October 3, 2022

Volume XII, Number 276


September 30, 2022

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DOJ, CFPB Warn Auto Finance Companies about Servicemember Protections

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.”

Copyright ©2022 Nelson Mullins Riley & Scarborough LLPNational Law Review, Volume XII, Number 263

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Robert Bob McGahan White Collar Defense Attorney Nelson Mullins Law Firm

Bob represents business entities and individuals in government enforcement, white collar criminal defense, and high-exposure civil litigation matters. A former federal prosecutor and experienced trial lawyer, for nearly 30 years Bob has successfully represented “C-suite” executives and Fortune 50 companies in some of the most prominent enforcement and litigation matters throughout the country. He has been recognized as one of the “Top 100 Lawyers in California” by the Los Angeles Daily Journal and was a recipient of the Attorney General’s Award for Fraud Prevention, one of the U.S...

Jody Porter Partner Nelson Mullins

Jody spent nearly 30 years of her career with Toyota Motor North America, where she served as Vice President and Deputy General Counsel over business and product liability litigation.

While at Toyota, she worked on or oversaw nearly every type of legal issue that automotive companies and many other major corporations face, with a particular emphasis on class action litigation, government investigations, and crisis management. Jody was one of the lead in–house lawyers who navigated Toyota through the unintended acceleration crisis and has led the...

Anastasia D. Stull Of Counsel Nelson Mullins
Of Counsel

Anastasia (“Tasia”) is a senior financial services executive and attorney who brings over 20 years of experience to the Financial Services Regulatory Team. Tasia counsels banks, non-bank lenders, FinTechs, and financial services companies in matters involving consumer, commercial, retail, and institutional financial services. Her hands-on perspective and knowledge of industry trends enables her to provide strategic and practical advice to financial services companies on the challenges they face today. Tasia is also the Executive Director of Assureg, the firm’s regulatory...