Smart About Money: When Things Get ComplicatedBy Nick Maffeo
Santander Holdings USA is the U.S. subsidiary of the Spanish financial services company Banco Santander SA. The banks are known in this country as Santander, and they have a sub-prime auto loan subsidiary known as Santander Consumer USA Holdings Inc.
Why am I going through all the corporate names and locations? Because when I read about the trouble that its sub-prime auto loan subsidiary caused Santander, it occurred to me that part of the problems these international financial behemoths run into — with offices and subsidiaries all around the globe — might really be that it gets too complicated for one hand to know what the other hand is doing.
Maybe they’re in too many jurisdictions with too many different rules and laws. Or, after the sub-prime mortgage disaster of 2008, it is possible to wish that banks like Santander might realize that anything “sub-prime” is probably not good business. But perhaps that’s asking too much.
It probably looked like a very profitable line of business when Santander Consumer Holdings USA Inc. — the sub-prime auto loan subsidiary — started targeting consumers in lower-income communities in Massachusetts and charging them interest rates right up to the state cap of 21 percent.
In a way, that’s bad enough. If someone’s ability to repay is so compromised that their credit score indicates the right rate for the risk of making a car loan is 21 percent, then maybe Santander should have thought about whether they were really helping those borrowers by extending them more credit.
The commonwealth rightly takes an interest in making sure borrowers are treated fairly. “Especially when it comes to economically disadvantaged consumers in Massachusetts,” Attorney General Maura Healy said.
So when Santander Consumer Holdings USA Inc. discovered that, because of the optional gap coverage insurance they also offer, they had charged their low-income Massachusetts borrowers more than the legal limit, they did the right thing and alerted the commonwealth.
Which probably helped them when the attorney general was contemplating an appropriate penalty/settlement. Santander was ordered to pay $5.4 million in interest rebates to the affected borrowers. Also, those borrowers will not have to pay any interest on their car loans moving forward. According to the attorney general, it averages $11,000 per customer.
What a mess! Though things worked out for those borrowers, agreeing to pay $11,000 in super-high-rate sub-prime interest on a car loan is a lot of money. And that doesn’t include the price of the car or taxes, insurance and upkeep.
It’s easy to wonder if some of those folks, without Santander dangling a loan and gap insurance in front of them, might have chosen an all-around less-expensive car they could afford more comfortably.
Here are two lessons everyone can take from Santander’s sub-prime auto loan troubles: 1. Ways to make “easy money” that look too good to be true usually are. Especially complicated ways. 2. Doing the best you can to keep your credit in good shape — sometimes including buying less — is one of the best “consumer protection” favors you can do for yourself. Having good credit gives you options. And it keeps you away from the sub-prime lenders.
Nick Maffeo is the president & CEO of Canton Co-operative Bank in Canton. Have a question? Email to firstname.lastname@example.org.
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