Drivers in search of used cars have several options, but for many, CarMax is the top choice. However, the nation’s number one used vehicle retailer is currently under fire after being accused of illegally repossessing the vehicles of military members.
Now, the company has agreed to pay $500,000 to settle the allegations of illegal vehicle towing. Of that total, the majority will go to the affected military service members, while a portion will be applied as a civil penalty.
This comes as CarMax has faced other struggles, including a stock price plunge and severe financial strain.
Carmax Is Accused of Taking Vehicles Without a Court Order
In a Feb. 23, 2026 announcement, the Department of Justice said it reached a settlement with CarMax Inc. to resolve allegations that the company violated the Servicemembers Civil Relief Act (SCRA). The issue with CarMax in this situation is that under the SCRA, lenders generally can’t repossess a servicemember’s vehicle without first getting a court order.
This is the case as long as the borrower made at least one payment before entering military service. For reservists, protections can begin once they receive orders to report for service.
According to the Consumer Financial Protection Bureau, even if said service member misses a payment, the creditor in question must first sue and get a judge’s order before repossessing a protected vehicle.
The Department of Justice also alleges that CarMax repossessed some vehicles even after owners told the company they were in military service.
Terms of the Settlement
Per the settlement agreement, the government’s claims cover the period from March 1, 2018, through at least Oct. 24, 2023, and involve “at least” 28 service members whose vehicles were repossessed without court orders. For each identified repossession, CarMax must pay the servicemember $15,000, plus any “lost equity” (if the vehicle was worth more than what was owed) and interest on that lost equity.
In the agreement, lost equity is calculated as the vehicle’s retail value (based on the NADA Guide, with adjustments for condition/mileage) minus the outstanding loan balance and certain other amounts, excluding repossession-related fees.
In addition to the consumer payouts, the DOJ stated that CarMax will pay at least $420,000 in damages to servicemembers and a $79,380 civil penalty to the United States.
What To Do if You Land in This Situation
If you’re in the military and have an active auto loan, missing payments doesn’t automatically mean that dealerships like CarMax can simply repossess your vehicle. The SCRA can require the lender to go to court first, and courts can take military service into account.
If you think your rights may have been violated, the DOJ says servicemembers and dependents should contact their nearest Armed Forces Legal Assistance Program office. Military OneSource also encourages servicemembers to reach out for help navigating SCRA protections.
As mentioned, the CarMax settlement follows years of declining profits for the company. According to The Motley Fool, the company’s stock plummeted by 53% in 2025. CarMax has also seen a decline in sales as people seek used cars amid increased competition from options like Carvana and even local dealerships nationwide.