DOJ SCRA Enforcement: Auto Leases
A few weeks ago, we blogged about enforcement actions involving storage service providers and student loans. The Department of Justice (DOJ) is not backing down from its fight to protect servicemembers and has issued two more enforcement actions for violations of the Servicemembers Civil Relief Act (SCRA). These actions involve auto lenders and leaseholders.
Section 3955 of the Act discusses leases and allows a lessee to terminate a lease if they are called to duty or receive a permanent change in station. If a servicemember wishes to terminate an auto lease, they are required to return the motor vehicle to the lessor and provide the notice of lease termination along with a copy of their military orders. The return of the vehicle is required within 15 days after the notice delivery. The termination of the motor vehicle lease is effective on the day on which the requirements for notice delivery, orders and return of the vehicle are met.
The first action is against American Honda Finance Corporation (AHFC), which has agreed to settle a federal lawsuit alleging that it violated the SCRA by failing to refund up-front lease payments to servicemembers who properly cancelled or terminated their auto leases after being called to active duty or receiving a permanent change in station. Specifically, AHFC failed to repay capitalized cost reduction (CCR) derived from vehicle trade-ins. The DOJ explains that CCR is an amount paid by lessees up front, either in cash or derived by the value of the vehicle they are trading in. This amount is credited to the lessee when their lease payment amount is calculated. The DOJ alleges that AHFC had a practice of refunding servicemembers CCR that was paid up front in cash, but did not refund any CCR from vehicle trade-ins.
Under the consent order, if approved by the court, AHFC will be required to pay $1.5 million in compensation and update its SCRA policies and procedures for vehicle lease terminations to ensure servicemembers are refunded all applicable fees and lease payment amounts. Additionally, there are a few practices AHFC has agreed to implement in order to remain in compliance with the SCRA moving forward:
- Set the effective date of any lease termination as the date on which the servicemember satisfies the notice requirements and return of the vehicle
- Refund all lease amounts paid in advance in accordance with the requirements of the SCRA;
- Within 30 days after determining a servicemember’s eligibility for SCRA relief, notify the servicemember in writing of the determination. If granting relief, notify the servicemember in writing of the specific terms of the relief; If denying relief, notify the servicemember in writing of the reason(s) for the denial and give the opportunity for the servicemember to provide additional documentation establishing eligibility; and
- Provide SCRA training to any employees who provide customer service to lessees or have significant involvement in motor vehicle leasing.
The second action was brought against Santander Consumer USA Inc, dba Chrysler Capital (Santander), which agreed to settle a federal lawsuit alleging that it violated the SCRA by outright refusing early lease terminations to servicemembers who were called to active duty or received a permanent change in station. According to the DOJ and explained in the consent order, Santander rejected 10 requests from eligible servicemembers looking to terminate their vehicle leases.
According to the consent order, Santander has agreed to pay over $134,000 to settle the lawsuit. Additionally, there are a few practices Santander has agreed to implement in order to remain in compliance with the SCRA moving forward:
- Allow lessees to terminate their lease agreements when they are eligible for relief under the SCRA;
- Set the effective date of any lease termination as the date on which the servicemember satisfies the notice requirements and return of the vehicle; and
- Ensure employees receive training on the terms of the SCRA with respect to lease terminations; training on the policies and procedures regarding the responsibilities associated with that employee’s role; and training on the terms of the consent order.
As mentioned in our previous blog, there are plenty of resources that can be used to help with SCRA compliance, including these:
- NAFCU Compliance Monitor, Explaining the Servicemembers Civil Relief Act
- Past NAFCU Compliance Blog posts
- SCRA summary and past consent orders organized by topic
About the Author
Loran Jackson joined NAFCU as Regulatory Compliance Counsel in April 2019 and was named Senior Regulatory Compliance Counsel in February 2021. In her role, she provides daily compliance assistance to member credit unions on a variety of topics. She also writes articles for NAFCU publications and presents at NAFCU conferences