Santander Consumer USA to Pay $9.4 Million Settlement

By Alan Zibel 

WASHINGTON-- Santander Consumer USA Holdings Inc., a large player in the subprime auto loan market, agreed to pay nearly $9.4 million to settle federal allegations it improperly repossessed more than 1,100 vehicles from military members.

Under a settlement filed on Wednesday in U.S. District Court in Dallas, Santander Consumer settled accusations it violated a federal law that provides special lending protections to active-duty military members.

The settlement comes as federal officials push to scrutinize practices in the auto-lending industry. Santander is the largest U.S. issuer of bonds backed by loans made to borrowers with poor credit, according to data from Fitch Ratings.

The Justice Department said Santander improperly completed repossessions of vehicles owned by military members without required court orders.

The law, known as the Servicemembers Civil Relief Act, applies to active-duty military members and covers loans service members took out before entering the military.

Officials said they learned of Santander's repossession practices after a service member alleged the lender had repossessed a military member's car during the night.

The company didn't admit or deny the allegations. A Santander spokeswoman said the company "cooperated fully" with the investigation and has improved its loan-servicing practices. The company said it has set aside reserves for the settlement and wouldn't need to adjust its financial filings.

Santander and other lenders also faces additional regulatory scrutiny. The company disclosed last year it received a civil subpoena from the Justice Department requesting documents about its subprime loan underwriting and securitization practices, as well as a similar request from the Securities and Exchange Commission.

Write to Alan Zibel at [e-mail]

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