WASHINGTON, Aug 29 (Reuters) - European lender Santander has agreed to settle claims by a U.S. consumer watchdog that it misled drivers about the costs of loans and the coverage of related insurance policies, said three people with direct knowledge of the settlement.
Santander Consumer USA Holdings Inc, an affiliate of the Spanish banking group, allowed borrowers to make interest-only monthly payments without explaining that doing so would increase the total cost of the loan, said the people familiar with the Consumer Financial Protection Bureau (CFPB) sanction.
The lender also failed to explain to customers how an insurance policy - known as ‘guaranteed auto protection’ (GAP) - would not always cover the costs of replacing a car that was destroyed in an accident.
Santander Consumer has agreed to pay a fine and strengthen its consumer protections, said the sources. Reuters could not ascertain the size of the fine.
A spokeswoman for Santander Consumer declined to comment on any possible settlement but said the lender has in recent months improved its consumer protection controls. A spokesman for the CFPB said the agency does not comment on enforcement actions.
Reporting By Patrick Rucker; Editing by Steve orlofsky