$7.4 million payback on high-interest auto loans

Westlake Financial Services and American Credit Acceptance (ACA) are to pay a total of $7.4 million to car buyers in Massachusetts, after the attorney general’s office found the two national auto lenders had charged excessive interest rates on their sub-prime loans.

Attorney General Maura Healey said: “There are protections in place to ensure that consumers who take out auto loans are treated fairly and not forced to pay illegal and excessive interest rates. Our office will continue to make sure that these protections under state law are applied properly so that consumers are not exploited by predatory practices.”

GAP fees

Healey said consumers in these cases were overcharged because of GAP fees, which caused the effective interest rates on the loans to exceed the 21% interest cap which applies in the state of Massachusetts.

GAP, a product intended to limit the shortfall between the payment on an auto insurance claim and the amount the borrower owes on a car loan in the event the financed vehicle is written off, is sold by car dealers as an add-on product and is often financed in the auto loan.

Under the terms of the agreed settlement, ACA and Westlake have both agreed to eliminate interest on certain loans they purchased that allegedly included excessive interest rates due to the inclusion of so-called GAP coverage. The lenders have also agreed to forgive outstanding interest on the loans and reimburse consumers for the interest they have already paid on the debts.

From 2012 to 2015, Westlake Financial purchased more than 2,100 loans with an interest rate above 21% in Massachusetts. From 2013 to 2015, American Credit Acceptance purchased more than 150 auto loans with an interest rate above the cap, according to the legal documents.

The decision will see ACA forfeiting around $1.7 million in relief, while Westlake will pay around $5.7 million. More than two thousand Massachusetts consumers will benefit from the settlements, with each consumer receiving around $3,000 in relief on average. There will be additional audit work will determine if other loans are also subject to refunds.

The Attorney General’s office says it has now recovered more than $12 million for consumers in the last several months in settlements relating to high-interest auto loans. The latest case forms part of its ongoing sub-prime loan review initiative, which has already yielded a $5.4 million settlement with Santander USA, also relating to GAP fees and excessive interest.