CARY, N.C. -

For the second time in roughly a week, details became public involving Santander Consumer USA and regulatory enforcers.

On Wednesday, SCUSA reached settlements totaling $25.9 million with the attorneys general of Delaware and Massachusetts for what state officials said was the finance company’s role in “facilitating unfair, high-rate” vehicle installment contracts.

The developments with the two states come on the heels of Santander Consumer USA and its parent’s subsidiaries entering into a written agreement with the Federal Reserve Bank of Boston.

When SubPrime Auto Finance News reached out to SCUSA regarding the Wednesday’s settlement, a company spokesperson said Santander neither admitted nor denied the allegations made by the attorneys general about contracts facilitated through certain dealers between 2009 and 2014.

“We are pleased to put this matter behind us so we can move forward and continue to focus on serving our customers,” the spokesperson began.

“Santander Consumer is totally committed to treating customers fairly,” the spokesperson continued. “In the last 18 months, our new management team has taken significant steps to strengthen our business practices and controls. Today’s voluntary agreement with the attorneys general of Delaware and Massachusetts, which resolves an investigation dating back several years, is another important step forward in that process.

“We will continue to strengthen our business controls and dealer management program while ensuring that we are focusing on best-in-class consumer practices,” the spokesperson went on to say. “We negotiated in good faith with the attorneys general with respect to past underwriting and origination practices, but would note this settlement is not about securitizations and, in fact, our settlement releases us from any such claims.”

Here are the details that led to the settlement, according to news releases shared by Delaware and Massachusetts officials.

The investigation, conducted by the fraud division of Delaware attorney general Matt Denn’s office in partnership with the Massachusetts attorney general’s office, revealed that Santander allegedly bought auto financing contracts without having a reasonable basis to believe that the borrowers could afford them. In fact, investigators said Santander predicted that a large portion of the contracts would default, and allegedly knew that the reported incomes, which were used to support the applications submitted to the company by dealers, were incorrect and often inflated.

Officials went on to state the investigation by Delaware and Massachusetts also revealed that SCUSA was allegedly aware that certain dealerships had high default rates due in part to the regular submission of inaccurate data on financing applications — most often involving inflated income. But law enforcement said Santander continued to purchase contracts from those dealers anyway and, in some cases, sell them to third parties.

“Protecting consumers from unfair lending practices is extremely important and has been a priority for our office,” Denn said. “We are pleased that this settlement results in significant consumer relief and provisions that will prevent similar misconduct in the future. We will continue to pursue investigations in this area to ensure that Delaware consumers receive a fair deal when they are extended credit to finance a purchase. I am proud of the work of our fraud division and also thank the Massachusetts attorney general’s office for being a valued partner in this investigation.”

Massachusetts attorney general Maura Healey also interjected that many of contracts involved in the investigation fell into the subprime portion Santander’s outstanding portfolio, which were leveraged as part of the funding process with many investment banks and other financial entities to resell or securitize the paper. Healey asserted that SCUSA dropped the contracts into large asset pools and selling bonds or notes backed by the assets in the pools.

Money obtained from the securitization process was then used to fund more subprime contracts — like many other finance companies do — but it drew the ire of the Massachusetts attorney general.

“After years of combatting abuses from subprime mortgage lenders, these practices are unfortunately familiar,” Healey said. “We found that Santander, a leading player in the business of packaging and reselling subprime auto loans, funded unfair and unaffordable auto loans for more than 2,000 Massachusetts residents. This first-in-the-nation settlement relating to subprime auto loan funding will provide relief to thousands of car buyers in Massachusetts and prevent these practices from being used against our residents.”

The settlement in Massachusetts, filed in Suffolk Superior Court, includes $16 million in relief to more than 2,000 affected consumers and a $6 million payment to Massachusetts. Santander has also agreed to implement new oversight policies regarding subprime auto funding and securitization practices.

Santander also will provide significant consumer relief by paying $2.875 million into a trust for the benefit of impacted Delaware consumers. A trustee will be appointed to locate and pay restitution to hundreds of eligible harmed Delawareans who financed vehicle purchases through Santander. Eligible consumers will be contacted by the trustee and the AG’s office regarding the claims process for restitution.

Santander will also pay just over $1 million to the Delaware Consumer Protection Fund, which pays for work on consumer fraud and deceptive trade practice matters and other consumer-oriented investigations and legal actions.

In an effort to keep its commitment to treat customers fairly, Santander reiterated in its message to SubPrime Auto Finance News that management actions during the past 18 months include:

— Improving policies and procedures to identify and prevent dealer misconduct.

— Putting in place a stronger management team and board of directors and improved board and management oversight.

— Reinforcing a culture of compliance throughout the company and investing in highly experienced compliance professionals who have a track record of compliance excellence in financial services.

— Establishing an Office of Consumer Practices to serve as an internal voice of the consumer and to examine, track and improve the customer experience.

— Creating a dealer council to increase focus and formalize decision making on dealer oversight issues.

— Creating a dealer services group to enhance the efficiency of dealer monitoring and management processes.

— Increasing the number of requirements a consumer must meet before the company funds a loan (e.g., providing paystubs or tax returns, making higher down payments, etc.).

Santander Consumer USA chief operating officer Rich Morrin directly addressed how the finance company now is watching its relationships with dealers during its “Investor Day” back on Feb. 23.

“Regulatory expectations of lender oversight of dealerships has increased pretty dramatically. So while SC has always held dealers accountable, it’s not a change,” Morrin said. “What we have done is we take this seriously and so what we have done is we’ve evolved our approach accordingly.”

The COO went on to say, “ … holding dealers accountable ultimately is a positive thing for a number of reasons. One is because we get the right kind of relationships from which to try to grow our volume, but secondly, the application population we get is a lot more positive and high quality, which we view is very positive.”

As a part of Wednesday’s announcement, SCUSA also mentioned the company is fully reserved for this matter with Delaware and Massachusetts and no additional charge will be taken in connection with the settlement.

“This settlement will not impose any new restrictions on SC’s ability to make capital distributions,” the company said.