Santander will pay about $26 million to settle charges it engaged in predatory subprime auto lending and loan securitization in the US states of Massachusetts and Delaware.

Santander Consumer USA, a unit of the large Spanish bank, worked through a series "fraud dealers" who targeted default-prone consumers for car loans at high interest rates, said Massachusetts Attorney General Maura Healey, who estimated that more than 2,000 drivers in her state were affected.

"Santander KNEW that it was making bad loans to consumers. Loans it knew they could not pay back," Healey said on Twitter.

"After funding the doomed loans, Santander securitized them, and sold them off for profit."

Healey and Delaware Attorney General Matt Denn described a scheme with parallels to the subprime housing bust, which was caused by a rubber-stamp approach among lenders to mortgages to consumers without sufficient means to pay back the money. 

Toxic mortgages were then packaged and securitized, ultimately exposing the global financial system to the US housing market crash and subsequent financial crisis of 2008. Banks were later forced to pay billions of dollars in penalties and restitution to resolve fraud charges.

Under the settlement, Santander will pay $22 million in Massachusetts and $3.9 million in Delaware, with the majority of funds in both states going to consumers. 

The prevalence of subprime auto loans is growing in the United states.

The New York Federal Reserve in recent months has cited the worrisome rise in auto loans to borrowers with low credit scores, which now account for about a third of total loan balances outstanding in US housholds, with a delinquency rate of about two percent of the total, or about six million individuals.

source: AFP