Consumer complaint received 2017-07-08
Company: Santander Consumer USA Holdings Inc.
State: NY
Product: Vehicle loan or lease
Sub-product: Loan
Issue: Managing the loan or lease
Sub-issue: Billing problem

Complaint:
I consigned on a car loan for a family member on XX/XX/XXXX with Santander Bank. The original loan balance was {$16000.00} and the repayment terms were 72 payments of {$360.00} for a total of {$26000.00} in payments. Unfortunately, a few months later around XX/XX/XXXX, my cosignee had become unemployed and started having difficulty making the payments on the loan. As of XX/XX/XXXX, I started making the payments directly and the loan payments have not been delinquent since. As of XX/XX/XXXX, {$26000.00} in payments have been made on the loan, an amount in excess of the amount of payments originally required when the loan was first secured. <P/>On XX/XX/XXXX, I checked the status of the account assuming there would be a small balance remaining on since the payment total exceeded the original obligation. The only amount I was expecting to be outstanding were the late fees from the period of time when my cosignee was unemployed and unable to make the payments. To my surprise, I found that there was still a balance of {$2900.00} remaining. I immediately called Santander to speak to a CSR and was informed that during the period when my cosignee had made some of the payments late, additional interest was accruing on the loan and once the payments were being made, the entire payment amount was being applied to the Interest balance instead of being split between Interest and Principal. Since the Interest rate was so high ( 17 % ), interest was accruing at a much higher rate than normal. As it was explained to me, the late payments caused more interest to accrue and Santander had a right to apply the payments in any way they saw fit. <P/>I have had several car loans with other banks and while none of them have had any payment issues, none of them had the payments applied in such an arbitrary and unscrupulous manner. On every other loan I have, the payments are applied to the interest and principal balance based on an amortization schedule determined by the original payment terms of the loan. If the payment is late, there is a late fee charged. When the payment is made, a portion is applied to the interest balance and a portion is applied to the principal balance. If there is an interest balance remaining, that is due at the end of the loan, when the principal balance is satisfied. Santander 's practice of applying the entire payment to the interest balance, and not applying any of the payment to principal balance reduction is extremely deceptive, predatory and in my opinion usury. Particularly in this case when the interest rate is at an astronomical 17 %! It has created a situation where if a payment is ever made late, an almost never-ending cycle begins where payments are constantly only being applied to interest and as a result, the principal balance never decreases. This allows a high interest balance to accumulate again, to which the next payment is fully applied, and the evil cycle continues. <P/>This is a highly deceitful practice and Santander should not be allowed to do this. They have already taken advantage of us by charging a high interest rate in the first place, despite having a car as collateral and a co-signer with great credit. A bank should not be allowed to apply the payments in whatever fashion they want, especially when it ultimately ends up costing the consumer thousands more. I understand that the bank is entitled to the interest that accrues when the payment is made late. They should not however be allowed to apply the payment solely at their discretion and to the detriment of the consumer, especially when the interest rate is so high.

Company response to consumer: Closed with explanation