According to a Consumer Reports review of regulatory documents and legal documents, these methods sometimes start with lenders working with dealerships to mark up cars sold to low-income borrowers more than they do to customers with better credit, or to resell them in more expensive cars. they can’t afford. Lenders are also accused of structuring loans and their agreements with dealers in such a way as to guarantee a profit even if borrowers default, according to the attorneys general.

And when borrowers fall behind, as often happens, lenders work aggressively to collect debts through repossession and wage garnishment, according to allegations in documents reviewed by CR.

“There are lenders with a business model, it seems, that expects some level of repossession, maybe even wants some level of repossession,” says Pamela Foohey, a professor at the Benjamin N. Cardozo School of Law in New York, who has published several studies on car credit.

In the third quarter of 2021, Credit Acceptance and Santander reported net profits of $250 million and $763 million, respectively, in the prior three months.

In other words, it’s good business to write bad debts.

But it’s a perilous model for low-credit consumers. Exorbitant interest rates, with terms often spanning 72 months or more and monthly payments absorbing a significant portion of their income, make default likely.

And when that happens, lives can be turned upside down. When someone’s car is seized and their salary and tax refunds seized, a vicious cycle begins that makes it difficult for them to rebuild their credit, keep a job, or pay rent or other bills. .

Santander declined to comment on CR’s specific questions about the allegations, but said in a statement it was a “responsible lender” operating in a highly regulated environment.

“We treat our customers like individuals, striving to find sustainable financing solutions that work across a wide range of incomes and credit scores,” said Laurie Kight, company spokeswoman. “If customers are in arrears, we seek to provide options to help them maintain their vehicle, including loan modifications and payment deferrals, as repossession is always a last resort.”

Credit Acceptance also declined to comment on specific questions about pending court cases, citing company policy.

“Credit Acceptance has been in business for nearly 50 years because we provide financing programs through auto dealerships nationwide that enable struggling, credit-blind consumers to purchase vehicles and build or rebuild their credit,” the company said in a statement to CR.

“We are pleased to have resolved the allegations brought by the Attorney General of Massachusetts and the Attorney General of Mississippi in 2021, and proudly continue to serve clients in these states through our funding programs.”

Josh Lauer, associate professor of communication at the University of New Hampshire, who has written extensively on the credit scoring industry, points out that the development of credit scores – something that plays an important role in loan underwriting automobiles – is a double-edged sword. Thanks to the credit score, more people can access loans, but for some, these loans can be a financial disaster.

“It helps unethical lenders identify the most vulnerable borrowers and then take advantage of them,” Lauer says. “Most lenders are presumably trying to make money, but doing so in an ethical way.”