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Huge Eurobank, rated 'Britain's worst,' now accused of gouging US consumers

The accusations are as outrageous as they are plentiful:  Hundreds of “robocalls” --  in one case, 800 to a single person -- to collect auto loan debts;  illegal repossession of cars from active duty military deployed overseas;  late fees assessed three years after the fact and then compounded into $2,000 or $3,000 bills; harassing calls to friends, neighbors, co-workers -- even children -- on cell phones. And now, a flurry of lawsuits filedaround the country, and lawyers fighting over potential clients.

The defendant in the lawsuits is Europe’s largest bank, Banco Santander S.A.,which is preparing to make a big push into U.S. retail banking. But many Americans already have been introduced to the Spanish financial powerhouse, a first encounter that many liken to a nightmare.

Santander’s most visible presence in the U.S. market is the result of a buying spree begun in 2009, when the bank began purchasing billions of dollars in auto loans -- many of them subprime loans for used cars -- from Citibank, HSBC and a host of other banks. 

But if the cascade of complaints and lawsuits are accurate, Santander Consumer USA has tried to immediately turn those receivables into lucrative assets by assessing massive penalty fees and repossessing cars under dubious circumstances.

"They have a good business model if you are a crook," said lawyer Johnny Norris, who filed one of the first class-action cases against Santander Consumer USA, the Spanish bank's U.S. arm.  "It's a very lucrative but unlawful business plan. ... It's really terrible and we're trying to put a stop to it."

Laurie W. Kight, vice president of communications for Santander Consumer USA, said the company would not consent to an interview for this story.

"(Santander) declines to comment at this time," she said in an email.

While the Internet has been awash in complaints about Santander’s debt-collection practices for months, legal proceedings are just now reaching a fever pitch.  Norris said he's filed more than 100 individual cases against Santander and he's considering hundreds more.  One of his clients was called more than 800 times by an automatic dialer, he said, alleging that the calls represent a violation of the Telephone Consumer Protection Act. If so, each call could net a penalty of $1,500 for plaintiffs.

"Our cutoff is 100 calls" when the firm screens potential new clients for Santander lawsuits, he said.

The class-action case, with seven lead plaintiffs, was filed in federal court in Alabama.

One plaintiff, Leslie Haynes, purchased a used BWM in 2007 from a dealer in Birmingham, Ala., according to court documents. A year later, Santander collectors began peppering her with demanding calls. The lawsuit claims agents misled her about the balance of her loan, tried to trick her into making additional payments, then refused to stop calling her at work. Agents also repeatedly frequently called relatives, even harassing her sick stepfather and his live-caregiver in the months before he died, it alleges.  The court filing does not indicate whether Haynes had made all payments on time.

Another plaintiff in that case, Victor Shortt, alleged that Santander agents repeatedly called his minor daughter's cell phone, ignoring pleas to stop. A third, Jacob Glassmoyer, said Santander officials called his parents' cell phones repeatedly, at a time when one of them was undergoing chemotherapy, according to the lawsuit.

Norris said Santander routinely uses another tactic after acquiring a loan from another lender: It searches records for past slip-ups -- such as a payment that was late by a few days -- then assesses fees retroactively, sometimes years after the fact. By calculating the loan forward from that point, and "cascading" the fees, the firm sometimes claims clients owe thousands of dollars in late fees, and demands immediate payment or threatens repossession.

Another class-action case, filed in a federal court in California, accuses Santander of ignoring the Servicemembers Civil Relief Act, claiming the firm repossesses cars while active duty military are deployed overseas and refuses to lower interest rates to 6 percent, as required by law. The plaintiff in that case, Sgt. Charles Beard of Lemoore, Calif., serves in the U.S. Army National Guard, and was deployed abroad on Aug. 16, 2008. On Feb. 3, 2009, Santander repossessed his Kia Sportage, even after the bank was informed that a court order is necessary to repossess a deployed soldier’s car. 

"One of defendants’ representatives told Mrs. Beard that she would go to jail for a stolen car if she did not turn in the vehicle," the lawsuit alleges. Santander also ignored complaints from Army legal assistance, and sold the repossessed auto at auction in March of that year, according to the lawsuit.

The lawsuit claims such violations by Satandar of the Servicemembers Civil Relief Act are routine.

"Defendants have a policy of failing to verify, prior to undertaking voluntary repossession, whether the person whose vehicle is subject to repossession is serving on active duty," it claims. "Defendants routinely ignore service members’ rights under the SCRA and wrongfully repossess their cars without obtaining the requisite court orders."

Used car loans might seem like a hard way for an international bank to make money, but they've actually proven to be more resilient and recession proof that other forms of lending -- particularly mortgage lending. Cars, at the moment, appear to be better collateral than homes and are much easier to turn into cash after a borrower defaults. That's part of the reason that Santander was the most profitable bank in the world outside of China last year, and has been on the acquisition trail since the financial meltdown.

The Spanish bank is Germany's largest auto lender, and has enormous auto loan portfolios across Central and Eastern Europe, said Mauro Guillen, a Wharton Business School professor who wrote a book about Santander called "Building a Global Bank."

"Auto loans are low margin, but high volume gives you a good return," he said. "It's a typical way for Santander to enter a market."

It's also lucrative. Santander Consumer USA earned a tidy $455 million in 2010.

"It's a cash cow for them," Guillen said. 

