Chrysler declined to comment on instances of fraud at its dealer network.
Varying Norms
Indeed, with U.S. auto sales falling after a record 2016, many lenders including Santander say they’re tightening standards. Santander’s underwriting practices, however, continue to raise eyebrows. In May, Moody’s drew attention to the fact that Santander verified incomes on only 8 percent of loans it bundled into bonds, based on data that auto-debt issuers have recently started to disclose.
Yet when it comes to due diligence, there’s no industrywide standard. Unlike the mortgage market, stated-income loans -- also known as “liar loans” -- are perfectly legal in car buying. Last month, Jeff Brown, Ally Financial Inc.’s chief executive, said verifying income isn’t the norm. Ally, he said, checked incomes on 65 percent of its subprime car loans. GM Financial’s AmeriCredit unit checked roughly the same percentage.
The industry has little reason to change given the success of Wall Street’s securitization machine. Protections built into the bonds have largely insulated investors from losses even as delinquencies pile up. Most securities are upgraded over their lifetimes.
The losers, of course, are people who go into debt for cars they can’t afford.
Jerry Robinson, who worked in Santander’s debt collection unit, has seen the trouble firsthand. Robinson, who retired in August after six years with Santander, says one of his responsibilities was to get cars the lender repossessed back into their owners’ hands.
Business Decision
Often times, he found dealers listed non-existent features like sunroofs or alloy wheels to inflate a car’s value and win credit approval. Although Robinson’s job was to make sure dealers reimbursed Santander for any loan fraud, borrowers didn’t see their debts reduced, he said. Instead, their loans were usually extended, increasing the compound interest consumers would ultimately pay after their repoed cars were reinstated. More often than not, those payments wind up going to ABS investors.
Bonuses were tied to how many borrowers could be reinstated, said Robinson, now a Dallas-based member of the Committee for Better Banks, a worker and consumer advocacy coalition backed by a union seeking to organize bank employees. The same cars were often repoed multiple times.
Santander spokeswoman Laurie Kight disputed Robinson’s account and said it was part of a union campaign to discredit the lender. Santander is “unaware” of the type of conduct he described and money reimbursed by dealers for non-existent features is used to reduce borrowers’ loan balances, she said.