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…
- Source: consumerfinance.gov
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 lenders, banks, and financial institutions to meet regulatory requirements and withstand regulatory scrutiny pertaining to servicemembers’ auto loans.
The Consumer Financial Protection Bureau (CFPB) continues to make it known that they are acutely focused on servicemembers’ interactions with the financial ecosystem. With their third post in two months on the topic, the CFPB this time tackles the cost of servicemembers’ auto loans and wrongful repossessions. Auto loans and the servicing thereof has been another hot-button issue for the CFPB in general, with this post being the fifth in as many months. This follows the CFPB’s supervisory guidance regarding auto repossessions, issued in February 2022 and analyzed by Treliant’s Ellen Rose.
The CFPB sets the stage by providing data that has “shown that young servicemembers tend to take out auto loans soon after joining the military and carry more auto debt than their civilian peers.” They add that “by age 24, around 20 percent of young servicemembers have at least $20,000 in auto debt, which is nearly two-thirds of [their] typical base salary at that age.” The stage-setting is capped off with a subtle but important note that young servicemembers who serve for five years or less have higher delinquency and repossession rates, which is notable given the Servicemembers Civil Relief Act (SCRA) prohibition on repossessing an active duty servicemember’s vehicle without a court order. The stakes are generally higher for servicemembers that have negative financial events, such as a repossession or delinquency, as they are at risk of losing security clearances or even being discharged.
SCRA, as mentioned, protects servicemembers from repossession amongst other protections and benefits. In order for the servicemember to be protected from repossession, the servicemember must have:
- Originated the auto loan prior to entering active duty service; and
- Paid a deposit or installment on the contract prior to entering active duty service.
While the servicemember must have performed these actions, the onus is on the financial institution to determine that these loan events have occurred prior to active duty service. The servicemember is not required to submit military orders or proof of active duty when facing possible repossession; the financial institution must reasonably determine the active duty status of the borrower prior to repossessing the vehicle. Federal regulators have strictly enforced all provisions of SCRA and have levied numerous consent orders and lawsuits relating to auto repossession practices that violate the law.
The CFPB then referenced their February bulletin regarding wrongful repossessions, but added an interesting aside in this post that they are “concerned that the use of [technologies to locate vehicles for repossession] may disproportionally impact certain communities and… [are] taking steps to better understand their impact, including potential privacy concerns.” In their stage-setting, the CFPB made clear that they view young servicemembers as one of those communities that may be impacted disproportionally when compared to civilian populations.
Given recent attention paid by the CFPB to servicemembers and their rights under the law, financial institutions should heed the regulator’s numerous warnings and firm up all SCRA processes.