Credit Acceptance waives $634M of loans

Credit Acceptance Accepts Dealer Audits and a 95% Deficiency Waiver in Consent Judgments With 41 Attorneys General

Credit Acceptance Corporation entered separate consent judgments with the attorneys general of 40 states and the District of Columbia on September 17, resolving a multistate investigation that opened in 2020 and the lawsuit New York's attorney general filed in January 2023. ¹ ² The company will pay $15.5 million to the states, put $60 million into a consumer relief trust, and waive all balances on a defined set of accounts open on December 1, 2025, an amount it estimates at $634 million. ¹ It admitted no wrongdoing, and each judgment still needs approval from its own court. ¹ ³ The states describe the package as $694 million; New York rounds it to $700 million, and Reuters counts $710 million once the payment to the states is included. ⁴ ² ⁵ Our reading for alternative lenders: the money is the smaller story. The judgments turn the dealer channel and post-default collections into numbers the company must hit for five to seven years.

The channel terms: randomized price audits covering at least 35 dealers a quarter, a dealer investigation after five pricing complaints or two add-on complaints in twelve months, signed consent for every add-on product that shows the payment with and without it, and a financed vehicle price capped at 109% of the highest retail book value for borrowers scoring below 600. ³
The collections terms: for qualifying contracts written after December 1, 2025 that end in repossession within 12 or 18 months, a 95% deficiency waiver, no lawsuit, no debt sale and at most four collection contacts after the 90th day, for five years. ³
The funding read: two days before signing, Wells Fargo extended a $500 million term ABS facility and a warehouse facility to September 2028 and cut the warehouse spread to SOFR plus 175 basis points from 185. ⁶ Reuters reported the shares down 2.7% at $585.08 in afternoon trading on September 17. ⁵

What Alternative Business Lenders Need to Know

What did 41 attorneys general actually get?

Three things, and only one of them is cash. The $15.5 million goes to the participating attorneys general. ³ The $60 million goes to a trust that a settlement administrator, chosen by a seven-state executive committee, will use to remediate alleged consumer losses. ¹ ³ The $634 million is debt relief on accounts originated between November 1, 2015 and November 30, 2025 whose holders had a Credit Acceptance score below 56 and a payment-to-income ratio of 13 percent or more: an estimated $388 million on accounts where the vehicle was sold after repossession or surrender within 18 months, and $246 million on similar accounts that were never repossessed, where the company must also release its liens. ³

The judgment states dollar estimates, not a headcount; the New York attorney general and Reuters put the eligible population at more than 55,000 consumers. ² ⁵

The cash is small next to the company's own accounting. Its second-quarter 10-Q showed a total legal accrual of $82.6 million at June 30, an offer of $45.0 million in cash made in September 2025, and preliminary alignment on $75.5 million in cash in January 2026. ⁷ The 8-K says the payments and the debt relief require no charges beyond amounts already accrued. ¹ The waived balances sit on accounts that defaulted early, against a loan book the company carried at $11.6 billion gross with a $3.65 billion allowance at June 30. ⁷ By state, the disclosed pieces are modest: about $34 million in New York and $2.2 million of restitution plus $25.6 million of debt relief in New Jersey. ² ⁸

How does the decree run the dealer channel?

As a set of triggers rather than principles. Credit Acceptance funds through independent used-car dealers, 11,004 of them active in the second quarter, when it took 84,615 assignments and 79.2 percent of its unit volume carried a FICO score below 650 or no score at all. ⁷ The states allege that its "dealer compensation methodology and lack of reasonable dealer oversight" led dealers to pack contracts with vehicle service contracts and GAP products, and the 2023 complaint alleged that 90 percent of its loans carried a company-approved add-on. ⁴ ⁹

For borrowers scoring below 600, the financed vehicle price is capped at 109 percent of the highest retail book value, and the company must block dealers from raising the price after a vehicle has been tied to an application in its origination system. ³ It must run randomized price audits covering at least 35 dealers a quarter among those that originate outside its inventory tool and investigate any dealer that draws five pricing complaints in twelve months. ³ Every add-on requires signed consent showing the payment with and without the product, prompt cancellation on request and re-amortization for current accounts, with a dealer investigation after two complaints or cancellations in twelve months. ³ For borrowers below 600 or with no score, the company must disclose the delinquency rates of similar borrowers before origination, verify income, and cap used-vehicle terms at the greater of 75 months or the industry average plus twelve months. ³

The bridge to business funders is structural, not legal. An MCA funder sourcing through ISOs or an equipment lessor running a vendor program operates the same indirect structure the attorneys general targeted, and the exposure they named was compensation design plus weak oversight. Nothing in the judgment binds a commercial funder; it covers consumer retail installment contracts under state consumer protection acts and the Consumer Financial Protection Act. ³

What happens after an early default?

