Subprime Lending News 7/20/17:

Subprime auto loans increase, scheming student lenders under fire and a notorious banking criminal passes away.

By Caroline Thompson

Happy Thursday! Today’s subprime news includes updates on lawsuits against Navient and Sallie Mae, why the auto industry might be heading for a major crash, and a former Trump campaign manager’s shady dealings with a Chicago-area bank. Read on for all this and more!

Navient and Sallie Mae deny defrauding student borrowers.

Two of the biggest student lenders in the country are being sued by Illinois Attorney General Lisa Madigan for targeting low-income, poor credit borrowers at schools with low graduation rates and selling students subprime loans in order to inflate their numbers. The companies are being accused of taking advantage of these student borrowers for profit – as their loan volume increased, they were able to snag spots on preferred lender lists. Madigan also says these lenders mislead students about how to release co-signers, misapplied or misallocated payments, and gave borrowers untrue information about how repayment plans would affect their credit. Both Navient and Sallie Mae deny these allegations, and say everything they’ve done has been well within the law. The Cook country judge hearing the case has granted a motion to stay discovery until she has made her decision.

Fiat Chrysler Automotive under fire for subprime auto loans.

The auto industry may be heading towards a bubble burst, and new details emerging about the partnership between Fiat Chrysler Automotive and Spanish lender Banco Santander show just how that might happen. According to information gathered from court documents, interviews with industry insiders and regulatory filings, fewer than one in ten loans issued by these companies were properly vetted to assess the borrower’s income, debt levels, or job histories. And it goes farther than ignoring due diligence, some dealers are being accused of purposefully gaming the system, pushing high-cost loans on low-income borrowers who are at a high risk of default.

Former head of failed Tennessee banking empire dies at 81.

Jake Butcher, a Tennessee politician and notable businessman died yesterday after a battle with cancer. Butcher was a formidable figure in East Tennessee politics who, over the course of his life, changed the region in both good and bad ways. In the 1970s and 1980s, Butcher and his brother ran a banking operation which was raided by authorities in 1982. Both brothers went to prison for charges of fraud and gross mismanagement, stemming from millions of dollars in unsecured loans, forged loan documents, and bank fraud. When their banks closed, in 1983, it was one of the biggest bank failures in the history of the United States. Butcher served seven years of his 20-year sentence.

Chicago-area bank under investigation for loans to former Trump campaign manager.

New York prosecutors have subpoenaed records relating to the $16 million in loans that the Chicago-based Federal Savings Bank made to former Trump campaign manager Paul Manafort. Manafort is currently under investigation for his potential ties to Russia, but these loans are notable because they represent nearly a quarter of the bank’s entire loan portfolio. It is rare for a bank to lend out such a high percentage of its capital to one borrower, said Terry McEvoy, a bank analyst for Stephens who spoke with the Chicago Tribune. “At a larger bank, I’d be very surprised to see loans to one borrower represent about 25 percent of capital. At the community bank level it may be more common but would likely be discussed with regulators frequently.”

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