Santander Consumer USA (SC) has only paid one dividend in its history as a publicly traded company. The non-bank financier of car loans isn't directly monitored by the Federal Reserve, but the banking unit it is part of -- Santander USA Holdings -- is deemed a "Systematically Important Financial Institution."

The Motley Fool's Gaby Lapera and contributor Jordan Wathen discuss why Santander (SAN -2.12%) is having difficulties with the Fed's stress tests, and just how problematic the Fed's findings really were.

A transcript follows the video.

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This podcast was recorded on July 18, 2016.

Gaby Lapera: Attached potentially to why the Fed has so many problems with their risk oversight is the fact that what Santander's really known for, at least in the U.S., is subprime auto lending.   

Jordan Wathen: Their subprime auto lending unit is the Santander Consumer USA unit, which is publicly traded under the ticker SC here in the United States. They are basically in the business of financing cars for people who have, generally speaking, will probably have problems paying it back. I was looking at their financial filings earlier, and about 27% of their borrowers have, at one period or another, asked for an extension on their car loan. These are not at all very prime borrowers. In fact, the prime auto loans that they actually originate, they typically sell off. It's almost a subprime pure play, so to speak.   

Lapera: Just in case you're wondering, subprime is credit scores, FICO scores below 640.   

Wathen: Right, below 640. These are loans that are very high risk. Basically, the way you make money in this business is to have scale. You have to be willing to deal with borrowers who are going to call you up and say, "Hey, I can't pay this month," or, "I need to defer my payment." In a lot of cases, it's very high touch. You're going to have to repossess a lot of cars.   

Lapera: The other way that you make good money is because a lot of subprime borrowers don't have a lot of resources to borrow money, it means you can charge them much higher interest rates.   

Wathen: Right. In 2015, and I'll look at the actual number. I believe, let's see, their loan yields were 16.9% on their subprime borrowers who had an average FICO of 584.   

Lapera: Holy ... I can't say that word on here.   

Wathen: Very high interest rates on borrowers who, at least in terms of their FICO score, aren't generally good borrowers.   

Lapera: Attached to the subprime auto lending, Santander in the U.S. is facing a class action lawsuit again. Not again, but in relation to the CFPB investigation. They're facing a class action lawsuit alleging that they pressured consumers into making payments online or on the phone, and then charged them illegal convenience fees, and this is for the subprime auto loans. It's kind of like the same thing that the CFPB went after. This is a class action lawsuit, so it's not being brought by a government agency, I don't believe. Unfortunately, for Santander, on July 13th they lost their motion to dismiss. It looks like the case is going to continue for the time being, so it's kind of a mess.   

Wathen: That's the thing about subprime lending. It's just a really ugly business. Actually the ex-CEO of the consumer unit here in the United States, Tom Dundon, he always tried to avoid the media and avoid any attention, because it's not a pretty business. It's not fun to say, "Yeah, I made $1 billion lending money to people who can't exactly afford a car." It's not a fun way to get rich. It's not fun to knock on doors and try to recoup $500 from, say, a single mother who earns minimum wage because she wanted to buy a car to get to work. That's just not a fun business. It's not something someone wants to be known for.   

Lapera: Like you said, it can be profitable if you get it up to scale, but it's, I don't know. One of the things that I was looking at when I was looking at the Santander investor relations site was that they break out all of their investor presentations by geographic area, and then they have one overarching one, but the overarching one doesn't have nearly enough detail, and then you have to make this conglomerate of all these others ones. We're actually talking about a fairly small portion of Santander's business, when you think about it overall with the U.S. It's a very, very complicated bank, and while it doesn't make all of its money from subprime auto lending, that's most of the money it makes in the U.S., right?   

Wathen: Right. In the U.S., at least, yeah. Understanding the structure of the bank just in the United States is hard enough. Santander, the giant $1.5 billion [Editor's note: Billion should be trillion.] bank,  owns Santander Holdings in the United States, which owns the retail bank and owns the non-bank car company. Then in the United States you have Santander Consumer USA, which is wholly auto loans.   

Lapera: It doesn't get any better, I feel like, in any of the other countries that it operates in. It's equally complicated in all of its business units. For me anyway, I would have a really hard time investing in Santander, just because it's so complicated in a way that even JPMorgan is not, even though JPMorgan is a universal bank that does investing as well as retail stuff. Santander is just so, for a retail bank, is incredibly complicated.