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Property manager settles with DOJ on SCRA violations
On June 13, the DOJ announced a settlement with a property management company resolving allegations that it charged nine servicemembers early termination fees after receiving military orders to relocate, in violation of the Servicemembers Civil Relief Act (SCRA) (see DOJ complaint here.) The SCRA affords protections to servicemembers who terminate a lease upon entering military service or receiving military orders to relocate, and prohibits landlords from imposing early termination charges on such servicemembers. Under the terms of the proposed consent order, the defendant will be required to pay $51,587 to the servicemembers and an additional $22,500 civil penalty. The DOJ also noted that the company must repair the servicemembers’ tenant database entries, implement new policies and procedures that comply with the SCRA, and train its employees on the SCRA.
DOJ initiates SCRA action over auto auctions and dispositions
On March 3, the DOJ filed a complaint in the U.S. District Court for the Eastern District of North Carolina against a North Carolina-based towing company for allegedly auctioning off, selling, or disposing of vehicles owned by servicemembers through the use of court judgments obtained without filing proper military affidavits. Under the Servicemembers Civil Relief Act (SCRA), plaintiffs seeking a default judgment must “file an accurate military affidavit stating whether or not the defendant is in military service, or that the plaintiff is unable to determine the defendant’s military service status.” Towing companies are also required by the statute to make a good faith effort to determine if a defendant is in military service. A court may not enter a default judgment in favor of a plaintiff until after a servicemember has been appointed an attorney.
According to the complaint, the towing company disposed of servicemembers’ vehicles without complying with these requirements from at least 2017. The DOJ further claims that several factors should have alerted the towing company to the fact that the vehicles belonged to a servicemember, including that many of the vehicles were originally towed from locations on or near a military installation and many of the vehicles “had military decals, patches, and decorations, were financed through lenders geared towards members of the military, and contained military uniforms and paperwork, including orders.” The DOJ seeks damages for the affected servicemembers and civil penalties, as well as a court order enjoining the towing company from engaging in the illegal conduct.
CFPB concerned National Guard and reservists pay extra interest on loans
On December 7, the CFPB released a report examining the use of the Servicemembers Civil Relief Act's (SCRA) interest rate reduction benefit. Among other things, the CFPB raised concerns that servicemembers pay extra interest each year as a result of not taking advantage of interest rate reductions to which they are entitled under the SCRA. The SCRA provides certain legal and financial protections to active duty servicemembers, such as the ability to reduce the interest rate on certain pre-service obligations or liabilities to a maximum of 6 percent. According to the Bureau, members of the National Guard and Reserves are likely to have financial obligations that predate a subsequent period of service. As a result, the interest rate reduction benefit could provide considerable financial value. However, the Bureau found that only a small fraction of activated Guard and Reserve servicemembers receive interest rate reductions. Specifically, the Bureau noted that: (i) between 2007 and 2018, less than 10 percent of eligible auto loans and six percent of personal loans received a reduced interest rate; (ii) in addition to the $100 million of foregone benefits on auto and personal loans, members of the reserve component infrequently benefit from interest rate reductions for credit cards and mortgage loans; and (iii) for longer periods of activation, the utilization rate is low. The Bureau recommended that creditors apply SCRA interest rate reductions for all accounts held at an institution if a servicemember invokes their rights for a single account, and stressed that creditors should automatically apply SCRA rights. The Bureau also noted that more frequent information on SCRA rate reduction utilization would help inform and evaluate future efforts to expand servicemembers’ financial rights and protections.
