In the spring of 2020, nearly three dozen U.S. state attorneys general announced a significant legal settlement with Santander Consumer USA, the country’s largest auto lender for high-risk borrowers. Officials accused Santander of issuing high-interest loans to individuals they knew could not afford them and allowing these customers to defer payments without revealing the high costs involved. These deferred payments resulted in thousands of dollars in unexpected interest charges for borrowers, many of whom ultimately lost their vehicles.
Josh Shapiro, Pennsylvania’s attorney general at the time, highlighted these lending practices as reminiscent of those that led to the 2008 financial crisis. The settlement required Santander to implement new consumer protections and clearer disclosures regarding loan extensions. Santander resolved the matter without admitting wrongdoing, stating it addressed a “legacy underwriting issue.”
However, as the crackdown on Santander was underway, similar issues were emerging with Exeter Finance. Several executives who departed Santander amid the investigation had joined Exeter, bringing with them the controversial business practices. By 2020, many of Exeter’s senior leaders were former Santander executives who had been accused of misleading consumers.
Despite the apparent parallels, state officials have generally not taken significant action against Exeter, even when faced with numerous similar complaints. A ProPublica investigation found that states participating in the Santander settlement seldom pursued Exeter regarding its lending practices. In states like Washington, where mediation attempts with Exeter fell flat, cases were routinely closed without further action. In Kentucky, actions were delayed during crucial moments, sometimes resulting in vehicle repossession despite ongoing complaints.
Limited resources often hamper efforts by state attorneys general to effectively regulate and prosecute cases against substantial lenders like Exeter. The lending company, now under scrutiny in Georgia and Louisiana, maintains that its practices comply with all legal requirements. Exeter stated that extensions are intended to aid customers in keeping their vehicles and supporting their families, though reports indicate these deferments can financially burden borrowers instead.
During Exeter’s financial turnaround following the arrival of new leadership from Santander, the company expanded its lending criteria to accept borrowers with lower credit scores and higher debt-to-income ratios. Extensions became a key component of Exeter’s business model, sometimes adding substantial interest charges not clearly disclosed to customers. This practice of repeatedly granting extensions enabled Exeter to classify delinquent loans as being on schedule, allowing the firm to potentially benefit more from defaulted loans with excessive extensions than from timely-paying loans.
Cases across various states reflect a pattern of ineffective responses from attorneys general, often exacerbated by the challenges and limitations these offices face. Consumer complaints about Exeter often went unaddressed, leading affected individuals to seek protection from other avenues, albeit without success. Despite assurances from Exeter regarding their extension agreements, many consumers have reported being insufficiently informed about the full financial consequences of these deferrals.
The broader implications highlight a tendency towards inadequate enforcement in the face of significant lending industry practices. As one of the few checks on the auto lending industry, attorneys general are tasked with overseeing an increasingly challenging landscape, with constraints that companies often exploit to their advantage. The case involving Santander versus Exeter raises questions about the consistency and effectiveness of regulatory actions across different states and lenders.
