CitiFinancial Auto SCRA Settlement: $907,000 for 164 Repossessions

What happened

On September 18, 2017 the United States sued CitiFinancial Credit Company, as successor in interest to CitiFinancial Auto Corporation, in federal court in Dallas, and the two sides executed a settlement agreement on that date. The complaint says CitiFinancial Auto made car loans until 2010, when it transferred its servicing operation and sold its loan portfolio to Santander Consumer USA, and that from 2007 through 2010 it repossessed at least 164 automobiles from SCRA-protected servicemembers without court orders.

This case grew out of an earlier one. The United States sued Santander on February 25, 2015, alleging SCRA violations in over 1,100 repossessions, and in the investigation behind that suit found accounts where CitiFinancial Auto had arranged the physical repossession and later sold the account to Santander, which then tried to collect fees tied to the repossession. Santander's consent order, entered February 26, 2015, obligated it to pay $5,000 to each servicemember whose account it acquired after such a repossession, and said that payment did not release the United States' claims against CitiFinancial. DOJ notified CitiFinancial of its own investigation on March 20, 2015.

The complaint describes three gaps. Status checks in the Defense Manpower Data Center database were sometimes run weeks or even months before the car was actually taken, so borrowers who had entered service or received early notification orders in between were missed. Written policy applied SCRA protection only to borrowers who were currently active duty or stationed in a combat zone, leaving out reservists ordered to report. And in several cases the servicing notes showed the company had been told the borrower was in military service or had orders, and the repossession went ahead anyway.

CitiFinancial denies any liability (settlement agreement paragraph 5). It represented that it no longer originated or serviced auto loans; if it re-entered that business it had to notify the United States and put SCRA repossession and interest rate procedures in place first (paragraph 9).

The law behind this: 50 U.S.C. § 3952

Protection under installment contracts for purchase or lease: read the statute , or read § 3952 in plain English, with its enforcement record .

Members of our armed forces make extraordinary sacrifices in order to protect and defend our nation, and they should be able to serve actively without fear that their legal rights will be violated.

Who was covered

The borrowers on the 164 repossessions the United States found were not in compliance with the SCRA, from 2007 until the 2010 sale to Santander (settlement agreement paragraph 11). The agreement counts a servicemember as protected when a deposit or at least one installment was paid before entering military service, and it treats a reservist's early alert period, from receiving orders until reporting, as protected time on the repossession date, but not as military service when deciding whether the deposit or installment came before service (footnote 1). Non-servicemember co-borrowers who sign the release share the equity payment.

What the settlement paid

• $907,000 deposited in an interest-bearing escrow account to fund the payments (settlement agreement paragraph 10).
• For 163 of the 164 repossessions the United States had already obtained partial compensation of $5,000 per servicemember through the Santander settlement (paragraph 12). For each of those, CitiFinancial pays a further $5,000 plus $500, which the United States considers a fair estimate of the lost equity and the interest accrued since the repossession (paragraph 13). The one remaining repossession gets $10,000 plus $500 (paragraph 14).
• The $5,000 and $10,000 amounts are paid in full to the servicemember borrower who signs the declaration and release; the $500 is divided equally among all borrowers, co-borrowers included, who sign the release (paragraph 15). Money not distributed within two years of the first notices goes to the Treasury (paragraph 22).
• Within 90 days CitiFinancial had to ask Equifax, Experian and TransUnion to delete the trade lines on all 164 accounts. It may not pursue, and must indemnify borrowers against anyone else pursuing, a deficiency left after one of these repossessions (paragraph 26). The agreement's term was five years (paragraph 41). It sets no civil penalty, and the complaint did not ask for one.

Why this case matters

Selling the loans did not end the seller's exposure. Santander paid on accounts it had bought after CitiFinancial Auto arranged the repossessions, and in 2017 CitiFinancial Credit Company, as successor to the company that arranged them, agreed to pay again. Read the equity line too: here lost equity is a flat $500 estimate per repossession, where Westlake's 2017 agreement in this ledger measures it account by account against the NADA retail value. If CitiFinancial Auto took your car while you were serving and the account later turned up at Santander, both settlements may apply to it.