On November 5, 2015 the Massachusetts Attorney General’s Office announced that a national auto loan company agreed to pay $5.4 million in restitution to Massachusetts consumers to settle allegations it charged excessive interest rates on automobile loans. According to the Massachusetts AG, the company purchased loans from primary creditors that contained allegedly usurious interest rates. The usurious interest rates were related to lenders’ “GAP coverage” requirements. GAP coverage is a form of insurance that covers the difference between the market value of an automobile and the consumers’ outstanding loan balance. If the consumer defaults on the loan and the value of the automobile is less than the outstanding loan balance, GAP coverage will pay the difference. Some of the loans the company purchased from other lenders allegedly included insurance fees designed to cover GAP insurance coverage. According to the Massachusetts AG, when the GAP charges were added to the primary interest rates on the auto loans, the total “effective interest rate” exceeded the rates permitted under Massachusetts’ usury law. Under the settlement, the company agreed to pay $5.4 million in restitution to Massachusetts consumers and pay a $150,000 fine. The company also agreed to conduct audits of its loan portfolios to ensure compliance with usury laws. This is the fifth enforcement action targeting auto lending in the past three months (the others are available here).