UPDATE 2-Capital One in $3.5 mln settlement on auto loan losses

Wed Apr 24, 2013 3:50pm EDT

WASHINGTON, April 24 (Reuters) - Capital One Financial Corp agreed to pay $3.5 million to resolve charges that it understated losses from auto loans in the months leading up to the financial crisis, the U.S. Securities and Exchange Commission said on Wednesday.

The SEC said Capital One failed to properly account for losses in the second and third quarters of 2007, even though the bank's auto lending arm was facing much higher delinquencies than it originally forecast.

In a statement, the bank said no consumers were affected by the conduct and it will not be required to restate financial results under the deal.

"The settlement will not affect any current or future business activities by Capital One," the bank said.

Capital One's auto loan business relied on loans to subprime borrowers, the SEC said. As credit markets began to deteriorate in 2006 and 2007, the bank failed to incorporate assessments into its disclosures that found that the decline had a significant impact on its loan loss expense.

The bank understated its second-quarter loan loss expense by 18 percent and its third-quarter loan loss expense by 9 percent, the SEC said.

The SEC settled related charges against the bank's former chief risk officer, Peter Schnall, and former divisional credit officer David Lagassa, who agreed to pay $85,000 and $50,000 in penalties, respectively.

Schnall and Lagassa remain with Capital One, a bank spokeswoman said. Schnall is serving in a senior advisory role until the end of the year, and Lagassa is a managing vice president in financial services, the spokeswoman, Tatiana Stead, said.

The bank and its two executives neither admitted nor denied the findings, the SEC said.

Lawyers for Schnall and Lagassa did not immediately respond to a request for comment.

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