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UPDATE 2-GM Financial to pay over $3.5 mln to resolve claims it violated U.S. law

(Adds GM Financial response in third paragraph)

By Kanishka Singh

WASHINGTON, Oct 5 (Reuters) - GM Financial, a unit of General Motors Co, agreed to pay over $3.5 million to resolve allegations it violated a U.S. federal law that provides certain benefits and protections to eligible servicemembers, the Justice Department said.

GM Financial was accused of violating the Servicemembers Civil Relief Act by illegally repossessing 71 servicemembers' vehicles and by improperly denying or mishandling over 1,000 vehicle lease termination requests, the Justice Department said in a statement on Wednesday.

GM Financial has agreed to pay $3.5 million to the affected servicemembers and a $65,480 civil penalty to the government, the Justice Department said, adding that the company will pay at least $10,000 to each of the 71 servicemembers who had their vehicles unlawfully repossessed.

GM Financial, in an emailed statement, acknowledged the settlement reached with the Justice Department and said it had cooperated throughout the probe.

The unit is a wholly owned subsidiary of General Motors, and provides financing for vehicle sales and leases. In 2021, GM Financial had revenue exceeding $13 billion.

In a complaint filed in U.S. District Court in Dallas, the department alleged that since 2015 GM Financial had improperly denied servicemembers' lease termination requests, charged servicemembers improper early termination fees or lease amounts after the date of termination, and failed to provide servicemembers timely refunds of lease amounts they paid in advance.

The Justice Department said it began investigating GM Financial after receiving a complaint about a potential violation involving a U.S. Army chief warrant officer. (Reporting by Kanishka Singh in Washington; editing by Costas Pitas, Jonathan Oatis and Marguerita Choy)