the CFPB sued Credit Acceptance, it made similar claims. According to the lawsuit, Credit Acceptance provided loans without regard to whether borrowers could afford them. For almost 4 out of 10 loans, Credit Acceptance projected that it would not be able to collect the full amount financed by the loan, the government said. The loans, in other words, were setting up customers to fail. Credit Acceptance 'does not engage in any meaningful analysis for the purpose of developing loan terms that are likely to result in repayment in full by the borrower,' according to the lawsuit. Even though many Credit Acceptance customers could not repay the loan, according to the lawsuit, the company could profit because it incentivized dealers to overcharge for cars and to sell add-on products. The system also increased auto prices for consumers least likely to pay, it said. The company further boosted its revenue with aggressive collection efforts, including repossession, lawsuits and starter interruption devices - also known as 'kill switches' - that enabled the company to prevent a car from starting if a customer became delinquent. While these tactics benefited the company, they harmed customers, the CFPB said. Customers typically face substantial debts on a Credit Acceptance loan even after a car is lost to repossession, the lawsuit said, because the prices they had paid were so high. The average sale of the repossessed cars satisfied only 29 percent of the remaining amounts owed, according to the lawsuit. When Credit Acceptance sues to collect on the remaining debt, moreover, customers rarely prevail in court. They often lack the means to hire an attorney, and while the contracts might be deemed unfair or unwise, they were signed. 'Over and over, repossession, garnishment and bankruptcy result,' according to the lawsuit. - - - To defend itself against the CFPB and in similar cases, Credit Acceptance hired Skadden, Arps, Slate, Meagher & Flom, the large New York-based law firm. In papers, the lawyers argued that the CFPB's funding was unconstitutional - a claim that would be rejected by the Supreme Court in another case. It also argued that Credit Acceptance did not bear responsibility for deceiving customers because the loan terms were negotiated by its affiliated dealers, not Credit Acceptance. Credit Acceptance 'does not make loans directly to consumers,' the attorneys wrote in court papers filed in March. 'The company provides software to dealers to facilitate origin of contracts. … However, as an indirect lender, Credit Acceptance has no contact with consumers about a vehicle purchase until after they finalize the terms of their agreements.' In April, the agency filed a motion to withdraw from the case. It was signed by the CFPB's chief legal officer, Mark Paoletta, a Trump appointee, and other attorneys. Several other cases recently dropped by the CFPB similarly had sought to punish business practices it deemed unfair or deceptive. Among the dropped lawsuits was one against Horizon Card Services. The CFPB said the company issued credit cards with a $500 limit that had almost $300 in annual fees - and could only be used in the company's overpriced online store. After the CFPB dismissed the case, the company said the dismissal 'serves as proof that they find their own case to be completely meritless.' Another CFPB lawsuit had charged that Vanderbilt Mortgage, a subsidiary of the nation's largest manufactured home builder, had violated federal law by ignoring 'red flags' that certain consumers would not be able to repay loans on their manufactured homes. 'We appreciate the CFPB's decision to dismiss the lawsuit,' the company said in a statement. 'For 50 years, Vanderbilt Mortgage has proudly protected access to attainable lending services and we remain committed to providing homeownership solutions for hardworking American families.' Eric Halperin, who resigned in February as the CFPB's enforcement director, said: 'Trump's CFPB has abandoned the agency's directive to protect consumers.' - - - After the Vegas left the courtroom, the next to stand at the lectern before the judge was Vanderhoof, the mechanic. Two years ago, his car broke down, and the 34-year-old father of six quickly needed another to commute to his job 70 miles away in Aurora. He stopped at Loves Park Auto, part of Credit Acceptance's network of auto dealers. It was late afternoon, and he felt uneasy about keeping the salespeople from being able to close up shop. He was familiar with some of the staff because he had raced cars with them. He realized later that he should have paid more attention. 'I made the quickest deal I could with the $850 in my pocket,' he said. He ended up with a white 2017 Hyundai Sonata with 96,000 miles on it. He paid $15,105 for the car, which was far more than it was worth. According to Kelley Blue Book at the time, a 'fair price' for such a car was $11,219. The salesperson also signed him up for an extended warranty for the car, for another $1,610, and for 'GAP Protection' for another $1,189, which was supposed to help pay off the car loan in case it was totaled or stolen. In all, he took out a loan of $18,493, with an interest rate of 25 percent. Seven months later, he said, the engine blew, though he was regularly changing the oil as required. When neither the dealer nor Hyundai would fix it, he gave the car back to Credit Acceptance. A manager at Loves Park Auto declined to comment. Credit Acceptance sued Vanderhoof for the remaining balance of $13,548. In court last month, Vanderhoof admitted he owed the company money, but he also asked the judge for permission to speak freely. Vanderhoof told the judge that the company and its dealers should do a better job of ensuring that the vehicles being sold were in good shape. The judge then entered a judgment against him obliging him to pay the full amount. 'What they did to me was insane,' Vanderhoof said after the hearing. He said he supported Trump for president, but he said the CFPB should have continued its lawsuit against the company. 'Absolutely,' he said. 'When it comes to bigger companies, money is the root of all evil, and they don't care how they get it.' Related Content 3-pound puppy left in trash is rescued, now thriving How to meet street cats around the world 'Jaws' made people fear sharks. 50 years later, can it help save them? Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Washington Post
20-06-2025
- Automotive
- Washington Post
Government drops cases against ‘predatory' financial firms
One after another, the debtors were called to stand before the judge. First came Adrian Vega, a painter, and his wife, Natalie, a cleaner. Moments later, Andrew Vanderhoof, a mechanic. In rapid succession, three more names were called. Each was being sued by Credit Acceptance Corporation, one of the nation's largest subprime auto lenders, for thousands of dollars. This scene played out last month in Rockville, Illinois, but it has been repeated in courtrooms across the country. Every month, Credit Acceptance files hundreds of lawsuits against borrowers.
