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Washington — Auto lender Santander Consumer USA agreed to pay at least $9.35 million for improperly repossessing more than 1,100 vehicles from active duty military service members, the Justice Department said Wednesday.

Under federal law, service members have additional rights before a lender can seek to foreclose or repossess a vehicle for nonpayment.

“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 Justice Department said.

The settlement covers the improper repossessions of 1,112 motor vehicles between January 2008 and February 2013 and represents the largest settlement for illegal automobile repossessions ever obtained by the United States. It must be approved by a federal judge in Texas.

The law 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.” A judge may delay the repossession or require a lender to refund prior payments before repossessing a vehicle or may appoint an attorney to represent the service member, require the lender to post a bond with the court and issue any other orders under the Servicemembers Civil Relief Act.

“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."

The settlement comes amid growing scrutiny of auto lenders by the Justice Department and state attorneys general for a variety of issues, including lending practices. The Justice Department has subpoenaed the lending unit of General Motors Co. among other lenders as part of a review to determine if banks were misled into buying some auto loans.

In December, Toyota Motor Credit Corp., the lending arm of the world's largest automaker, said it has been accused of discriminatory pricing of loans by the Justice Department and the Consumer Financial Protection Bureau. The Justice Department and the CFPB want Toyota Credit to pay fines and make changes to its pricing practices.

The Justice Department said Santander initiated and completed 760 repossessions, without court orders, of motor vehicles owned by service members. The agreement requires Santander to pay $10,000 plus compensation for any lost equity plus interest to each of these service members.

The bank is a unit of Spain's Banco Santander.

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 law 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 impacted service members, the Justice Department said.

For future repossessions, the government will require Santander to check the Defense Department’s database to see if a car’s owner is in military service prior to conducting a repossession.

The Department of Justice initially 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 in the middle of the night after having been informed that he was at basic training.

The settlement also requires Santander to conduct a review and provide compensation for any additional unlawful repossessions that may have occurred since February 2013.

In February 2013, Chrysler Group LLC announced a deal with Santander to form Chrysler Capital, which will replace Ally Financial Inc. as the automaker's preferred lender. The private-label agreement will allow Chrysler Capital to provide financing to customers and dealers.

The company — now part of Fiat Chrysler Automobiles NV — has had a long-standing relationship with Santander, which is Spain's largest bank. Chrysler had previously been using Santander to help provide subprime loans to customers in the United States.

DShepardson@detroitnews.com

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