CFPB and Justice Department Caution Auto Finance Companies about Servicemember Protections

  • Source: consumerfinance.gov

Treliant Takeaway:

Treliant is an industry leader in servicemembers rights and benefits, and has deep expertise with respect to Servicemembers Civil Relief Act (SCRA) requirements through the life of auto loans. Treliant is best positioned to provide impactful analysis and expertise to auto finance companies to meet regulatory requirements and withstand regulatory scrutiny pertaining to servicemembers’ auto loans.

Highlights:

Where there is smoke, there is fire. The Consumer Financial Protection Bureau (CFPB) has been busy publicly pronouncing that their attention is laser-focused on servicemembers’ protections and benefits under SCRA. Coming on the heels of their July 18 blog post regarding costly auto loans and wrongful repossessions pertaining to servicemembers (which Treliant analyzed here), the CFPB partnered with the Department of Justice (DOJ) to issue this joint letter that reiterates the rights afforded to servicemembers under SCRA.

Of note, the joint letter not only reiterates the specific requirements of SCRA, but includes the following language: “Servicemembers are also commonly the target of unfair or predatory practices, including costly loans and expensive contracts… Additionally, the CFPB has the authority to address unfair, deceptive, or abusive practices related to auto financing for all members of the public, including servicemembers.” The CFPB is making clear that they have the authority to enforce SCRA-related requirements through the UDAAP statute, and auto finance companies should take note of this development.

As it relates to SCRA requirements in the auto space, auto finance companies should remember these three key benefits and protections afforded to servicemembers:

  • Auto finance companies cannot repossess an active duty servicemember’s vehicle without a court order.
    • Servicemembers do not need to prove their active duty status to the servicer. The CFPB reminds auto finance companies in bolded and italicized text that it is the servicer that has the burden of identifying these borrowers before any repossession activities occur. This applies to attempted repossessions as well as completed repossessions.
  • Without penalty, servicemembers with qualifying military orders for a permanent change of station or deployment, or after entering military service, are entitled to early vehicle lease termination.
    • Auto finance companies must not impose any penalties and must refund all advance payments that cover amounts due after the effective date of termination. The CFPB specifically reminds companies that this includes capitalized cost reduction amounts paid by the servicemember at signing.
  • Servicemembers on qualifying active duty service are entitled to interest rate relief.
    • Servicemembers can provide a copy of their military orders (or other acceptable documentation) to their auto finance company and, if the loan was originated prior to their active duty start date, be entitled to forgiveness (not deferment) of interest in excess of six percent. Servicemembers must provide these orders to the auto finance company within 180 days of the end of active duty service to be eligible for SCRA interest rate relief. This forgiveness must also be applied retroactively back to the first day of SCRA eligibility.

Auto finance companies should take heed of this letter and ensure that they have robust policies, procedures, and processes in place for SCRA compliance. On top of potential fines for noncompliance, the reputational risk associated with SCRA violations is heightened relative to other laws and regulations. Given that this is the CFPB’s seventh servicemember-related pronouncement in calendar year 2022, and that they chose to issue this as a formal joint letter with the DOJ, auto finance companies should look at SCRA risk and controls in great detail and firm up processes ahead of examinations and audits.

Author

Ryan Labriola

Ryan Labriola is a Manager in Treliant’s Regulatory Compliance & Risk Management service area, where he has worked on major projects involving some of the top banks and law firms in the country. Among those projects, Ryan recently assisted a Top 40 U.S. bank with a large-scale Servicemember Civil Relief…