Insights

The U.S. Department of Justice (“DOJ”) and the Consumer Finance Protection Bureau (“CFPB”) issued a joint letter reminding the auto finance industry to enforce certain interest rate restrictions and other consumer protection measures enjoyed by active duty service-members and their families. The joint letter advises auto finance providers to comply with protections afforded to active-duty service members and their dependents under the Servicemembers Civil Relief Act (“SCRA”). This law grants legal protections and financial benefits to service members that are not available to civilian consumers.

The Bureau has been focused on auto finance regulatory compliance for months. Earlier in the year the agency issued a compliance bulletin consisting of CFPB examinations and enforcement actions, including the illegal seizure of cars, sloppy record keeping, unreliable balance statements, and ransom for personal property.

Research recently conducted by the CFPB indicates that service-members carry more auto loan debt at younger ages when compared to their civilian counterparts. Moreover, the CFPB noticed that servicemembers are often targeted by unfair or predatory loan practices. In response, the DOJ and the CFPB have highlighted certain obligations that auto finance companies have under the SCRA. The joint letter emphasizes the following three major enforcement priorities of the SCRA:

• Limits on vehicle repossessions – The SCRA prohibits an auto finance company from repossessing a vehicle during the borrower’s military service without a court order, if the borrower financed or leased the vehicle prior to entering military service.
• Early lease terminations – The SCRA allows service-members to terminate motor vehicle leases early and without penalty after entering military service or receiving qualifying military orders for a permanent change of station or deployment.
• Capped auto loan interest rates – The SCRA also limits interest rates on loans incurred prior to military service to no more than 6% per year, including most fees. If servicemembers make a proper request, a creditor must forgive and not defer any interest greater than 6%.

The CFPB is responsible for examinations and enforcement under the Military Lending Act, a federal law that limits interest and fees on certain kinds of loans made while a borrower is on active duty. Consumer complaints are investigated and scrutinized by the CFPB, which is also authorized “to address unfair, deceptive, or abusive practices related to auto financing for all members of the public, including servicemembers, under the Consumer Financial Protection Act,” as noted in the joint letter. In contrast, the SCRA is enforced by the DOJ and covers debts incurred before active duty. Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division stated, “the Civil Rights Division is entrusted with the responsibility of ensuring that the rights of those serving in our nation’s armed forces are safeguarded from discrimination and unfair treatment.”

For assistance with an SCRA or UDAAP risk review or questions regarding aspects of auto finance regulation and compliance, Assureg and Nelson Mullins are available to help navigate this increasingly ripe area for enforcement activity.