The recent multi-state subprime auto loan settlement should help a number of Louisiana consumers who have been victimized by this questionable type of loan.

Louisiana Attorney General Jeff Landry, along with other state attorneys general around the U.S., announced that they have achieved a settlement with Santander Consumer Inc. (Santander) that includes approximately $550 million in relief for consumers with more relief in additional deficiency waivers expected.

“Thousands of consumers were exposed to unnecessarily high levels of risk when they were placed into auto loans with a high probability of default,” said General Landry. “This settlement with the auto loan giant not only provides relief to those consumers but also requires Santander to factor in a consumer’s ability to pay a loan into its underwriting in the future.”

In his release, Landry and the others allege that Santander, through its use of sophisticated credit scoring models to forecast default risk, knew that certain segments of its population were predicted to have a high likelihood of default.

He added that Santander exposed the borrowers to unnecessarily high levels of risk through high loan-to-value ratios, significant backend fees, and high payment-to-income ratios.

Landry also alleged that Santander’s aggressive pursuit of market share led it to underestimate the risk associated with loans by turning a blind eye to dealer abuse and failing to meaningfully monitor dealer behavior to minimize the risk of receiving falsified information, including the amounts specified for consumers’ incomes and expenses.

The coalition attorneys alleged that Santander engaged in deceptive servicing practices and actively misled consumers about their rights, and risks of partial payments and loan extensions. Consumers that qualify for the settlement will be contacted at a later date.

Among the highlights of the settlement are loan forgiveness and certain additional deficiency waivers of loans that Santander no longer owns. Santander is also barred from requiring dealers to sell ancillary products and must also implement steps to monitor dealers who engage in certain practices, such as income inflation.

Hopefully, this settlement will set an example for the industry to provide consumers with loans that are fair and equitable.