CarMax, the nation’s largest used-vehicle retailer, has agreed to pay hundreds of thousands of dollars to resolve federal allegations that it illegally repossessed vehicles belonging to members of the U.S. military.
According to the U.S. Department of Justice, the company will pay at least $420,000 to affected servicemembers and a civil penalty of $79,380 to the federal government after investigators determined the company violated the Servicemembers Civil Relief Act, known as the SCRA.
Federal officials said the violations occurred between March 2018 and October 2023 and involved at least 28 servicemembers whose vehicles were repossessed without the required court approval.
Under the terms of the settlement, each affected servicemember will receive $15,000 in compensation, along with any lost equity in their vehicle plus interest tied to that equity.
The Servicemembers Civil Relief Act provides a variety of financial and legal protections for members of the U.S. military while they are serving on active duty. Among those protections is a provision that prevents lenders from repossessing a servicemember’s vehicle without a court order, provided the borrower made at least one payment on the loan before entering active duty.
The law also extends protections to members of the reserves once they receive official orders to report for active military service.
According to the Justice Department, CarMax repossessed vehicles owned by servicemembers without first obtaining the court orders required under federal law. In some cases, officials said the repossessions occurred even after the borrowers had informed the company of their military status.
Federal investigators also alleged that the company failed to properly account for protections that apply to reservists once they receive activation orders.
Assistant Attorney General Harmeet Dhillon of the Justice Department’s Civil Rights Division said in a statement that the federal government remains committed to protecting the rights of those serving in the armed forces.
“The Department of Justice is proud to defend the rights of those who serve in our military,” Dhillon said when the settlement was announced.
CarMax, which operates more than 240 used-vehicle stores across the United States, did not admit wrongdoing as part of the settlement agreement. The company said it cooperated with federal officials during the investigation and has taken steps to strengthen its internal compliance procedures.
In a statement, CarMax said it has improved processes designed to identify customers who may qualify for protections under the Servicemembers Civil Relief Act. The company also said it has expanded employee training and enhanced policies governing repossessions.
CarMax added that it has provided financial relief to military customers in the past, including reductions in finance charges and repossession protections when borrowers qualify under the federal law.
As part of the settlement, the company must notify affected servicemembers about their eligibility for compensation and provide multiple ways for them to contact the company, including a toll-free phone number, email address and website.
The agreement also requires CarMax to work with credit reporting agencies to remove negative credit entries associated with the repossessions.
In addition, the company must implement policies requiring employees to check the Department of Defense’s military database to determine whether a borrower qualifies for protections under the Servicemembers Civil Relief Act before moving forward with repossession.
The settlement will remain in effect for four years and requires CarMax to provide the Justice Department with updated repossession policies and related compliance procedures.
The Justice Department said the agreement resolves civil allegations only and does not represent a finding of liability by a court.
Federal officials also encouraged servicemembers who believe their rights under the Servicemembers Civil Relief Act have been violated to contact an Armed Forces Legal Assistance office for guidance and support.
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