DENVER – Lyndon Property Insurance Co., the one-time insurer for Centrix Financial, has filed a new suit against 37 credit unions claiming they conspired with the failed subprime auto lender to milk more than $120 million in insurance payments from the company.
The credit unions named were the biggest players in the failed $4 billion subprime program and include: Credit Union of Texas, Velocity CU, Corporate America Family CU, Landmark CU, Allegacy FCU, Credit Union 1, Financial 21 Community FCU, San Diego Metropolitan CU, Security Service FCU, Tech CU and Valley CU, among others.
Lyndon claims the credit unions failed to exercise proper underwriting standards when approving subprime auto loans, which were covered by Default Protection Insurance provided by the company, then failed to report defaults and other facts of the loans to Lyndon, which would have either cancelled the policies or raised premiums to pay the rising default rates.
The scheme, according to the suit filed in U.S. District Court for the District of Colorado, was created by Centrix, with the willing knowledge of the credit unions.
The insurer originally sought recoveries from more than 80 credit unions, but settled with the others in exchange for the credit unions’ agreement to drop their own insurance claims.
Centrix once provided subprime auto lending services to more than 400 credit unions and filed for bankruptcy in September 2006. The bankruptcy has cost credit unions millions of dollars in losses.
