Yesterday, auto lender Santander Consumer USA agreed to pay at least $9.35 million to resolve the accusation that it illegally repossessed over 1,100 vehicles from active military personnel. The company is a close partner of the ride-sharing giant Uber, which funnels drivers with low credit to Santander loan officers. It’s not the company’s first brush with the law: the lender holds over $40 billion in car loans and has repeatedly been the subject of criminal investigations into its subprime auto loan arm.
According to the US Department of Justice, Santander violated the Servicemembers Civil Relief Act (SCRA), a consumer protection statute that forces lenders to seek court approval before repossessing assets of active duty soldiers.
The bank seized Davis’s car and billed Davis — still at boot camp — $9,000
Since the Civil War, military personnel have been afforded some degree of special protections from civil claims like bankruptcy, foreclosure, and divorce. In 1919, the SCRA was enacted to allow military personnel reprieve from debt collectors while fighting in World War I. Today, companies like Santander are still required to verify the military status of loan holders against a federal database. If a soldier makes a payment on a loan but then becomes delinquent, the courts often intervene and delay repossession. The SCRA is intended to ensure that soldiers do not return from active duty and find their homes foreclosed or their cars repossessed.
But that’s exactly what happened to 19-year-old Army Specialist Joshua Davis. When Davis first took out a car loan from Santander, he made an initial payment and then informed the loan officer he would be leaving for boot camp the next day. But within a month, Santander began making collections calls on the car loan. The bank eventually seized Davis’ car in the middle of the night, from outside his home. Santander then billed Davis — still at boot camp — for $9,000, sold his car at auction, and reported him to the credit bureaus.
Davis sought help from the US Army’s Legal Assistance Program, which in turn asked the Department of Justice to look into a potential violation of the SCRA. The ensuing investigation reviewed Santander’s compliance of the SCRA from 2008–2013 and uncovered a pattern of abuse described by the DOJ as "intentional, willful, and taken in disregard for the rights of servicemembers."
"Those who answer this nation’s call to duty understandably have much on their minds while they are in military service," said Acting Assistant Attorney General Vanita Gupta of the Civil Rights Division. "Whether their car will be seized and sold at auction should not be an additional worry."
Even before today’s revelations, Uber’s affiliation with Santander drew much criticism. The DOJ subpoened Santander’s subprime arm in August, and Uber has omitted any mention of its partner’s subprime business in promotional materials that steer would-be drivers toward the bank.
Santander's abuse was "intentional, willful, and taken in disregard for the rights of servicemembers."
Santander’s violations of the SCRA are particularly worrying for military veterans working for Uber. Last September, Uber launched UberMILITARY, a campaign to employ at least 50,000 military veterans and active duty personnel. So far, over 10,000 military personnel have signed up. UberMILITARY actively recruited veterans at job fairs, promising "flexible" and "well paid work." Veterans who did not own a car, or who could not afford one, were encouraged to apply to Santander for financing. Speaking to The Verge in September, Uber spokesperson Ariel Goren said, "We never want not owning a car to be a barrier to driving with Uber. That is why partnering with Uber gives drivers the option to finance a vehicle." She went on to emphasize that "this is particularly salient for veterans who may have incomplete credit histories due to deployment."
Since the launch of UberMILITARY, Uber’s forged high-profile partnerships with veterans groups — including Hiring our Heroes and Iraq and Afghanistan Veterans of America — and worked with military brass such as Robert Gates and Stanley Chrystal to court drivers. Uber recruiters at a Hiring Our Heroes in Boston in October encouraged veterans who didn’t own cars to explore Uber financing options such as Santander.
The push for drivers to finance from companies like Santander comes from the very top: CEO Travis Kalanick personally encourages drivers to borrow money to drive for the company, and downplays the risk of taking out an auto-loan. "The risk of financing…goes way down when they’re [drivers] affiliated with us because they get in that car and go to work everyday," he told Bloomberg.
Since last fall, Uber has been bombarding its drivers with emails touting its "financing" options. "We’ve got to light up a whole bunch of supply," Kalanick told The Wall Street Journal. "We’re literally talking about powering billions of dollars in car purchases."
The settlement doesn’t indicate whether the bank has changed its policies
It’s also no secret that Uber’s relationship with financiers like Santander helps to pump up its supply of drivers — bringing in more money for Uber. That’s the logic behind recruiting veterans as drivers, whose earnings have translated into at least 3.5 million dollars in company profits since UberMilitary launched in the fall.
The DOJ’s settlement with Santander must still be approved by a district judge in Texas before it takes effect. The settlement also doesn’t indicate whether the bank has changed its policies — Santander is now required to begin reviewing its more recent auto loans and "provide compensation for any additional unlawful repossessions that may have occurred since February 2013." That would include any repossessed cars purchased by veterans through UberMILITARY over the last six months. So far, Uber will not release data on how many of its drivers took out financing via Santander and would not comment further on the settlement or its relationship with the auto lender.
Uber also gave no indication whether any of the 1,100 cars unlawfully repossessed by Santander belonged to its own drivers.