Two national auto lenders have agreed to provide a total of $7.4 million in relief to more than 2,000 Massachusetts car buyers over allegations they charged excessive interest rates on their subprime auto loans.
Massachusetts Attorney General Maura Healey announced the settlement Wednesday. She said the attorney general’s office has now recovered more than $12 million for consumers in the last several months in settlements relating to high-interest auto loans.
Officials said the Spartanburg, South Carolina-based American Credit Acceptance LLC and Westlake Services LLC, based in Los Angeles, have agreed to eliminate interest on certain loans they purchased that allegedly included excessive interest rates because of the inclusion of so-called GAP coverage.
The lenders also agreed to forgive outstanding interest on the loans and reimburse consumers for the interest they have already paid on the debts.
The attorney general’s office has identified $1.7 million in relief for American Credit Acceptance loans, and $5.7 million in relief relating to Westlake loans.
Under the settlements, additional audit work will determine if other loans are also subject to refunds.
For more than 2,000 Massachusetts consumers who will benefit from the settlement, the average amount each consumer would receive in relief is approximately $3,000.
The lenders will also pay $225,000 for implementation of the agreements.
Officials said consumers in these cases were overcharged because of GAP fees. These fees caused the effective interest rates on the loans to exceed the 21 percent state interest cap.
GAP is a product that is intended to limit the shortfall between the payment on an auto insurance claim and the amount the borrower owes on a car loan in the event the financed car is totaled. GAP is sold by car dealers as an add-on product and is often financed in the auto loan.
This case was part of an ongoing subprime loan review initiative by the attorney general’s office. Last November, as part of this initiative, the attorney general announced a $5.4 million settlement with Santander USA Holdings Inc. also relating to GAP fees and excessive interest.