Credit Acceptance finalizes $27.2 million settlement with Massachusetts

Credit Acceptance Corp. has formally settled a lawsuit brought last year by the attorney general of Massachusetts, which called into question many of the lender's business practices.

The suburban Detroit subprime auto lender will pay $27.2 million into a trust, with funds being made available to more than 3,000 borrowers in the Bay State, according to the terms of a settlement filed Wednesday in a Massachusetts court. The settlement also requires Credit Acceptance to be more transparent with borrowers in the state going forward.

"This matter was vigorously contested," the company said in a statement. "However, Credit Acceptance believes it to be in the best interest of the Company to conclude this litigation, and is pleased to announce its resolution. The Company looks forward to continuing to serve customers in the Commonwealth of Massachusetts through its financing programs."

Attempts to reach a spokesperson for the company for further comment were unsuccessful Wednesday afternoon.

Partial terms of the settlement were previously reported by Crain's Detroit Business, an affiliate of Automotive News, in April at the same time longtime CEO Brett Roberts announced his retirement from the lender. Kenneth Booth was named the company's new CEO at the same time.

"Thousands of Massachusetts consumers, many of them first-time car buyers, put their faith in CAC to help them with an auto loan, but were instead lured into high-cost loans, fell deeper in debt, and even lost their vehicles," Massachusetts Attorney General Maura Healey said in a statement Wednesday.

"With this significant $27 million settlement, eligible Massachusetts drivers who have been suffering under the weight of a crushing car loan due to CAC's deceptive practices will be able to receive relief and avoid new defaults..."

Healy has brought multiple other lawsuits against other lenders in Massachusetts as well.

Per the terms of the settlement, Credit Acceptance does not have to make any admission of liability.

The Massachusetts lawsuit made several allegations, including that the company "harassed" borrowers by calling them multiple times per day, and alleged that Credit Acceptance did not inform investors that the company had topped off the pools of loans they packaged and securitized with higher-risk loans, despite claiming otherwise in disclosures to investors.

Going forward, Credit Acceptance must make certain changes to its business practices in Massachusetts, per the terms of the settlement. That includes providing borrowers who purchase a vehicle service contract a "with a clear and conspicuous, one-sided, single-page, standalone document" that allows the borrower to cancel the contract and have money refunded.

The vehicle service contract serves as a sort of warranty for repairs on the used cars, which Credit Acceptance charges around $1,500 for two years, according to a report by Plain Site, which noted that about half of Credit Acceptance's loans include the contracts.

Credit Acceptance's stock spiked nearly 5 percent around midday Wednesday when the deal was announced, but closed up less than 2 percent at $590.53.

The company reported total profit for the second quarter of this year of more than $490 million.