Santander just got hit hard for approving thousands of subprime auto loans

A statement from the office of Attorney General Maura Healey, a Democrat, called Santander "the largest packager of subprime auto loan securities in the US" and said the bank had facilitated "unfair, high-rate auto loans for thousands of Massachusetts car buyers." The statement said the settlement was the first in the US involving subprime auto loan securitization, or the practice of holding high-risk auto loans.

The statement also said Santander had identified a group of dealers as the "fraud dealers" but continued to fund loans through them.

The settlement was part of a broader investigation of securitization practices in the subprime auto market by Healey.

There is concern on Wall Street that the US is on the precipice of an auto loan crisis that could have devastating effects on the US economy, with parallels to 2008.

A recent report from Fitch Ratings, for instance, indicated that the credit performance of US auto lenders fared worse in the second half of 2016 than it did in the same period in 2015. And they showed signs that they would continue to deteriorate.

"Subprime credit losses are accelerating faster than the prime segment, and this trend is likely to continue as a result of looser underwriting standards by lenders in recent years," said Michael Taiano, a director at Fitch.

As reported by Business Insider's Matt Turner on Monday, other firms have also picked up on this trend. Morgan Stanley, Mizuho, and Evercore ISI have all released notes sounding the alarm about the growing number of delinquent auto loans. They foresee consequences that could affect automakers, the economy, consumers, and one corner of the bond market.

Healey's statement said the settlement with Santander would provide $16 million in "consumer relief" for the 2,000 car owners affected.

A joint investigation by the attorney general's offices of Delaware and Massachusetts found that Santander signed off on numerous loans to people with poor credit without evidence that those customers would have the wherewithal to make payments.

"In fact, Santander predicted that many of the loans would default, and allegedly knew that the reported incomes, which were used to support the loan applications submitted to the company by car dealers, were incorrect and often inflated," a news release by Healey said.

"Santander is the largest securitizer of subprime auto loans in the United States," the statement added. "Global ratings has reported that the company, with its related entities, has more than a 30% market share of this multibillion-dollar industry."

In a statement to Business Insider, a Santander representative said: "We are pleased to put this matter behind us so we can move forward and continue to focus on serving our customers. Santander Consumer is totally committed to treating customers fairly. In the last 18 months, our new management team has taken significant steps to strengthen our business practices and controls."

Santander just got hit hard for approving thousands of subprime auto loans

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