DOJ amends SCRA settlement with auto loan provider
On September 28, the DOJ announced an amended settlement with an auto loan provider resolving allegations that it failed to fully provide qualified servicemembers with interest rate benefits afforded to them under the Servicemembers Civil Relief Act (SCRA). According to the DOJ, while monitoring the auto lender’s compliance with the original DOJ settlement, the DOJ found that the auto loan provider was failing to apply interest rate benefits back to the date orders were issued calling the servicemember to active duty, and that it had improperly delayed the approval of interest rate benefits to some servicemembers. Under this amended settlement agreement, the auto loan provider agreed to pay an additional $185,460 to 250 servicemembers who did not receive proper interest rate benefits. The DOJ also noted that each servicemember who did not receive interest rate benefits back to the date their orders were issued will receive a refund of any excess interest they paid, as well as an additional payment of three times the overpayment or $100, whichever is higher. The auto loan provider is required to pay an additional $40,000 civil penalty to the U.S. and must revise its SCRA policies and training regarding interest rate benefits for servicemembers.
DOJ resolves SCRA violations with landlords
On August 8, the DOJ announced a settlement with two landlords resolving allegations that they violated the Servicemembers Civil Relief Act (SCRA) by obtaining unlawful court judgments against military tenants. The DOJ explained that, under the SCRA, if a landlord files a civil lawsuit against a tenant and the tenant does not appear in court, the landlord must file an affidavit with the court stating whether the tenant is in the military before seeking a judgment. The DOJ further noted that if the affidavit states that the tenant is in military service, the court cannot enter judgment until an attorney is appointed to represent the servicemember. The court must also postpone the case for at least 90 days. According to the DOJ’s complaint, which was filed in the U.S. District Court for the Eastern District of Virginia, the property owners allegedly filed false affidavits stating that the servicemembers were “not in military service” and failed to file affidavits of military service, as required by the SCRA, prior to obtaining default judgments against numerous servicemembers. The DOJ further alleged that the property owners had information in their files that would have allowed them to easily verify their tenants’ military status.
The consent decree requires the property owners to pay $162,971 to affected servicemembers and a $62,029 civil penalty to the U.S. The order also requires the property owners to, among other things, vacate the eviction judgments, repair the servicemembers’ credit, and provide SCRA training to their employees. The property owners must also reimburse affected servicemembers for any amounts collected pursuant to an unlawful judgment.
CFPB, DOJ issue letter to auto companies on SCRA provisions
On July 29, the CFPB and DOJ issued a joint letter reminding auto finance companies of legal protections for military families under the Servicemembers Civil Relief Act (SCRA). Among other things, the letter outlines several SCRA provisions that apply to vehicle financing, including: (i) prohibiting vehicle repossession without a court order during the borrower’s military service if a borrower financed or leased the vehicle prior to entering military service; (ii) permitting servicemembers and joint lessee dependents to terminate motor vehicle leases early, and without penalty, after entering military service or receiving qualifying military orders during active duty; and (iii) capping the amount of interest on loans incurred prior to military service to 6 percent per year.
Louisiana appellate court affirms district court’s decision in SCRA case
On June 29, the Court of Appeal for the Second District of Louisiana affirmed a trial court’s grant of summary judgment in favor of a national bank in an SCRA case. According to the opinion, an active duty servicemember and his wife filed for bankruptcy after purchasing a mortgage on a property from a national bank (defendant). The defendant appeared in the bankruptcy proceedings and moved to abandon the property for purposes of eventual foreclosure. The plaintiffs moved out of the state and were granted a discharge under Chapter 7 bankruptcy laws. The defendant has not foreclosed on the property, asserting that the mortgage account remains subject to the protections of the federal SCRA. The plaintiffs filed suit, claiming ownership of the property due to the defendant’s failure to foreclose against them within five years of the abandonment of the property in the bankruptcy, asserting that their obligations under the mortgage are prescribed.
