KANSAS CITY, Mo. – A federal court last week dismissed certain claims in a suit brought by Centrix Financial borrowers against Credit Union of Texas, but ruled that several major claims involving the controversial subprime auto loan program still must be adjudicated.
The U.S. District Court for the Western District of Missouri ruled claims that the notice and disclosures for the subprime loans violated provisions of the Missouri Uniform Commercial Code were filed too late for the five-year statute of limitations so must be dismissed, as requested by the $1.2-billion Dallas credit union, the biggest participant in the Centrix subprime auto loan program. The two plaintiffs in this case obtained their loans in 2005 but did not file their suits until 2010, until after a state court in Missouri ruled in separate cases that dozens of credit unions’ Centrix borrowers were wronged during the repossession process and were entitled to $2.6 million in damages.
But the federal court left open the question of whether the Texas credit union committed “deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact,” in the collection on the loans and the subsequent repossession of the borrowers’ vehicles in violation of the Missouri Merchandising Practices Act.
The borrowers in the case had their loans arranged by Centrix, then sold to Credit Union of Texas, while Centrix continued to service the loans on behalf of the credit union. Eventually the vehicles were repossessed for non-payment of the loans and sold. But the borrowers allege that the credit union violated state and federal statute on notification of the repossessions.
Denver-based Centrix, which once provided subprime auto loans for as many as 400 credit unions, filed for bankruptcy in 2006, causing tens of millions of dollars in losses to its credit union partners. The failed subprime program continues to reverberate through credit unions. In June of this year, Kansas City Teachers Community CU agreed to pay Centrix subprime borrowers a total of $2.6 million to settle a class action suit in the case. Several other suits are still pending.
