Federal officials said Wednesday that Santander Consumer USA has agreed to pay at least $9.35 million to resolve a lawsuit by the Department of Justice alleging that the finance company violated the Servicemembers Civil Relief Act (SCRA) in connection with vehicle repossessions.
The Justice Department indicated the complaint and the settlement, which is subject to court approval, were filed Wednesday in the U.S. District Court for the Northern District of Texas.
Officials explained the settlement covers the improper repossessions of 1,112 vehicles between January 2008 and February 2013. They pointed out the proposed consent order represents the largest settlement for illegal vehicle repossessions ever obtained by the United States under the SCRA.
The lawsuit alleges that Santander initiated and completed 760 repossessions, without court orders, of vehicles owned by SCRA-protected service members. The agreement requires Santander to pay $10,000 compensation for any lost equity (with interest) to each of these service members.
The lawsuit also alleges that Santander sought to collect fees arising from an additional 352 repossessions that unrelated motor vehicle lenders had conducted in violation of the SCRA before Santander acquired the loans. The agreement requires Santander to pay $5,000 to each of these service members. Santander also must repair the credit of all affected service members.
When ed by AuSM and SubPrime Auto Finance News, Santander Consumer USA maintained that “the DOJ noted in its consent order that, ‘SCUSA has cooperated fully with the United States’ investigation in this matter and has, both prior to and contemporaneous with the DOJ’s investigation, taken steps to improve its servicing practices and compliance with the SCRA.’”
For future repossessions, the settlement requires Santander to check the Defense Department’s automated database to see if a vehicle’s owner is in military service prior to conducting a repossession.
“Since 2012, SCUSA has used systemic controls to prevent improper repossessions of vehicles, including those who were contracted with SCRA-eligible customers,” Santander officials said in an emailed statement. “The majority of accounts found objectionable by the DOJ involved repossessions prior to 2012 and approximately one-third were accounts from other financial institutions that were converted to SCUSA accounts at a later date.”
The Department of Justice said it first learned of Santander’s repossession practices through a referral from the U.S. Army’s Legal Assistance Program. The referral involved a claim that Santander illegally repossessed the car of a service member, U.S. Army Specialist Joshua Davis, in the middle of the night, after having been informed that he was at basic training.
The department also opened its investigation after learning that Santander used an arbitration clause included in its loan documents to prevent a second service member from pursuing systematic relief through a class action lawsuit he filed alleging that Santander had repossessed service members’ vehicles in violation of the SCRA.
“This is a just resolution that will provide service members with financial relief and help repair their bad credit caused by Santander’s improper repossessions and fee collections with respect to more than 1,100 cars,” said acting associate attorney general Stuart Delery.
“The Department of Justice will continue devoting time and resources to protect our service members and their families from such unjust actions and hold bad actors accountable,” Delery continued.
As part of their investigation, federal officials said they have already identified Santander’s illegal repossessions, and efforts to collect unlawful repossession fees, occurring between January 2008 and February 2013. Service members identified based on that investigation will be ed by an independent settlement administrator later this year, according to regulators.
The settlement also requires Santander to conduct a review and provide compensation for any additional unlawful repossessions that may have occurred since February 2013.
“SCUSA is not the first financial institution to be scrutinized by the DOJ for SCRA activity, nor is it the first to reach a financial settlement with the DOJ,” Santander officials said. “SCUSA has set aside financial reserves for this matter. The settlement does not require adjustments to publicly reported numbers.”
Federal officials added all service members who are eligible for compensation from the settlement will be ed by the administrator, and do not need to the Department of Justice.
“Those who answer this nation’s call to duty understandably have much on their minds while they are in military service,” said acting assistant attorney general Vanita Gupta of the Civil Rights Division. “Whether their car will be seized and sold at auction should not be an additional worry. We will continue to vigorously pursue lenders who fail to take the simple steps necessary to determine, before repossessing a car, whether it is owned by a service member.”
Federal officials went on to mention the SCRA is meant to protect service members against certain civil proceedings that could affect their legal rights while they are in military service. It requires a court to review and approve any repossession if the service member took out the loan, and made a payment, before entering military service. The court may delay the repossession or require the lender to refund prior payments before repossessing.
The court may also appoint an attorney to represent the service member, require the lender to post a bond with the court and issue any other orders it deems necessary to protect the service member. By failing to obtain court orders before repossessing motor vehicles owned by protected service members, Santander prevented service members from obtaining a court’s review of whether their repossessions should be delayed or adjusted in light of their military service.
“The SCRA is an important protection for the men and women serving our country in the armed forces, and this settlement not only will rectify the past improper repossessions of service members’ vehicles, but will work to prevent such improper repossessions in the future,” said acting U.S. attorney John Parker of the Northern District of Texas.
In closing its statement to AuSM and SubPrime Auto Finance News, Santander Consumer USA added, “the topic is separate and unrelated to the DOJ subpoena received in 2014 related to origination and securitization practices.”