The appellate court agreed that the mortgage account is subject to the protections of the SCRA, which tolls any state prescriptive period for the duration of one’s active-duty military service. According to the opinion, despite “no evidence of repayment” to the bank of any of the underlying mortgage debt, the plaintiffs claimed ownership of the subject property because the bank failed to “foreclose against them within five years of the abandonment of the property in the bankruptcy.” Agreeing with the bank that the mortgage account still remained subject to the protections of the SCRA, the court determined that: (i) the servicemember and his wife “cannot point to any law or jurisprudence that would provide an exception to the mandatory tolling provision of the SCRA [50 U.S.C. § 3936] in these circumstances;” (ii) the couple “never executed a waiver of rights form”; (iii) the “five-year prescriptive period [under Louisiana law] has been tolled on the mortgage” for the entirety of the servicemember’s active-duty military service; and (iv) the bank’s time to foreclose on the subject property “has not prescribed, as the prescriptive period has not started to run.” The appellate court concluded that the couple’s “obligations on the mortgage have not been extinguished, and they are not the owners of the subject property.”
DOJ initiates SCRA action for auctioning servicemember vehicles without court orders
On April 15, the DOJ filed a complaint in the U.S. District Court for the Eastern District of Virginia against a Virginia-based towing company for allegedly auctioning vehicles owned by at least seven active duty servicemembers without first obtaining the required court orders. Under the Servicemembers Civil Relief Act (SCRA), a person holding a lien on property or effects of a servicemember may not enforce or foreclose on that lien during, or within 90 days after, a period of military service without a court order. According to the complaint, several factors should have alerted the towing company to the fact that the vehicles belonged to a servicemember, including that the vehicles were towed from a military base and one contained a duffel bag containing military uniforms and other evidence of the servicemember’s military service. Additionally, the DOJ contended, among other things, that the company’s policies and procedures “failed to include any mention at all of the SCRA or the protections it grants to servicemembers whose vehicles have been towed,” nor did these policies include the use of the Defense Manpower Data Center database “to determine a vehicle owner’s military status prior to selling, auctioning off, or otherwise disposing of a vehicle without a court order.” The DOJ seeks damages for the affected servicemembers and civil penalties, as well as a court order enjoining the company and all associated persons from engaging in the illegal conduct.
DOJ resolves SCRA violations with credit union
On March 11, the DOJ announced a settlement with a credit union resolving allegations that the credit union violated the Servicemembers Civil Relief Act (SCRA) by charging excessive interest on servicemembers’ loans and repossessing servicemembers’ cars without first obtaining a court order. According to the DOJ’s complaint, which was filed concurrently with the proposed settlement, the credit union allegedly charged interest exceeding 6 percent to 21 servicemembers who qualified for SCRA interest rate benefits. Under the SCRA, creditors are required to reduce the interest rate on retail installment sales contracts to 6 percent in certain circumstances. However, the DOJ asserted that in at least one instance, a servicemember was told that “reducing the interest rate would increase her monthly payment.” The DOJ also alleged that the credit union repossessed three servicemembers’ vehicles without court orders, including one instance where the vehicle was repossessed from a military base.
The consent order, which is pending court approval, requires the credit union to pay nearly $70,000 to the affected servicemembers, along with a $40,000 civil penalty. The credit union is also, among other things, prohibited from (i) charging interest rate exceeding 6 percent during a period of military service; (ii) reamortizing any retail installment sales contracts connected to a request for SCRA interest rate benefits; (iii) “failing or refusing to credit early alert periods of military service when applying such benefits”; and (iv) repossessing SCRA-protected servicemembers’ vehicles without first obtaining a court order or valid SCRA waiver. The settlement also requires the credit union to review and update its SCRA policies and procedures to prevent future violations and to provide SCRA compliance training to its employees.
President Biden signs NDAA into law
On December 27, President Biden signed S. 1605 the “National Defense Authorization Act for Fiscal Year 2022” (NDAA) into law. The NDAA provisions include Section 6107, which requires the Treasury Secretary to conduct a briefing within one year of the law’s enactment before the House Financial Services Committee and the Senate Banking, Housing, and Urban Affairs Committee on the delegation of examination authority under the Bank Secrecy Act. Additionally, Section 6207 expands the coverage of the Servicemembers Civil Relief Act protections related to the termination of residential or motor vehicle leases and telephone service contracts. Specifically, Section 6207 makes those protections applicable to members of the Foreign Service who are posted abroad at a Foreign Service post.