Crain's Detroit Business: Matthew Roling on Credit Acceptance Corp. business model

The screws appear to be tightening on Credit Acceptance Corp. as lawsuits mount over allegations of improper consumer lending practices and potential defrauding of investors. The Southfield-based subprime auto lender, which boasts of "changing lives since 1972," has long been criticized by consumer advocates and now finds itself the target of multiple lawsuits, including from investors and the attorney general of Massachusetts. The company is under attack by state regulators and consumer rights groups for its business practices, and from investors who allege securities fraud. The lawsuits and interviews with consumer-rights advocates paint a picture of a lender that made high profits not by collecting on loans that it doles out, but rather by increasingly squeezing those holding the loans through a process that frequently results in default and repossession of the vehicle. The schedule, calculated for Crain's by Matthew Roling, an adjunct professor of finance at Wayne State University's Mike Ilitch School of Business, shows that a customer taking an $8,000 loan from Credit Acceptance would pay just under $5,000 in interest over the life of the loan. Throw in another estimated $2,500 in various fees that the Massachusetts lawsuit calls "hidden," and a Credit Acceptance customer is paying about the value of the vehicle in fees and interest. Roling acknowledges there is a need for lending to those with weak credit, but his praise of the company stops there. "I just find their business model really problematic," he said. "This is why people say it's expensive to be poor."

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