Santander reaches auto loan settlement; OCC’s Otting to Step down

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Let’s settle this

Santander Consumer USA, one of the largest subprime auto lenders, agreed to a $550 million settlement “with nearly three dozen states to settle charges of predatory auto lending to low-income and subprime borrowers,” the Wall Street Journal reported. The settlement resolves charges that the company, the U.S. consumer lending unit of Spanish banking giant Banco Santander, “made loans borrowers couldn’t afford to repay. The states also claim that Santander failed to monitor dealers that falsified borrowers’ incomes and other information when submitting loan applications.”

“The settlement includes $65 million of restitution for consumers. It also involves some $433 million in loan forgiveness, including for customers who have had cars repossessed but still owe money to Santander. The lender also agreed to waive balances for customers who have very low credit scores and who had stopped paying their loans as of the end of last year.”

“Santander knowingly exposed borrowers to unnecessary risk and placed them into loans with a high probability of default,” said Illinois attorney general Kwame Raoul, who led the coalition, the Financial Times reported.

“The agreement announced Tuesday caps an investigation the attorneys general launched early in 2015,” American Banker’s Laura Alix reports. “The coalition said its investigation revealed Santander Consumer knew that certain groups of consumers had a high risk of default, but still steered them into loans with high loan-to-value ratios, significant backend fees and high payment-to-income ratios.”

Wall Street Journal

Mission accomplished

Comptroller of the Currency Joseph Otting, who “has made it a top priority to overhaul rules for the Community Reinvestment Act,” is expected to step down this week, the Journal reported. Otting, a former bank CEO who has served in the post since November 2017, “told Senate lawmakers last week that he sought to accelerate completion of the change amid the coronavirus pandemic.”

The OCC will release a final rule Wednesday “that makes significant changes to its proposed overhaul of the [CRA],” one day before Otting steps down, American Banker reports.

The truth hurts

“At least 30 public companies that received loans under the Paycheck Protection Program say they plan to keep the money — a decision some said could lead to an audit of their applications. The Treasury Department, after ruling that businesses with access to other sources of capital weren’t eligible for the forgivable loans, gave public companies until Monday to return the funds.”

While many have returned the funds, including AutoNation, Shake Shack and the owner of Ruth’s Chris Steakhouse, “at least 30 others said they were keeping the money—around $110 million in all—those companies, whose market caps range from about $4.5 million to $560 million, say they believe they are eligible.” But “an audit, they say, could harm their business by reducing liquidity and leading to penalties or fines.”

Financial Times

Inside the tent

The U.S. Supreme Court “is considering whether to shed light on the links” between President Trump and Deutsche Bank. But if the Supreme Court orders Deutsche “to produce the vast array of documents demanded by Congress … it would also provide more insight into Deutsche itself. What risks did it take on? And after years in which there was reckless trading, allegations of false accounting and inept management, has it really changed?”

New charges

Short seller TCI Fund Management, “one of Europe’s most successful investors,” is calling “for a criminal investigation into alleged accounting fraud” at Wirecard, the German payments company. “According to German prosecutors, TCI is raising the suspicion of embezzlement against Wirecard executives tied to the group’s acquisition of the Indian company Hermes as well as unsecured loans that Wirecard made to third-party business partners.”

“Wirecard shares have lost two-fifths of their value since the results of a six-month KPMG special audit were released late last month. The accounting firm said it encountered ‘obstacles’ to its work, and that it was unable to verify that the ‘lions share’ of Wirecard’s operating profits between 2016 and 2018 were genuine.”

Elsewhere

JPMorgan doings

JPMorgan Chase shareholders reelected all of the bank’s board members on Tuesday, including former Exxon Mobil CEO Lee Raymond, who “was targeted by critics who said his previous role leading a major oil company put him at odds with the goals of the Paris Climate Agreement,” which JPMorgan CEO Jamie Dimon said the bank supports.

“The vote showed investors were willing to go along with Dimon’s assertions that the bank can support green initiatives, while continuing financing deals with some fossil fuel companies,” Reuters said. “Each director received support of at least 84% of investors' votes at the bank's annual meeting.”

Separately, JPMorgan Chase said it has “given out more than $30 billion in loans to over 250,000 businesses” as part of the Paycheck Protection Program, Dimon said. “The size of the average loan under the (PPP) was $122,000 and half of the loans went to companies with fewer than five employees,” Reuters reported.