Santander has big designs for U.S. retail banking. It completed the acquisition of Sovereign Bank, largely a regional lender based in the Northeast, in 2009.  It recently received approval to convert from a savings bank to a national bank, and plans to begin rebranding 747 Sovereign branches as Santander early next year.

But as the bank brings its impressive balance sheet to the wider U.S. market, it apparently has also exported its reputation for mistreating consumers.  Last year, a flurry of news stories in the British press labeled Santander "Britain's worst bank,” after it registered more than 160,000 complaints from account holders in a recent 6-month period, by far the most of any bank. The complaints typically involved frustrations with fees and customer service.

Santander usually receives the most consumer complaints in Spain, too, Guillen said.

Santander's move into U.S. auto loans has been aggressive.  In November 2009, it acquired $1 billion in loan receivables from HSBC for $900 million. It raised the stakes much higher in June 2010, when it announced it purchased $3.2 billion in loans from CitiFinancial, and also agreed to service another $7.2 billion in auto loans still held by CitiFinancial.

Combined with a series of acquisitions from smaller lenders, and the loans it inherited from Sovereign, and analysts estimate Santander's U.S. auto loan holdings at $17 billion.  

The banks' preference is for high-interest, subprime auto loans, which were reliably lucrative before the financial collapse, Guillen said. 

They still are, argued lawyer Norris, because of what he says are the bank’s illegal practices.

"They are taking these subprime loans while the loan is still active.  They are piling that loan as high as they can with fees, making as much money from the borrower as they can," he said. "Then they repossess the car, and sell the car.  Maybe there's a difference between the outstanding loan amount and the price they get at auction, but guess what:  Santander didn't pay 100 cents on dollar for the loan. They bought the car at a discount to start with."

The Internet is awash with complaints of unfairly repossessed cars and sudden demands for lump payments by Santander. Many focus on confusion around the transfer of the loan to the Spanish bank from the original lender.  Thomas Tupper of Irvine, Calif., purchased his car through Citibank, but when the loan was transferred to Santander in September 2010, he says he ended up with nothing but trouble. Automated direct payments were received by Santander, and credited to his account, but he was still reported late to the nation's credit bureaus and assessed late fees by the bank.  Then, when he sold his car, Santander cashed the payoff check but still reported him as late. That forced him to make extra payments on the loan, even after the loan was paid off. He's only received partial refunds of the overpayments. (For more on his trouble, click here)

Donovan Rogers, 34, of Abeline, Kansas, said Santander repossessed his 2005 Dodge Durango this year after purchasing his loan from the original lender. Rogers said he wasn’t alerted to the bank change. He claims he continued to send payments on time via money order to his initial lender,but Santander would later tell him it never received the payments. He says was unaware of the problem until weeks before the car was repossessed in May. He says he received nearly 500 phone calls from the firm during that time, and was threatened with criminal charges. Even though the pickup was sold at auction in June, he said he still receives calls from Santander demanding payment.

“They've made my life a mess.  When I tell people my story, they are in awe,” Rogers said. “I thought I was alone until I found all these other stories online. I’m living a nightmare, but now I’ve seen stories of people with much worst nightmares than mine.”

Accusations of unfair fees and repossessions don't figure into the lawsuits Santander is facing, however.  Lawyers are flocking to the cases because of potentially lucrative violations of the Telephone Consumer Protection Act and the Fair Debt Collection Practices Act. Santander agents routinely fail to identify themselves, use obscenities, call people other than the actual debt holder and reveal to those people details about the debt, the lawsuits allege -- all direct violations of the latter law. The bank has also used automated dialing systems and prerecorded messages directed to cell phones without permission, the lawsuits allege, a violation of the Telephone Consumer Protection Act. Willful violations of that law offer a $1,500-per-phone-call bounty to the plaintiff.

Missouri lawyer Gary Green, who is also readying a series of lawsuits against Santander, thinks that the bank many have just overlooked consumer law when it raced to expand its U.S. presence.

"I think that they've stumbled in without doing research," he said. "And they figured the claimants would act like most claimants and not realize they had any rights.  They figured they could take advantage of these people thinking individually they would have no voice. And maybe they just didn't read the federal law."

Even outside of consumer issues, Santander's reputation is not pristine. Alfredo Saenz, the bank's No. 2 executive, received a pardon last month from lame duck Socialist Party officials in Spain, sparing him from a previously imposed lifetime ban from working in banking. In 2009, he was convicted of making false criminal accusations in an attempt to recover a $5 million loan dating back to 1994. 

The bank's CEO, Emilio Botin, and other relatives are the focus of a tax evasion inquiry by the Spanish government involving a secret Swiss bank account that dates to the days of the Spanish Civil War in the 1930s.

Santander also operated a so-called "feeder" fund that essentially acted as a front to entice investors for disgraced Ponzi scheme operator Bernie Madoff; clients lost a staggering $3 billion.  The bank says it, too, was duped by Madoff, and has already paid $235 million to the fund set up by Madoff trustee Irving Picard. It has also offered nearly $2 billion worth of stock to victims to settle pending lawsuits.

But Guillen, who wrote the book on Santander, thinks it might be unfair to single out Santander for alleged aggressive debt collection tactics.

"What bank doesn't have a lot of complaints right now? I can't imagine (alleged illegal tactics) are a part of an explicit business plan," he said. "Are they doing this more than other banks? Banks are desperate for cash right now. I don't know if Santander stands out as being more aggressive than other banks."

And despite the complaints and lawsuits, he predicted the bank will successfully expand into U.S. retail markets.

"And I would predict other acquisitions for them," he said.

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