Centrix Financial Still Haunts CU Lenders

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KANSAS CITY, Mo. – The bankruptcy of Centrix Financial continues to take a toll on credit union participants in the firm’s subprime indirect loan program, with lawsuits by borrowers who had their vehicles repossessed spreading.

In a suit moved to federal court here this week, a handful of Missouri borrowers purporting to represent more than 100 Centrix customers are claiming the Credit Union of Texas, one of the biggest Centrix partners, violated state law in repossessing their vehicles, some claiming they were current on their loans. The borrowers are asking the court to award them the principal and interest on the loans and damages, which could total more than $5 million.

The latest suit claims the Texas credit union, which bought the indirect loans through a contract with Centrix, violated the Missouri Commercial Code and the state’s consumer protection statute by failing to notify the borrowers of the repossessions.

In court filings, Credit Union of Texas claims it did not directly repossess the Missouri vehicles, so is not liable for the claims. The Texas credit union concedes it financed the subprime auto loans for 223 Missouri residents that ultimately were repossessed. It is not clear how the borrowers qualified for membership in the Dallas credit union, once known as Teachers CU.

“The claims that we assert under Missouri law are focused on the secured lender. We believe it’s they who are liable,” Garrett Hodes a Kansas City lawyer representing the borrowers, told Credit Union Journal yesterday. The firm is representing other borrowers in the Centrix program who have filed separate suits against Kansas Teachers CU and Meadows CU, another big Centrix player.

A lawyer representing Credit Union of Texas in the case declined to comment and said yesterday she recommended the credit union also withhold comment.

Denver-based Centrix, which once partnered with as many as 320 credit unions across the country, filed for bankruptcy in 2005 amid growing delinquencies on its subprime loans, eventually costing credit unions tens of millions of dollars in losses.

Bankruptcy courts filings showed that Credit Union of Texas was one of the biggest buyers of loans arranged through the Centrix program. The loans bought by the credit union, which mounted to over $120 million, were sold in participation agreements to other credit unions, according to court records. When the subprime auto loans eventually went bad at a rate soaring as high as 35%, big losses accrued to dozens of credit unions, including Credit Union of Texas.

Claims in the suits are similar to those made against Navy FCU in a recent Maryland class action suit not involving Centrix, prompting the credit union giant to agree to a $50 million settlement to compensate borrowers.

The suit originally was filed in state court in Missouri but moved to the federal court because it is a class action involving potentially more than 100 plaintiffs.

 

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