Last week, Santander Consumer USA Holdings, which is part of Santander Bank, settled with 33 states and the District of Columbia through payments of $550 million.

The settlement was the culmination of its long-standing effort to resolve compliance problems that arose six to ten years ago, from 2010 to 2014.  Broadly, the accusation was that Santander –

  • Violated consumer protection laws by allowing subprime customers to borrow money to purchase cars, despite the fact that they were at high risk for default; and
  • Had “turn[ed] a blind eye to auto dealer abuse and fail[ed] to meaningfully monitor dealer behavior”.

As part of the settlement, the Santander agreed to alter its underwriting so as to factor in borrowers’ ability to repay loans. It also agreed not to fund loans that would take up a borrower’s entire income when combined with other debt payments and monthly costs.  The Bank noted that since the violations occurred, it had improved its policies and procedures, stating that “Over the last several years, we have strengthened our risk management across the board — improving our policies and procedures to identify and prevent dealer misconduct, and tightening standards to ensure affordability.”

The settlement is a reminder that compliance violations can have a long life and that the cost, measured by damaged reputation, lost revenue, and other compensation, can be very high.