GM Financial Target of Widening Federal, State Probes into Subprime Lending, Sales of Securities

GM Financial, which specializes in auto and truck loans to borrowers with below-average credit, has revealed that it is being investigated by “state attorneys general and other governmental offices” regarding its subprime lending.

The company’s practice of selling asset-backed securities tied to these subprime loans is also under investigation.
GM Financial had previously been served with a subpoena by the U.S. Department of Justice directing the company to provide certain documents involving “our subsidiaries’ and affiliates’ origination and securitization of subprime automobile loans since 2007.”
“In September 2014, we were served with additional investigative subpoenas to produce documents from state attorneys general and other governmental offices relating to our subprime auto finance business and securitization of subprime auto loans,” GM Financial wrote in an SEC filing this week.
Civil or criminal penalties seem likely, GM Financial says.
“We are investigating these matters internally and believe we are cooperating with all requests,” the company says. “Such investigations could in the future result in the imposition of damages, fines or civil or criminal claims and/or penalties. No assurance can be given that the ultimate outcome of the investigations or any resulting proceedings would not materially and adversely affect us or any of our subsidiaries and affiliates.”
GM Financial declined further comment on the filing.
‘Representations’ Made to Investors
Attorneys with expertise in consumer finance law have speculated that Justice officials are looking at “representations” made to investors who purchased subprime loans bundled and sold as asset-backed securities.
Many auto/truck lenders sell these loans to investors to raise money for initiating additional consumer loans.
Bloomberg reports that Florida Attorney General Pam Bondi is reviewing GM’s lending arm to determine whether Florida officials have jurisdiction to join the widening investigation into its subprime underwriting practices.
A spokesman for Bondi told Bloomberg that the attorney general hasn’t issued a subpoena and is “reviewing the matter to determine whether any of the alleged conduct falls within our enforcement jurisdiction.”
In 2010, General Motors acquired the former AmeriCredit, a subprime loan specialist based in Fort Worth, Texas.

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