Read the CFPB Report Here

  • Source: consumerfinance.gov

Treliant Takeaway:

Proactive DMDC searches can be fraught with nuances and return “false” results and may not be the silver bullet suggested by the CFPB if not implemented correctly.  Not all military service is “active duty” service and reading military orders can be complex.  Treliant is uniquely positioned to assist financial institutions and non-financial institutions with their SCRA processes and associated challenges. Treliant has helped some of the biggest players in the market with every aspect of SCRA compliance and is prepared to assist at a moment’s notice.

Highlights:

On Wednesday, the Consumer Financial Protection Bureau (CFPB) published a report in which they detail their statistical analysis showing that National Guardsmen and Reservists underutilize their Servicemember Civil Relief Act (SCRA) interest rate relief benefits. The research report, which uses a combination of CFPB data and publicly-available active duty data from the Defense Manpower Data Center (DMDC), finds that “fewer than one in ten members of the reserve component with eligible auto loans, and only 6 percent of those with eligible personal loans, received an interest rate reduction from 2007 to 2018” (“Protecting Those Who Protect Us,” pp. 4). The report did conclude, however, that National Guardsmen and Reservists do see reductions in automobile repossessions during periods of active-duty service, as required by the SCRA. The report estimates that servicemembers lost out on approximately $100 million in potential savings if they had leveraged their SCRA benefits.

This report comes on the heels of several CFPB publications in 2022 regarding SCRA and military benefits and rights, in general. The CFPB has addressed military benefits and rights through articles on mandatory use of military allotments and auto loans and repossession practices, a joint letter with the DOJ to auto finance companies, and expectations that student loan servicers go above and beyond in identifying servicemembers that could benefit from consolidating student loan debt.

Of note in this report, the CFPB includes several recommendations for increasing utilization of SCRA benefits. Most notably, they recommend financial institutions adopt proactive, automated measures for identifying servicemember-customers on active duty through regular scrubs of the DMDC website. The law requires that servicemembers provide written notice and a copy of military orders or other proof of service; however, the CFPB makes clear that they expect financial institutions to go beyond that requirement. The CFPB also recommends maintaining clear lines of communication throughout institutions so that, if a servicemember has multiple accounts, one request for benefits applies to all eligible accounts.

Under the SCRA, servicemembers have several benefits and protections afforded to them when they are on active duty, including:

  • A maximum of 6 percent interest on any pre-service obligation, starting on the date of active-duty service and ending upon the conclusion of that service, when the servicemember sends their orders to their financial institution.
    • National Guardsmen and Reservists are entitled to this benefit starting on the date on which they receive their military orders.
    • Servicemembers have until 180 days after the end of their active duty period to submit orders to their financial institution for this interest rate relief, and any retroactive interest rate relief must be provided to the servicemember.
    • For mortgage loans, this benefit extends for one year following activation.
  • A prohibition on repossessions of automobiles without a court order.
    • Auto servicing companies and financial institutions must determine active-duty status using DMDC or other means prior to initiating a repossession. The servicemember does not have any obligation to inform the servicer of their active-duty status.
      • Before a court may enter a default judgment (issued if borrower does not appear in court or defend themselves,) the Lender’s attorneys must file an affidavit with the court stating whether or not the borrower is on active-duty service and provide facts in support of that statement. If unable to determine active-duty status, the affidavit must state that fact.
    • The servicemember must have made a deposit, down payment, or first payment on the loan.
  • A prohibition on foreclosures without a court order and default judgment protections.
    • Lenders must determine active-duty status using DMDC or other means prior to initiating a foreclosure and must obtain a court order to proceed while the servicemember is on active duty and for one year after service is completed.
      • Before a court may enter a default judgment, the Lender’s attorney(s) must file an affidavit with the court stating whether or not the borrower is on active-duty service and provide facts in support of that statement. If unable to determine active-duty status, the affidavit must state that fact.
    • This protection also applies in states that do not require a court order to foreclose and whether or not the lender was told about any servicemember status.
    • The servicemember must have taken out the mortgage prior to entering into active-duty service
  • Safe Deposit Lease Protection
    • A safe deposit box is considered leasehold in most states and, like any other lease, is protected under the SCRA. A bank cannot re-possess a safe deposit box rented to a servicemember for late payment without first getting a court order. Drilling a box for non-payment would equate to eviction.

Authors

Kristy Curl

Kristy Curl is a Director with Treliant. She assists financial institutions of all sizes to establish robust compliance programs and perform compliance reviews related to deposits, lending, and Bank Secrecy Act/Anti-Money Laundering (BSA/AML) requirements. She also develops and conducts board, executive, and staff-level regulatory training programs. At Treliant, Kristy has…

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…