The Spencer located the U-175 on sonar as the U-boat attempted a submerged daylight attack from within Convoy HX-233 as the convoy made its way across the mid-Atlantic. The U-boat's commanding officer had the tanker S.S. G. Harrison Smith in his periscope but the Spencer intervened. Sailing between the columns of ships, the cutter delivered three accurate attacks on the unsuspecting U-boat.  As one of the U-175's crew later recounted, "The (depth charges) were bad ... everything was shaking ... we came up and saw you in the periscope, but you saw us and we knew it was all over ... our chance to get you was gone."

The submarine surfaced and the Spencer, Duane, and many of the merchant ships' naval armed guard opened fire. The U-175's crew abandoned their submarine after opening its dive valves. The Spencer sent over a boarding party. LT Ross P. Bullard climbed aboard and determined that the U-boat was sinking too fast to salvage. Nevertheless, Bullard became the first American serviceman to board an enemy warship underway at sea since the 19th century.

Afterward, the cutters rescued the surviving 41 German crewmen. One of the Spencer's crew had been killed by "friendly fire" and several others were wounded, but the Coast Guardsmen were nonetheless jubilant. One officer described what the crew was feeling: "The uncertainty, along with the cold and discomfort, is hard to take. Of course, our job really is well done if we get most of a convoy through. But it's hard to sell that to the crew ... they want excitement and battle. Well, they got it. I bet the morale is better on this ship tonight than any in the whole damn navy."  

Admiral Sir Max Horton, Royal Navy, commander in chief of the Western Approaches, signaled the crew of the Spencer "well done."

 After the war, the US Navy credited Spencer with sinking the U-225 on 21 February 1943 although that sinking was later disallowed.  Recent research has suggested that she did sink the U-529 on 22 February 1943 although she did not receive official credit for the sinking.