Continuing a recent trend of highlighting potential unfair and deceptive acts or practices (UDAAP) within the auto loan servicing industry, the Consumer Financial Protection Bureau (CFPB) recently issued a new blog post focusing on the Servicemembers Civil Relief Act (SCRA). Auto loan servicers and dealerships may want to review their SCRA policies and procedures to ensure they comply with the law and provide the requisite protection for active military members prior to repossessing collateral.
Servicemembers and auto loans
The CFPB's research has found that servicemembers tend to carry more auto loan debt than their civilian counterparts. In fact, by age 24, nearly 20% of young servicemembers have at least $20,000 in auto loan debt, which amounts to nearly two-thirds of a young servicemember's annual salary. In comparison, only 7% of civilians in the same age range have comparable debt while 71% have no auto loan debt. Not only do young servicemembers have significantly more auto loan debt than civilians, but they also have higher rates of delinquency and repossession.
Enter the SCRA. Congress passed the SCRA to, among other things, provide protections to active-duty military members facing repossession of their motor vehicles. While the SCRA provides protections for military members, the CFPB is concerned about the use of technology in repossessions and how that might adversely impact the rights of active-duty military members. The CFPB has previously raised potential UDAAP concerns with the use of technology, including GPS locators and starter-interruption devices, in repossessing motor vehicles. As the CFPB outlined in the recent blog post, the Bureau is especially concerned about how this technology impacts certain communities, including active military members.
If it was not already clear, the CFPB issued a warning to those in the auto servicing industry: "We expect servicers, lenders and repossession agents to adhere to the requirements under the SCRA, particularly when using new repossession technologies to ensure that servicemembers are treated fairly and that all applicable laws and regulations are carefully followed."
SCRA considerations for auto repossession
As the CFPB suggested, now may be a good time to review SCRA policies and procedures. This is especially important given: the CFPB's renewed focus on SCRA compliance; the significant penalties that can arise from an SCRA violation; and the negative press that comes with violating the rights of active military members.
A few items to consider when reviewing policies:
Check, and re-check, active military status - The SCRA prohibits repossessing a vehicle of an active military member without first obtaining a court order. SCRA policies should ensure that a consumer's military status is checked: (1) prior to repossessing the collateral, (2) prior to selling the collateral at auction, and (3) prior to seeking default judgment on a lawsuit against a servicemember. It may be wise to keep a record of the customer's military status as well.
Technology impact on SCRA compliance - The CFPB is concerned about the use of technology in repossessing vehicles. It is important to ensure whatever technology is implemented accounts for both SCRA compliance and mitigating the risk of criticism from the CFPB or another agency. For instance, given the CFPB's concerns and the potential that the CFPB could take issue with the use of starter-interrupt devices for active-duty servicemembers, companies would likely be well served to check whether a customer is on active military duty prior to utilizing a starter interruption device for repossession purposes until the CFPB provides additional clarity on its stance.
Ensure vendor compliance - Auto loan servicers often rely on vendors to ensure SCRA compliance. Written policies and procedures to ensure vendor compliance with the SCRA prior to repossession and sale of the collateral, and documentation of those actions, may improve compliance outcomes. It is also a good idea to review again any indemnification language in vendor agreements to ensure you are covered if a vendor violates the SCRA.
Written waivers - It is possible to obtain a written waiver of the various SCRA protections from a military member. But to be effective, the waiver must: (a) be in writing - and in at least twelve-point type; (b) be separate and apart from the obligation or liability to which it applies; and (c) specify the legal instrument or contract to which the waiver applies. Note, a waiver is only effective if signed during or after the servicemember's military service.
The SCRA is a floor, not a ceiling - Remember, many states have enacted their own specific laws protecting active military members from repossession. For example, some states specifically extended the protections of the SCRA to members of the National Guard when ordered to active military duty. It is important to ensure you are complying with not only the SCRA but with its state equivalents as well.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.