September 26, 2022

Volume XII, Number 269

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September 26, 2022

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Regulators Remind Auto Industry of Servicemember Protections

On July 29, the CFPB and DOJ issued a joint letter to the auto lending and leasing industry reminding auto companies of their obligations under the Servicemembers Civil Relief Act (SCRA). The SCRA affords special protections to servicemembers and their dependents against unfair or predatory practices by auto lenders, including:

  • Limits on vehicle repossession: during a borrower’s military service, an auto lender is required to obtain a court order before attempting to repossess a financed vehicle.

  • Early lease terminations: servicemembers can opt for early termination of auto leases without penalty while in military service or receiving military order for a permanent change in station or deployment elsewhere. This includes the right to a refund of all lease amounts paid in advance

  • Interest rate protections: interest rates on loans issued before military service are capped at 6% under the SCRA, and if properly requested, lenders must forgive any interest greater than 6% per year.

According to CFPB research, servicemembers are vulnerable to predatory practices given their need for transportation while living on a military base, financial inexperience as young adults, and steady paychecks through the military. To this end, the SCRA places the burden on auto lenders to ensure servicemembers are protected. For example, lenders must take proactive steps to identify whether a borrower is SCRA-protected, as servicemembers are not required to notify the lender of their military status. As such, auto lenders should carefully review the joint letter and SCRA provisions to ensure compliance.

Putting It Into Practice: The issuance of this letter should serve as a cue to auto lenders to review their lending practices and procedures for compliance with the SCRA and other consumer protection laws. As indicated in the joint letter, auto finance companies have the burden of identifying whether a borrower is protected by the SCRA, as servicemembers are not required to give notice of military status to receive this protection. Auto lenders should review their lending practices and policies with experienced attorneys to ensure they are in compliance.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 223
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

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A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Associate

Pouneh Almasi is an associate in the Intellectual Property Practice Group in the firm's San Francisco office.  

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Pouneh’s practice focuses on intellectual property litigation with an emphasis on copyright and trademark issues.  She is also a member of the firm’s Blockchain Technology & Digital Currency Team.

During law school, Pouneh worked as a judicial extern to the Honorable Jacqueline Scott Corley at the Northern District of California in San Francisco...

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