Harmed Centrix Borrowers Set to Receive Settlement
Vehicle loan borrowers who incurred losses from the defunct Centrix Financial LLC’s indirect lending program are set to receive their share of a $2.6 million settlement, a Kansas judge recently ordered.
According to law firm Walters, Benders, Strohbehn Vaughan PC in Kansas City, Mo., which handled one of the cases against subprime lender Centrix, the settlement of a class action suit from borrowers with the $65 million Kansas Teachers Community Credit Union against Centrix was announced Feb. 3. A judge approved the settlement May 19, confirmed R. Frederick Walters, president of the law firm.
The settlement allows for the 140 class action claimants to receive a cash payment averaging approximately $9,315, plus a write-off of any deficiency or account balances remaining on their vehicle loans, which amounts to an average of approximately $8,968, according to the law firm.
The next step is a 40-day waiting period to allow for any appeals. Walters said if there are none, the settlement will be distributed.
"Everyone knows how important credit scores are. The interesting part is that there are other benefits to the settlement such as an opportunity to improve their credit scores and any deficiency balances after their cars were possessed will also be forgiven," Walters told Credit Union Times.
The claimants are also entitled to correction of their credit report by removal of any negative reporting by the credit union with respect to the vehicle loan.
Members claimed violations of Missouri's Uniform Commercial Code and Merchandising Practices Act against the credit union resulting from its participation in a subprime motor vehicle financing program with Centrix, which resulted in the repossession of their motor vehicles.
Kansas Teachers Community CU did not provide a comment.
More than two-thirds of Centrix’s portfolio was owned by nearly 230 credit unions. At one point, the lender underwrote more than 250,000 loans totaling $4 billion. Many credit unions and others filed claims to collect millions against the company after its portfolio management program went under. Centrix eventually filed for bankruptcy and later morphed into other companies, the latest being Peak5 Financial, which closed its business in July 2009.
In July 2006, the NCUA put a rule in place that limits the amount credit unions can have in indirect vehicle loans serviced by third-parties that are not federally insured depository institutions. The guidelines are loans can be serviced by any single third-party to 50% of a credit union's net worth during the first 30 months of a new third-party servicing relationship and to 100% of the credit union's net worth after the initial 30-month period.