RACE DISCRIMINATION CASE FILED AGAINST SANTANDER BANK FOR CHARGING EXCESSIVELY HIGH-INTEREST RATE TO HISPANIC BORROWERS IN AN AUTOMOBILE LOAN.
On behalf of our clients, who are Hispanics, a lawsuit was filed against Santander Consumer USA, INC (SANTANDER) and SUNRISE MOTORS in New Jersey in connection with the sale and financing of a motor vehicle. Some of the allegations alleged in the Complaint (in paraphrase) are as follows:
- Plaintiffs purchased a vehicle from SUNRISE and were told that they had to purchase a service contract (warranty) in order to get financing. The service contract was a product sold by SANTANDER. Telling a customer that they must purchase a service contract or a warranty is illegal and violates various laws.
- The plaintiffs were told what their monthly payments would be, but not how long they would have to make the monthly payment, which is improper and violate various laws.
- At the time of the sale of the vehicle, the plaintiffs were not given any documents showing any interest rates or terms of the loan, which is improper and violates various laws. Neither SANTANDER or the dealer disclosed to the plaintiffs what interest rates they would pay on the loan.
- However, the plaintiffs were asked to sign a BLANK document called the Retail Sales Installment Agreement (RISC), which is illegal.
- A RISC is a critically important document, and, when legitimately filled out, contains important information such as amount of loan, contractual interest rates charged, length of payments, other charges and fees, as well as various other contractual obligations.
- The dealer advised the plaintiffs that they would “fill in” the information on the RISC at a later point after they obtain “final” approval from SANTANDER. It is a violation of various laws for an automobile dealer to ask a customer to sign a document that is blank and to fill in the information at a later point.
- The dealer then MAILED the RISC to the plaintiffs several weeks later.
- In addition to the RISC fraudulently listing a down payment of $1800 (as the plaintiffs made no down payment), and the length of the loan as 72 months (which was never disclosed to the plaintiffs), a whopping interest rate of 21.390% was charged to the plaintiff without their knowledge or consent.
- The interest rate SANTANDER charged to SUNRISE for arranging the financing of the vehicle to the plaintiffs is called the ‘buy rate.” The buy rate is based solely on a purchaser’s credit worthiness. SANTANDER solely sets the buy rate charged to dealers for arranging the financing of the vehicle purchased by customers. The buy rate was never disclosed to the plaintiff.
- The interest rate actually charged to the plaintiff is called the “sell rate,” also called the contract rate or mark-up rate. In this case, the contract rate was a whopping 21.390%!. The 21.390% interest rate was not based on plaintiffs’ credit standing. The sell rate constitutes a non-risk based discretionary finance charge to a customer. The profit made between the buy rate and the sell/contract rate was split between SANTANDER and SUNRISE, and therefore, a fee was paid to the dealer for arranging the financing, which is based on the difference between the buy rate and the sell/contract rate.
- SANTANDER mislead the plaintiffs by representing to them that the 21.390% charged to the plaintiff was based on their credit standing.
- SANTANDER is a subprime predatory lender. Predatory lending is a lending practice that imposes unfair or abusive loan terms on a borrower and persuades a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower can’t afford.
- The lending tactics of predatory lenders and their agents (such as used car dealerships) often involve taking advantage of a borrower’s lack of understanding about loans, terms or finances, and many times, the terms and conditions of a loan are often hidden from the borrower until the bill comes in the mail.
- Predatory lenders typically target minorities, the poor, the elderly and the less educated, as well as borrowers with credit problems who would not qualify for a conventional loan or lines of credit from a conventional bank. Predatory lending practices often create a cycle of debt that causes severe financial hardship on families and individuals, especially Blacks and Hispanics, and have resulted in the highest rate of default on automobile loans and repossessions of automobiles.
- Despite a high rate of defaults and repossessions, predatory lending is highly profitable and brings in billions of dollars in interest payments to the lenders. The lender’s risk is low because the lender usually repossesses and re-sells the vehicle many times over to other high-interest rates borrowers. Predatory lending was the primary cause of the 2008 financial crisis.
- Racial discrimination in auto loans is widespread. A January 2018 report by the National Fair Housing Alliance (NFHA) found that 62.5 percent of the time, people of color who were more qualified than white customers with less credit rating received substantially higher credit terms. See http://nationalfairhousing.org/wp-content/uploads/2018/01/Discrimination-When-Buying-a-Car-FINAL-1-11-2018.pdf. Further, the NFHA study found that dealerships quote people a much higher sale price to people of color for the same exact car showed to whites but at a much lower price.
- A Consumer Financial Protection Bureau (CFPB) report/study concluded that that as a result of auto lenders” policy of permitting dealers to set the contract rate, and incentives lenders provide to dealers, these policies create a “… significant risk that they will result in pricing disparities on the basis of race, national origin, and potentially other prohibited bases.”
- SANTANDER’s company-wide practice at the time was working with car dealerships that falsified or inflated borrowers’ incomes and/or down payment in order to fund loans and then re-sell the loans to others, knowing or having reason to know that the customers may not afford the loans.
- SANTANDER has a troublesome history of predatory lending. The CFPB previously notified SANTANDER that a Justice Department’s investigation found that SANTANDER discriminatively charged Black and Hispanic borrowers much higher interest rates on auto loans than non-Black and Hispanic in violation of the federal Equal Credit Opportunity Act (ECOA). The CFPB subpoenaed Santander’s records relating to the underwriting of subprime automobile loans since 2007.
- SANTANDER was also the subject of an investigation initiated by the Massachusetts Attorney General’s office relating to discriminatory predatory lending practices. In March 2017, SANTANDER agreed to pay $26 million to settle claims by the Massachusetts Attorney General’s office that SANTANDER gave high-interest loans to car buyers that it knew could not repay them. According to Massachusetts Attorney General’s office, SANTANDER’s practice was working with car dealerships that falsified or inflated borrowers’ income in order to obtain high-interest loans, which, SANTANDER would then re-sell to investors, knowing that the loans were unsound.
- SANTANDER was also subject to an investigation conducted by the Attorney General of the State of New York, which found a significant difference between interest rates offered to minority and other borrowers. SANTANDER, through automobile dealers, including, but not limited to SUNRISE, engaged in a company-wide practice and scheme to charge Hispanic and other minority customers substantially higher interest rate than similarly situated, white customers.
- The owners of SUNRISE MOTORS were subsequently arrested and charged with sales tax evasion and embezzlement.
DISCLAIMER: All of the above are allegations set forth in a complaint filed in a lawsuit. As of the date of this article, none of the allegations were proven to be true by admission or by jury verdict.
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