The American arm of Santander Consumer is to pay $25.9m (£20.8m) in settlements for facilitating sub-prime car loans made in Massachusetts and Delaware, according to news reports.

Santander was the subject of investigations by the attorneys general of both states over claims it had facilitated thousands of ‘unfair’ high rate loans to car buyers.

The bank packaged the subprime car loans into securities and sold them to investors. The prosecutors said that Santander was aware of high default rates at certain dealerships as a result of false information on loan applications, but continued to buy them.

Maura Healey, Massachusetts attorney general said: “We found that Santander, a leading player in the business of packaging and reselling subprime auto loans, funded unfair and unaffordable auto loans for more than 2,000 Massachusetts residents.

“This first-in-the-nation settlement relating to subprime auto loan funding will provide relief to thousands of car buyers in Massachusetts and prevent these practices from being used against our residents.”

Santander claimed that it had changed its ways more recently, saying: “In the last 18 months, our new management team has taken significant steps to strengthen our business practices and controls.”

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By GlobalData

The settlement will consist of $22m for the Massachusetts case, which includes $16m in debt relief for 2000 consumers, and $3.9m to resolve the case in Delaware.

Healey said that the investigation showed Santander funded the loans, fully aware that many would not be able to afford to repay, and predicting defaults. She suggested that it echoed the build up to the mortgage crisis which was the initial basis for the financial crisis in 2008. She said: “After years of combatting abuses from subprime mortgage lenders, these practices are unfortunately familiar.