The Complaint brings forth claims for violations of the Securities Exchange Act of 1934 against Credit Acceptance Corporation (“Credit Acceptance” or the “Company”) and certain of its senior executives. The Complaint alleges that Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased or otherwise acquired Credit Acceptance common stock during the Class Period.
Credit Acceptance provides financing programs, and related products and services to independent and franchised automobile dealers in the United States. These programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing, as 95% of Credit Acceptance’s loans are considered subprime. The Company also securitizes and sells its loans to investors.
Specifically, the Complaint alleges Defendants failed to disclose to investors: (i) that the Company was topping off the pools of loans that they packaged and securitized with higher-risk loans; (ii) that Credit Acceptance was making high-interest subprime auto loans to borrowers that the Company knew borrowers would be unable to repay; (iii) that the borrowers were subject to hidden finance charges, resulting in loans exceeding the usury rate ceiling mandated by state law; (iv) that Credit Acceptance took excessive and illegal measures to collect debt from defaulted borrowers; (v) that, as a result, the Company was likely to face regulatory scrutiny and possible penalties from various regulators or lawsuits; and (vi) that Defendants positive statements about the Company’s business, operations, and adherence to appropriate laws and regulations were materially misleading and/or lacked a reasonable basis.
The ugly truth about the Company’s predatory and illegal business practices was revealed on August 28, 2020 when the Massachusetts Attorney General (“AG”) filed a complaint against Credit Acceptance alleging that Credit Acceptance has, for years, been making unfair and deceptive automobile loans to thousands of Massachusetts consumers and then engaged in unfair debt collection practices as well, upon the borrowers’ default. Indeed, the AG lawsuit specifically alleges that Credit Acceptance provided its investors with false and/or misleading information regarding its asset-backed securitizations. Then, while the Company profited on these high-risk, low-score loans, default was catastrophic for borrowers, who lost their cars and down payments, had their credit scores damaged, and were left with the debt, but now without the asset—which Credit Acceptance continued to collect through unlawful and aggressive collection processes. Notably, the Massachusetts AG Complaint alleges that Credit Acceptance “willfully deceived investors concerning the credit characteristics of the loans.” In response to these public disclosures, Credit Acceptance’s stock price fell $85.36 per share, or over 18%, to close at $374.07 per share over two trading days ending on September 1, 2020. The decline in market value of the Company’s common stock caused investors to suffer significant damages as a result.