Three recovery tools come off the table for five years. For qualifying contracts originated after December 1, 2025 that end in involuntary repossession within 12 or 18 months, Credit Acceptance must waive 95 percent of the deficiency balance, may never sue on or sell the contract, and after the 90th day following the waiver may make no more than four collection communications. ³ It must also keep its bar on starter-interrupt devices and on dealer GPS tracking of assigned contracts. ³

The 2023 complaint had alleged the company repossessed more than a quarter of the vehicles it financed nationwide during the covered period; that is an allegation the company moved to dismiss, in a case that ended without any finding. ⁹ ⁷ For funders that sell charged-off receivables, litigate deficiencies or rely on remote shutoff of financed equipment, the decree shows which tools a consent instrument removes first. That is consumer collateral; commercial collateral sits outside it.

What did the states allege, and what does the company say?

The attorneys general allege that Credit Acceptance "originated car loans that the company knew or should have known consumers could not afford," including loans "where CAC predicted the consumer would not pay back even the loan's principal loan amount." ⁴ New Jersey's release headline calls the loans "Designed-To-Fail," and District of Columbia Attorney General Brian Schwalb said the company "set car buyers up to fail." ⁸ ¹⁰ The 2023 complaint alleged that the company offers loans to nearly all consumers "regardless of their estimated future performance" and that its "business model uses the borrower's score to set the payment to dealers." ⁹

In the judgment, Credit Acceptance "denies any and all violations of law alleged," and the instrument was entered without trial or admission. ³ Chief Executive Vinayak Hegde said the resolution "provides certainty for our business, our dealer partners and the customers we serve" and called the provisions "consistent with the direction of regulatory expectations in our industry." ¹¹ The 8-K says the requirements "do not fundamentally alter the Company's business model." ¹

Maryland's August 2020 subpoena widened an inquiry it had opened in 2016 to 41 other states and the District; Kansas, Texas and Iowa later withdrew, and New York, which was not in that group, pursued its own case, which is how the judgments reach 40 states. ⁷ ¹ Massachusetts settled its own case in September 2021 for $27.2 million with no admission of liability. ¹² ¹³

New York and the CFPB sued in federal court in January 2023. ⁹ The CFPB moved to withdraw on April 24, 2025 and the court granted the motion five days later; the company's chief legal officer, Erin Kerber, said the case "never should have been brought in the first place." ¹⁴ ¹⁵ The federal court dismissed the action without prejudice on June 6, 2026 to allow settlement. ⁷ American Banker described state regulators as having filled the gap the CFPB left by coordinating the multistate action. ¹⁶

What should an indirect funder change this quarter?

Copy the counting, not the covenants. Set a written trigger for partner investigations, using the decree's five-and-two complaint counts as the model, and record the reason a customer gives when cancelling a product or disputing a fee. ³ Separate the recovery forecast from the approval decision: the center of every state release is the allegation that the lender funded contracts its own score predicted would not return principal, so document where your model prices a deal and where it decides whether to fund it. ⁴ Reprice early-default recovery assumptions as if debt sale, litigation and remote disable were unavailable. Then watch two dates: each of the 41 judgments needs entry by its own court, and the Maryland exhibit carries a blank judge's signature line; the first annual compliance report is due within 60 days after the first calendar year following the November 2, 2026 Effective Date. ¹ ³

What the record does not yet show: which courts have entered their judgments; who the settlement administrator will be and how the $60 million will be allocated; the per-state split of the $15.5 million beyond the states that disclosed it; how the dealer network has responded; and whether any state intends to carry the affordability theory into commercial credit, for which no source exists.

Our Opinion

The states got something a fine cannot buy: five to seven years of operating covenants written into a public instrument, at a cash cost of $75.5 million against a company that earned $135.9 million in the second quarter alone. ⁷ Wells Fargo extended two facilities to 2028 in the same week and took ten basis points off the warehouse spread, so the lenders behind the lender read the judgments as settled risk, not new risk. ⁶

Our view: this is what enforcement of indirect lending looks like when the federal plaintiff leaves. The CFPB withdrew in April 2025; forty-one attorneys general finished the case under state consumer protection acts, and the theory they pressed reached the originator's own model. For a funder whose compensation design shapes what an intermediary sells, the defensible position is an oversight program with numeric triggers that exists before a regulator writes one for you, and the honest question is whether your scorecard decides to fund or decides what to pay the channel.

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