Market Extra: Credit Acceptance shares tumble 12% after regulators sue, claim illegal subprime auto lending practices

by | Jan 4, 2023 | Stock Market

Shares of subprime auto giant Credit Acceptance Corp
CACC,
-11.61%
tumbled about 12% on Wednesday after New York Attorney General Letitia James and a key U.S. consumer watchdog sued the lender, saying it has been illegally tricking low-income borrowers into high-cost car loans that lead to a debt spiral. The lawsuit aims to force Credit Acceptance to abandon any illegal lending tactics, to reimburse harmed consumers and to extract penalties and the return of “wrongfully earned gains,” according to a statement from the Consumer Financial Protection Bureau, the U.S. watchdog involved in lawsuit.

Credit Acceptance is one of the nation’s biggest publicly traded auto lenders, involved in financing more than $4.9 billion in auto loans in 2020 alone, according to the complaint. It has been a frequent issuer of asset-backed bonds tied to subprime car loans, where BB-rated bonds lately promise yields as high as 11%, according to FinSight data. Regulators have been closely monitoring subprime auto lenders for potentially abusive practices since the 2007-2008 global financial crisis, which was fueled partially by an explosion in subprime mortgage lending. The ensuing foreclosure crisis led to the creation of the Consumer Financial Protection Bureau. The bureau since has extracted billions in fines from lenders in the near $1.5 trillion U.S. auto-loan market, while recently warning it will …

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