Norwest, Fleet Sue Subprime Lender Over Payments on $35M of Bonds

Norwest Bank of Minnesota and Fleet National Bank of Massachusetts are each suing a Denver-based subprime automobile lender and its owner for money allegedly owed on bonds backed by auto loans.

The banks, which acted as trustees for the bonds, say that Douglas Kemp, who controls subprime auto lender Vanguard Alliance Corp., illegally kept loan payments owed to bondholders and refused to let auditors see loan records. Vanguard filed March 15 for protection under Chapter 11 of the Bankruptcy Code.

Fleet was listed as Vanguard's largest creditor, with $20.7 million of debt outstanding. Norwest was second-largest, at $7.5 million.

According to court records, Mr. Kemp bought Vanguard in February 1995, assuming a servicing agreement Vanguard had made on $35 million of bonds issued in several series in 1992 and 1993.

Beginning last August, however, Fleet says, it notified Vanguard that it was in violation of the servicing agreement. This had created "events of default" Fleet claimed were continuing as of the date of the original complaint, Feb. 8.

Fleet claims that Vanguard did not send an estimated $650,000 in proceeds from the sale of repossessed cars to the trust. At the same time, the bank alleged, Vanguard failed to account for or pay more than $677,000 which it had collected as servicing agent for the respective trusts.

Representatives of Fleet and Norwest refused to comment on the case. Mr. Kemp did not respond to requests for comment.

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