SCRA Limits on Repossession Can Cost You
On August 1, 2019 the Department of Justice (DOJ) announced a $3 million settlement with Nissan Motor Acceptance Corporation (Nissan MAC) for alleged violations of the Servicemembers Civil Relief Act (SCRA). This included both a compensation fund for victims and over $62,000 in fines. Among other things, Nissan MAC also agreed to update its SCRA procedures relative to motor vehicle repossessions.
According to DOJ, this is their tenth settlement with an auto finance company in four years and “exemplifies continued efforts to enforce the SCRA’s motor vehicle repossession and lease termination provisions.” Consumer complaints about SCRA issues can have significant consequences, even for only a few alleged infractions. Where DOJ has found violations of the SCRA, the agency has sought penalties and remedies including:
- Civil money penalties;
- Monetary restitution for impacted borrowers;
- Training or retraining of staff;
- Updates or corrections to policies and procedures to prevent future violations
NAFCU receives questions on lending to servicemembers and their families with some frequency. Although the SCRA is not on NCUA’s 2019 supervisory priorities, this was a focus a couple of years ago. Regardless of specific priorities, we hear from credit unions that the agency continues to check on SCRA compliance during exams.
The SCRA was enacted to lighten financial burdens on servicemembers and provide temporary protections against the enforcement of certain civil liabilities while that servicemember is on active duty. The most common protections that seem to come up with credit union operations are: how to comply with the 6% interest rate cap on loans; lease termination protections including for some safe deposit boxes; the prohibition against repossessing a vehicle without a court order; and protections from non-judicial foreclosure of a mortgage. More basics on the SCRA can be found on this DOJ website and may be worth reviewing for other issues that may arise less frequently. For example, if a credit union were to have real estate owned after a foreclosure and the property had tenants, there are SCRA protections that landlords need to be aware of.
Specifically for repossession, the SCRA requires credit unions to obtain a court order to repossess the vehicle of an SCRA protected borrower if the borrower paid a deposit or made a payment before entering military service. Unlike the 6% interest rate cap, servicemembers are not required to provide notice or actively seek out protection from repossession in writing. Rather, it is the credit union’s responsibility to know the borrower’s status prior to repossessing a car. The limitation against non-judicial foreclosures functions similarly.
So if the member does not need to notify the credit union in order to benefit from SCRA protections against repossession of a motor vehicle, what kinds of procedures may help avoid violations? Some examples can be found in the Nissan MAC settlement agreement. Nissan MAC agreed to check the Defense Manpower Data Center (DMDC) database to determine whether someone is an SCRA-protected servicemember:
- No more than 2 days before referring a loan for repossession or repossessing a vehicle
- No more than 2 days after they (or their contractors/vendors) obtain possession of a motor vehicle; and
- No more than 2 days before they (or their contractors/vendors) dispose of a repossessed vehicle.
What if the multiple borrower status checks showed that a repossessed vehicle belonged to an SCRA-protected borrower before the company disposed of the vehicle? In this kind of situation, the company agreed to:
- Attempt to contact the borrower and offer to return the vehicle within 24 hours;
- Reverse all repossession related charges from the borrower’s account; and
- Update any credit reporting relating to repossession.
If the borrower could not be reached within 24 hours, Nissan MAC agreed to hold the vehicle at one of its regularly used storage locations closest to the location where the vehicle was repossessed until making contact with the borrower. The settlement agreement did not permit Nissan MAC to charge storage fees for this period of time. The agreement also included details on how to proceed in cases where a court order is sought for repossession, but the borrower does not come to court.
Keep in mind that settlement agreements from consent orders indicate how one particular party agreed to remedy possible issues with SCRA procedures. These documents do not set forth prescriptive requirements that all lenders must follow. However, prior agreements can indicate what kinds of practices may be common or viewed as reasonably mitigating risk of violation. Other consent orders included similar specific procedural agreements, such as a consent order published in March 2019 and another involving Wells Fargo from 2016 that may be helpful as well when reviewing SCRA procedures.