Monique Williams lost her job as a receptionist in a Detroit apartment building last year during the Covid-19 pandemic. Now she is learning how hard it is to get back on track with her debt obligations.
Perhaps her toughest challenge, she says, has been the high-cost auto loan she took out in 2016 with Credit Acceptance Corp., the country's largest company specializing in so-called subprime loans for borrowers with tarnished credit.
Williams said that when she and her husband were having trouble meeting their obligations last year, she asked Credit Acceptance whether she could pay a smaller amount temporarily or defer her payments. While the company offered some Covid-19-related accommodations — halting late fees and repossessions — deferrals were not an option.
"I have been paying for this car for four years — over $12,000 — and I couldn't even get a deferment," Williams said. The car died in December 2019, she said, but about $2,000 on the loan remains outstanding.
Cars are essential for people to get to jobs, grocery stores and vaccination centers, but the government has provided no federal assistance earmarked for auto loans during the pandemic. Stimulus checks helped borrowers stave off defaults, of course, and some states halted repossessions, but providing other accommodations, such as deferments, fell to the lenders themselves.
There is no direct assistance for car loans in part because, unlike student loans and mortgages, there is no federal regulation of lending in the auto arena, said John Van Alst, a lawyer at the National Consumer Law Center, a nonprofit that advocates for low-income Americans. Now, as the country reopens for business, lender accommodations are starting to disappear, and Van Alst said car repossessions are rising among subprime borrowers. And when it comes to costly subprime auto loans, "there's not much of a margin, and the least little thing can get somebody into a default," he said.
Early in the pandemic, many lenders filled the gap left by the government, offering deferments and halting late fees; as a result, auto loan defaults last year fell to their lowest rate in 15 years, said Jonathan Smoke, chief economist at Cox Automotive, a company that provides services to the car industry.
Credit Acceptance, however, did not offer such deferrals. The company says it froze reporting on borrowers' credit reports and suspended late fees and collection activities, such as phone calls and repossessions, for 90 days for customers hurt by Covid-19. After that, however, borrowers must make their monthly payments; if they don't, the lender's website says, the company may resume repossessions and late charges.
Credit Acceptance, founded in 1972, is the country's largest standalone subprime auto lender; it generated $1.7 billion in revenue last year. Since the pandemic began, the company's stock has surged by over 50 percent. Credit Acceptance awarded stock grants to seven top executives worth an estimated $55 million, regulatory filings show.
Last summer, Massachusetts Attorney General Maura Healey sued Credit Acceptance, saying its lending and collection practices were predatory and illegal in the state. The company announced Thursday that it had agreed to settle with Healey, paying $27.2 million.
"Credit acceptance made high-interest loans to borrowers that the company knew they couldn't repay," Healey told NBC News before the settlement was announced. "What I consider predatory about these practices is that they're specifically targeting vulnerable people, people who may not be able to qualify for normal loans, normal finance arrangements."
As it disclosed the settlement, Credit Acceptance also announced the retirement of its longtime CEO, Brett A. Roberts. On a conference call with investors and analysts Thursday, Roberts said he was retiring for "personal reasons." Chief Financial Officer Kenneth Booth, a former director of internal audit, will replace him, the company said.
Credit Acceptance did not immediately respond to a request for comment about the settlement.
Credit Acceptance's regulatory filings show it is under scrutiny in 43 other states beyond Massachusetts and by the Consumer Finance Protection Bureau, or CFPB. A spokeswoman for Credit Acceptance said before the settlement that the company does not discuss matters involving active litigation but intends to defend itself vigorously.
Williams is not the only borrower unhappy with Credit Acceptance. As of March 24, the company had generated over 150 complaints from customers on the CFPB's website, including those about its credit reporting.
From January 2018 to the middle of last month, the company said, CFPB data showed that complaints solely about its loans totaled 585. That made it No. 5 on the list, behind Santander Consumer USA, Ally Financial, Wells Fargo and Capital One, all much larger companies.
The Credit Acceptance spokeswoman said: "With over 1.7 million accounts being serviced, complaints are extremely rare," totaling fewer than 4 per 10,000 customers annually.
In addition to Williams, NBC News spoke with eight other unhappy Credit Acceptance borrowers; their loan documents show how costly the company's financing is.
Williams and her husband, for example, bought a 2008 Pontiac with 70,000 miles on the odometer for about $18,500. Together they put down $1,000 cash and borrowed the rest from Credit Acceptance at 22.9 percent interest. The cost of the car was $10,500, the contract shows. Over the five-year life of the loan, Williams' finance charges would add another $7,140.
The Williamses' almost 23 percent interest rate is common among Credit Acceptance borrowers, and it is considerably higher than the average of 17.8 percent subprime borrowers were charged last year, according to Experian.
But the rate is only the beginning of a Credit Acceptance borrower's costs, according to the Massachusetts lawsuit. It said Credit Acceptance levied a hidden charge that added 37 percent to 68 percent to loans for customers with low credit scores. The complaint also contends that Credit Acceptance required many borrowers to buy vehicle service contracts that added, on average, $2,500 to their loans.
Those practices inflate the final cost of a vehicle, the Massachusetts lawsuit alleged. From 2013 to 2019, the average Credit Acceptance customer in the state wound up paying about $20,000 for a used car, more than 2½ times the vehicle's cost to the dealer of about $7,800.
When customers defaulted, Massachusetts investigators alleged, Credit Acceptance's policy was to call them eight times a day to try to collect. Massachusetts law allows only two collection calls a week, the lawsuit said.
In addition to high costs and aggressive collection practices, Credit Acceptance has also been big in repossessions. In a 2015 conference call with stock analysts, Credit Acceptance's chief treasury officer, Doug Busk, said the company typically repossessed cars in 35 percent of the loans in its most popular lending program.
No official source tracks car repossession volumes in the U.S., so the figure is difficult to assess. But it certainly seems high; according to an estimate from Cox Automotive, just 2.06 percent of auto loans resulted in repossessions in 2015.
Credit Acceptance's spokeswoman declined to provide updated figures about repossessions. Of the nine Credit Acceptance customers interviewed by NBC News, three said their cars had been repossessed; two had filed for bankruptcy protection in part to prevent repossession.
When Credit Acceptance repossesses a car, the borrower must continue to pay the amount owed. That can include payments on a vehicle service agreement the borrower can no longer benefit from. While filing for bankruptcy protection helps to stop a repossession, such a move damages a consumer's credit standing.
Even as Covid-19 was imperiling its borrowers, Credit Acceptance awarded stock option grants worth an estimated $55 million to seven top executives in late December. Regulatory filings show that the awards exceeded the amount of stock allowed for issuance under the company's active compensation plan by a quarter of a million shares.
Recipients were Busk, the chief treasury officer who spoke about repossessions; Booth, the former chief financial officer and new CEO; Charles A. Pearce, the chief legal officer; Arthur L. Smith, the chief analytics officer; Daniel A. Ulatowski, the chief sales officer; and Jonathan Lum, the chief operating officer.
Through the company spokeswoman, the men declined to be interviewed.
Scott Vassalluzzo is chairman of the compensation committee of the Credit Acceptance board and a managing member of Prescott General Partners, an investment firm that is Credit Acceptance's largest shareholder. He said in a statement: "The awarded options represent 100 percent of incentive compensation. The compensation committee and the CEO believe it's a good deal for shareholders and fair deal for the executives given the composition, experience and track record of the team."
Shareholders of Credit Acceptance will be asked to approve the stock plan at its annual meeting later this year.