CAC settlement adds new form for Mass. dealer F&I staff

A $27.2 million settlement between Credit Acceptance Corp. and Massachusetts Attorney General Maura Healey will soon require some dealers and borrowers to sign a document acknowledging CAC financing does not require a vehicle service contract.

Effective Dec. 7, dealerships must provide and sign the forms on any new CAC loans including a service contract.

"I'm not aware of any pushback from dealers," CAC Chief Treasury Officer Douglas Busk said last week when asked about the new obligation upon dealerships that offer customers financing from the indirect subprime lender. But Busk also noted he was in finance, not a sales and marketing role.

The form must be a "clear and conspicuous, single-page, standalone document," according to the Sept. 1 settlement between CAC and the commonwealth. The notice must inform the customer "the purchase of a VSC is not required to obtain financing" and state how much the contract adds to the loan.

"The disclosure must be signed and dated by each borrower who purchases a VSC, and by a representative of the dealer, with copies to be provided to the purchaser and to CAC," the settlement holds.

Healey spokeswoman Emalie Gainey said Massachusetts law prohibits making a loan contingent on a service contract. CAC's internal policy has treated service contracts as optional for vehicle loans, according to the litigation.

But auto dealers told customers the contracts were mandatory for CAC loans, the 2020 Massachusetts complaint against the lender said. The commonwealth alleged CAC conducted superficial investigations of customer reports describing such conversations and offered little justification for dismissing the customer accounts.

The lawsuit also accused CAC of violating its own policy by failing to examine whether high vehicle service contract sell rates reflected dealers presenting the contracts as mandatory.

"From 2013 through 2019, numerous Massachusetts dealers had very high VSC penetration rates between 90% and 100% of their CAC loans," the commonwealth wrote in the complaint.

CAC said Sept. 1 that the lawsuit had been "vigorously contested" and that the company admitted no wrongdoing or liability under the terms of the settlement.

"However, Credit Acceptance believes it to be in the best interest of the Company to conclude this litigation, and is pleased to announce its resolution," CAC wrote in a news release.

Busk said given the dismissal of the litigation and its replacement by the settlement, he didn't think it was appropriate to comment on the allegations. However, he confirmed vehicle service contracts were optional and said "that's disclosed to the consumer." He said that was the case before the settlement.

"There's not a question of whether they're optional or not," he said.

Requiring a service contract as a condition of a loan constitutes a finance charge, according to the Massachusetts lawsuit. That means CAC's loans would exceed the commonwealth's 21 percent interest rate threshold.

Massachusetts dealers might find consumers canceling CAC service contracts — the settlement also requires the company, within seven days of the loan, to remind the consumer the service contract can be canceled for a refund.

"If the customer elects to cancel the VSC within the first 30 days from the contract date, CAC will reduce the account balance to reflect the VSC cancellation and will recalculate the monthly payments based on the original term and interest rate and the reduced account balance," the settlement states.

About 80 percent of customers bought CAC service contracts between 2013 and 2019 for an average of $1,600, according to Massachusetts' lawsuit. All were financed, which increased the price to an average of $2,450 over a 55-month loan and bumped the average payment by about 15 percent, the commonwealth said.

About a third of the service contract claims were rejected, according to Massachusetts. The average covered repair cost about $478, which the lawsuit noted was less than 20 percent of the price of the contract.

For selling the service contracts, dealers received commissions of $385 plus a percentage of the price, the state said. According to Massachusetts, a dealer receiving an average upfront payment of 44 percent would earn more than $1,000 off the deal.

Busk declined to comment when asked about the insinuation service contracts were worth far less than they cost. "I would refer you to the settlement agreement," he said.