Attorney General Schwalb Announces Subprime Auto Lender Will Pay $380,000 for Taking Advantage of DC Car Buyers

Attorney General Brian L. Schwalb announced that the District of Columbia, along with the attorneys general for 40 other states, has entered into a $694 million settlement with Credit Acceptance Corporation (CAC), one of the nation's largest auto finance companies, to resolve allegations the company set car buyers up to fail with loans it knew they could not afford. District consumers will receive over $250,000 in restitution and CAC will pay the District more than $130,000 in penalties and legal fees.

The settlement also requires CAC to provide disclosures about loan risks to customers moving forward, protect consumers from bad outcomes from certain risky CAC loans, and help safeguard consumers from dealers "packing" CAC auto-loan contracts with unwanted hidden add-ons, including Vehicle Service Contracts (VSC) and Guaranteed Asset Protection (GAP) products.

"Credit Acceptance Corporation set car buyers up to fail by making loans it knew they would never be able to afford, and by allowing dealers to inflate the cost of financing agreements with hidden add-ons. As a result, the company profited, even while customers lost their cars and continued to struggle with debt," said Attorney General Schwalb. "This resolution puts hundreds of thousands of dollars back into the pockets of DC residents who were taken advantage of, and requires CAC to change its business model to make sure customers are protected moving forward."

CAC provides car loans to consumers with limited or impaired credit histories. CAC gives a proprietary "score" to each of its loans representing its prediction of the percentage amount CAC will collect on the loan from all sources. The attorneys general allege that consumers could not reasonably afford many of CAC's low score loans, including those where CAC predicted the consumer would not pay back even the principal loan amount. Unsurprisingly, many of those low score loans resulted in consumers defaulting on their loans and losing their cars, which were repossessed and sold at auction, further damaging their credit histories.

The settlement also resolves allegations that CAC encouraged and failed to reasonably prevent auto dealers in its network from "packing" buyers' financing agreements with hidden add-ons that increased the overall cost. The attorneys general allege that CAC's dealer compensation methodology and lack of reasonable dealer oversight resulted in dealers aggressively selling VSCs and GAP products in connection with CAC loans when consumers were either unaware they were purchasing the products, or were led to believe that they were required to purchase the products to secure financing.

The settlement provides a total of $60 million in cash restitution that will be distributed to consumers to whom CAC extended particularly risky loans. For certain risky CAC loans made between November 1, 2015, and November 30, 2025, CAC is also required to provide, on or before November 2, 2026, $388 million in debt relief to consumers whose cars have been repossessed, and $246 million in debt relief to consumers whose cars have not been repossessed, allowing those consumers to keep their cars. CAC must also pay an additional $15 million to the attorneys general.

The settlement's injunctive terms include the following long- and short-term requirements designed to meaningfully reform the company's lending practices:

• For consumers with certain risky CAC loans that CAC made starting in December 2025, CAC will provide "off ramps" for loans that fail quickly. Qualifying consumers will get 95% debt relief, and CAC is prohibited from filing collections lawsuits against them. CAC must provide these off ramps for a five-year period starting on November 2, 2026.
  
• The settlement mandates a process to prevent unlawful VSC and GAP product packing, including enhanced pre-purchase disclosures, a post-purchase process alerting consumers about the purchase(s) and allowing easier product cancelation, and dealer monitoring.
  
• CAC must provide consumers with pre-loan disclosures about the risks of default and the value of the vehicle.
  
• For seven years, CAC must institute a price cap for vehicle prices at 109% of retail book value for certain consumers.
  
• CAC must implement processes to prevent dealers from raising car prices due to credit worthiness or above advertised prices.

The multistate coalition was led by the attorneys general of Maryland, Arkansas, California, Illinois, Minnesota, and New Jersey, who were joined by the attorneys general of Alabama, Alaska, Arizona, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaiʻi, Indiana, Kentucky, Louisiana, Maine, Michigan, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, and Wisconsin. New York is concurrently settling litigation it brought against CAC in the Southern District of New York.

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