The Consumer Financial Protection Bureau (CFPB) is gearing up to sue Spain-based Santander Bank, claiming the bank has overcharged its car loan customers.
Citing sources familiar with the CFPB’s plans, Reuters reported that the CFPB suit could happen as soon as Monday (Nov. 27). The lawsuit is focused on Santander’s guaranteed auto protection financial product that protects car buyers from a portion of the cost if there is a serious crash. The coverage could cover the remaining balance after auto insurance has taken effect.
Car buyers purchase the GAP insurance at the dealership and its cost is bundled into the car loans. Federal and state officials have been investigating whether the GAP insurance is unnecessary, and whether interest rates on the loans increased too much as a result of the GAP protection. The Office of the Comptroller of the Currency (OCC) is looking into Wells Fargo’s auto loans business as well.
This wouldn’t be the first time Santander received a slap on the wrist from a U.S. regulator. In 2015, Santander's Consumer USA Holdings unit paid $9.35 million to settle charges claiming it improperly repossessed cars of members of the U.S. military. The same unit in March agreed to fork over $22 million as part of an inquiry by the Massachusetts Attorney General over subprime auto loan securitizations.
Auto lending is big business for Santander, representing $38.5 billion of the bank holding company’s $137 billion in assets.
Recently, new policies have been put in place to identify deal misconduct. Santander has also created an Officer of Consumer Practices to ensure customers are treated fairly. When the company agreed to pay the fine, the Federal Reserve advised Santander to increase oversight of its subprime auto lending, giving it two months to put together a plan ensuring all levels of its staff are instructed to improve compliance with federal consumer protection laws.
“The work necessary to address the new agreement is well underway and will not require a significant change to our plans,” said Santander spokesperson Ann Davis.