The $710 million settlement between Credit Acceptance Corp. and 40 states plus Washington, D.C., understandably has renewed scrutiny of deep subprime auto finance.

State regulators accused Credit Acceptance of facilitating unaffordable loans, allowing vehicle prices to be inflated based on a customer’s credit and enabling unwanted ancillary products to be packed into transactions. Credit Acceptance denied wrongdoing and admitted no fault in the settlement.

And remember all of these sales were structured at dealerships by car dealers, not by Credit Acceptance directly.

What if the bad outcomes in deep subprime auto finance aren’t primarily caused by a bad dealer, bad lender, or irresponsible consumer? What if the traditional purchase-and-finance structure itself is simply a poor fit for a financially fragile customer?

Consider who deep subprime financing serves.

Often someone who absolutely needs a vehicle. Without it, getting to work may be difficult or impossible. Yet this same customer frequently has little savings and virtually no financial cushion. This creates a fundamental contradiction: The consumer with the least ability to absorb a long-term financial obligation may be the consumer most desperate to take one on. A mainstream buyer who unexpectedly faces a $2,000 family expense, a reduction in work hours, or several weeks between jobs might absorb the disruption. For someone already living on the financial edge, the same event can make next month’s car payment impossible.

No amount of oversight in underwriting can eliminate this reality. The broader data suggests this isn’t merely a Credit Acceptance issue.

A Federal Reserve study published in May found deep subprime borrowers represented more than half of buy-here, pay-here loan balances in 2025. BHPH balances were delinquent at substantially higher rates than traditional auto loans and were more than 16 times as likely to be in active repossession status.

Although I’m sure there is some bad conduct in the group, that doesn’t necessarily mean most of these BHPH dealers are behaving badly. It may mean we are using the wrong financial instrument for an extraordinarily vulnerable customer.

Ironically, one provision of the Credit Acceptance settlement points toward an alternative.

For certain new loans deemed historically at high risk of default, Credit Acceptance must provide additional warnings and, if qualifying borrowers default within 12 or 18 months and their vehicles are repossessed and sold, forgive 95% of what remains owed rather than pursuing most of the deficiency, and is prohibited from suing for even this balance owed.

Unfortunately, this may chill all conventional vehicle lending for those with the lowest credit scores, which I’m sure was not the intent of the regulators.

However, think about what that accommodation says about the larger issue of fairness.

For the riskiest consumers, an easy off-ramp has value and creates a fair transaction. So here is a question: can the industry go one step better, with a solution that benefits all parties — lender, dealer and, of course, subprime consumer? Why not create a transaction that provides a clear and penalty-free off-ramp before a default?

Perhaps the better first step into personal transportation for some deep subprime consumers isn’t an installment sale at all. It could be a flexible lease or rent-to-own arrangement that lets the customer use the vehicle, establish a payment history, and progressively work toward ownership without becoming irrevocably obligated to buy it on day one.

Structured correctly, the customer doesn’t need a down payment or conventional F&I financing at inception, so bad things could never happen in those areas. Maintenance can remain part of the dealer relationship.

Most importantly, if life changes with a financial setback (lost job, medical expense, family emergency), the customer can easily and cooperatively return the vehicle rather than be forced into a loan delinquency, repossession, collection, and a deficiency balance. For the dealer/lender, it lessens the risk, as they are betting on the car rather than the individual and can easily and efficiently put the vehicle out to another customer if returned. Also, unlike prohibitions on the lender, it opens up more avenues for personal transportation to those who need it most, not close the door.

On the other hand, if things go well with the customer, everyone benefits. A portion of usage payments can progressively reduce the vehicle’s eventual purchase price. The longer customers successfully drive and pay, the less they ultimately need to finance if they decide to purchase. In effect, the customer gets to prove affordability before taking on the long-term purchase obligation rather than having an underwriting model attempt to predict it beforehand.

It is “try before you buy” applied to affordability. It changes the allocation of risk as well. Instead of attempting to compensate for borrower risk principally through interest rate, down payment, loan structure and repossession, the dealer or mobility provider retains more asset risk, again, betting on the car, not the individual, while the consumer retains something particularly valuable: flexibility.

The structural change in conventional lending does not eliminate the need for subprime lending. Millions of Americans need vehicles and deserve access to financing despite imperfect credit histories. Credit Acceptance itself notes that it has served more than 5 million consumers who may have had limited financing alternatives.

However, the industry’s objective shouldn’t merely be figuring out how to make a high-risk loan perform; it might be better to ask whether every customer needs to start with a loan at all.

Perhaps the more important lesson here could be the intent behind the 12- and 18-month protections. For financially fragile consumers, the best protection against a bad repossession may be a structure that gives them a safe way out before it ever becomes one, while de-risking the chance of losses for the lender.

John Possumato is the founder and CEO of DriveItAway Holdings and among the experts scheduled to appear during Used Car Week, which begins on Nov. 16 in San Diego.