BANGOR – One of Maine’s largest used-car dealers has agreed to forgive more than $2.8 million in outstanding consumer car loans after reaching a lawsuit settlement with the state Attorney General’s Office.

Linnehan’s Credit Now Auto Co. and its financing arm, Atlantic Acceptance Corp., will forgive loans owed by some 600 customers. Linnehan’s Credit Now has car lots in Bangor, Brewer and Ellsworth.

While a company spokesman said the gesture should be regarded as upstanding conduct by the auto dealership, the state Attorney General’s Office claimed the business conduct that led to a June lawsuit against the auto dealer was unusual and virtually never seen before in Maine.

The state’s suit, filed June 7 in Kennebec County Superior Court, Augusta, alleged that Linnehan’s Credit Now had been repossessing vehicles then selling the cars to a Credit Now agent at a wholesale auction for dealers only. After the auction, the consumer still owed the difference between the outstanding loan amount and the wholesale auction price. Meanwhile, the auctioned car often would end up on a Linnehan’s lot again to be sold at a higher retail price.

The conduct violated a “reasonable conduct” provision of the state’s unfair trade practices laws, according to James A. McKenna, assistant attorney general.

Monday’s announcement was good news to E. Dyer of Hudson, who asked that his first name not be spelled out in the story. Afflicted with multiple sclerosis, Dyer had his car repossessed in 1995 after missing two weeks’ worth of payments, he said. Dyer’s illness forced him to try to refinance his home awhile later, only to find the auto dealership had placed a lien on his property. Dyer, now 53 and disabled, received a letter Monday notifying him that he may be eligible for money he reportedly lost in the car deal.

Dyer said he paid the dealership $4,000 that he owed on the car even after it was repossessed.

“I think it stinks,” Dyer said of the way he was treated.

Keith Whann, an attorney from Ohio who represented the defendants in the lawsuit, said Monday that “Candidly, Linnehan’s did nothing wrong with the case.”

Whann questioned the motivations of the Attorney General’s Office for publicizing a lawsuit settlement two months after it occurred. He said Linnehan’s agreed to pay a $40,000 fine and about $11,000 in costs, not a large amount if the case was “as big as the state apparently is claiming.”

“These folks [Linnehan’s] ought to be given a medal for stepping up and doing the right thing rather than get scoured over in the headlines,” Whann said. He said leaders of the auto dealership decided not to prolong the case, which would be a “waste of taxpayer money” and of other resources.

In a telephone interview, Whann said most of the loans that were forgiven were “nonperforming.”

“These were folks already delinquent in their loans and we agreed to forgive them all,” Whann said.

Whann stressed the auto dealership admitted no wrongdoing. “We can do all the same things today as we did before,” Whann said

“It is perfectly legal to take a car to a wholesale auto auction and sell it,” Whann said. He described the selling of the repossessed cars at auction as a generous gesture.

“What they [Linnehan’s] did was they wound up going to some dealers and saying, ‘These are good cars, and we bought them and sold them. We think you ought to bid on them. If you buy the cars and can’t sell them, we’ll buy them from you for what you paid.’

“When the smoke all clears what we did was tell the state, ‘If you think it’s inappropriate for us to buy a car back we just won’t do it.’ The only person who gets harmed here is the customer,” Whann said.

In addition to forgiving the loans, Credit Now must reimburse eligible consumers for any payments made after the cars were repossessed and resold. Customers seeking their money back must first sign a release stating they will not bring any other legal action against the company.

Affected customers will be contacted by the Attorney General’s Office by mail, or can contact the office at http://www.state.me.us/ag/homepage.html.