Credit Acceptance Corp (CACC.O) was sued on Wednesday by the U.S. Consumer Financial Protection Bureau and New York Attorney General Letitia James, who accused the auto lender of predatory lending where it tricks low-income borrowers into taking out high-interest used-car loans they cannot afford.
The regulators said Credit Acceptance “sets consumers up to fail” by charging exorbitant interest rates averaging 22% and entering arrangements with dealers that mask the true cost of borrowing and sometimes violate state usury laws.
Credit Acceptance shares were down 13.3% at $395.93 in afternoon trading.
The company did not immediately respond to requests for comment.
Wednesday’s lawsuit in Manhattan federal court covers the period from November 2015 to April 2021, during which an estimated 1.9 million consumers obtained loans from Credit Acceptance.
According to the complaint, Credit Acceptance relies on an algorithm that predicts how much it can collect from car buyers, including from repossessions following defaults, without regard for whether the buyers could afford its loans.
The Southfield, Michigan-based company also encourages dealers to tack on products such as vehicle service contracts without disclosing them in loan agreements, often adding thousands of dollars to what borrowers owe, the complaint said.
“Credit Acceptance obscured the true cost of its loans to car buyers, leading to severe financial distress for borrowers and subjecting them to aggressive debt collection tactics on loans its own systems predicted that borrowers can’t afford to repay,” CFPB Director Rohit Chopra said in a statement.
The lawsuit seeks civil penalties of at least $1 million per day for violating federal consumer protection laws. It also seeks to fix problem loan agreements, and obtain restitution.