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  • DOJ Announces Settlement with Michigan Credit Union over SCRA Violations

    Federal Issues

    On July 6, the DOJ announced a settlement with a Michigan-based credit union resolving allegations that the credit union illegally repossessed four servicemembers’ vehicles in violation of the Servicemembers Civil Relief Act (SCRA). As previously reported, the DOJ filed its complaint on July 26, 2016, alleging that the credit union violated the “SCRA’s prohibition against repossessing a motor vehicle from a servicemember during military service without a court order if the servicemember made a deposit or installment payment on the loan before entering military service.”

    Servicemember protections under the SCRA empower the court to (i) review and approve each repossession; (ii) delay a repossession or require the lender to refund the payments made by the servicemember prior to the repossession; (iii) appoint an attorney to represent the servicemember; and (iv) require the lender to post bond with the court.

    Under the settlement, the credit union agreed to a civil penalty of $5,000. In addition, the credit union agreed to pay up to $10,000 plus lost equity in the vehicle with interest and to repair the credit of each affected servicemember whose vehicle was repossessed. The credit union also agreed to obtain either a court order or a valid SCRA waiver before repossessing a servicemember’ s vehicle, and to develop policies and procedures for vehicle repossessions that comply with the SCRA as well as provisions to ensure that servicemembers may benefit from the 6 percent interest rate cap on vehicle loans.

    Federal Issues DOJ Credit Union SCRA Courts Settlement Servicemembers

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  • New York AG Announces Settlement with Virginia Developer for Violating Servicemembers Civil Relief Act

    Federal Issues

    On May 10, New York Attorney General Eric T. Schneiderman announced that a Virginia-based company has agreed to pay $69,000 to settle allegations that, among other things, it violated the Servicemembers Civil Relief Act (SCRA) by unlawfully charging fees to servicemembers who terminated their residential leases early. Under the provisions of the SCRA, servicemembers and their families are allowed to terminate leases early without penalty if they are deployed, receive orders for permanent change of station, or their military service is honorably terminated. According to the Attorney General’s office, the company—which owns a community of townhomes in close proximity to Fort Drum and actively markets its housing to servicemembers and their families—also violated New York law by including “numerous unconscionable provisions” in its lease agreements, and advertising amenities that were either not included in the rent, or unavailable. Under the terms of the settlement, the company must pay more than $59,000 to over 125 servicemembers, reform its lease and other business practices to comply with New York law, and pay a civil money penalty of $10,000 to the State.

    Federal Issues Consumer Finance SCRA Servicemembers State AG

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  • GAO Issues Report on Compliance with the SCRA Interest Rate Cap by Student Loan Servicers

    Federal Issues

    On November 18, the GAO announced the release of its report and recommendations following the watchdog agency’s review of application of the SCRA’s rate cap by student loan servicers. According to the report, entitled Student Loans: Oversight of Servicemembers' Interest Rate Cap Could Be Strengthened, the number of servicemembers receiving the interest rate cap for their student loans has greatly increased since the Department of Education began requiring federal student loan servicers to automatically check the Department of Defense’s SCRA database to identify those who are eligible.

    The report also identified several challenges commonly encountered by servicemembers seeking to take advantage of the rate cap, including:  (i) inaccurate SCRA information from the database; (ii) lack of a requirement that private loan servicers use the automatic eligibility check to identify eligible servicemembers; and (iii) lack of routine oversight of SCRA compliance for nonbank private student loan lenders and servicers. The GAO recommended, among other things, that the DOJ require private loan servicers to use the automatic eligibility check to identify eligible borrowers. The report also highlighted an issue with the Department of Education’s new borrower complaint system, which lacks the ability to track SCRA complaints systematically.

    Federal Issues Consumer Finance Servicemembers Student Lending SCRA GAO Department of Education DoD

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  • DOJ Announces SCRA Pilot Program Offering Dedicated Legal Support to Military Communities

    Federal Issues

    On November 2, the DOJ announced a new pilot program to provide military communities across the country with dedicated legal support as part of a broader effort by federal prosecutors to enforce the Servicemembers Civil Relief Act (SCRA). Under the program, the DOJ will fund assistant U.S. Attorney and trial attorney positions devoted to providing targeted support on SCRA-related cases in districts with major military bases. In addition, military judge advocate officers serving as legal assistance attorneys will be eligible for designation as “Special Assistant U.S. Attorney” for purposes of handling SCRA litigation matters.

    Federal Issues Consumer Finance SCRA DOJ

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  • DOJ and OCC Reach Consent Agreement With Bank Over Alleged SCRA Violations

    Federal Issues

    On September 29, the DOJ and OCC announced separate settlement agreements with a major U.S. bank regarding alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ’s complaint alleged that the bank repossessed vehicles owned by active duty servicemembers without the required court orders. Under the DOJ consent order, the bank agreed to pay $10,000 to each affected servicemembers whose vehicles were repossessed between from January 2008 to July 2015 not in compliance with SCRA, plus any lost equity in the repossessed vehicle, with interest. The DOJ identified 413 affected servicemembers and the bank agreed to set aside $4,130,000 (or more if needed) to pay the required compensation. The bank also agreed to pay a $60,000 civil penalty. The DOJ acknowledged that the bank had in 2014, prior to the investigation, taken steps to ensure SCRA compliance with a full-scale review of its portfolio to identify servicemembers for SCRA protection, and had previously and voluntarily commenced efforts to compensate any affected borrowers. In the OCC consent order, the OCC found errors and deficiencies by the bank in four areas:  (i) applying the 6% interest rate cap; (ii) filing accurate military status affidavits; (iii) repossessing servicemembers automobiles while they were on active duty; and (iv) implementing its SCRA compliance program. Under the consent order for a civil money penalty, the bank agreed to pay a civil money penalty of $20 million, to create a remediation plan for affected servicemembers, and to bolster its SCRA-related policies and procedures.

    Federal Issues Banking Consumer Finance OCC SCRA DOJ

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  • OCC Senior Deputy Comptroller Highlights the Importance of SCRA and MLA Compliance

    Consumer Finance

    On August 29, OCC Senior Deputy Comptroller Grovetta Gardineer delivered remarks at the 2016 Association of Military Banks of America Workshop, emphasizing the significance of banks’ compliance with the Servicemember Civil Relief Act (SCRA) and the Military Lending Act (MLA). Although Gardineer noted that SCRA-related issues have decreased since making SCRA compliance an examination focus, she stressed that room for improvement remains. Gardineer advised banks to perform due diligence with third-party vendors, noting that banks “will be held accountable for failures” by their third-party vendors. Gardineer further cautioned that, in light of the new MLA requirements taking effect on October 3, banks must ensure that they properly identify military borrowers entitled to the MLA’s expanded coverage, which will include “nearly all consumer credit covered under the Truth in Lending Act.”

    TILA OCC SCRA Military Lending Act Vendor Management

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  • DOJ Files Suit Against Military Housing Provider for Alleged SCRA Violations

    Consumer Finance

    On August 10, the DOJ announced that a private military housing provider agreed to pay $200,000 to settle allegations that it violated the SCRA by obtaining default judgments against active-duty servicemembers and their families and subsequently evicting them. According to the DOJ, the company violated the SCRA when it requested default judgments against active-duty servicemembers without filing the appropriate affidavits “to alert the court of the tenants’ military status.” Under the terms of the proposed consent order, the company must (i) pay each servicemember affected by its actions $35,000 and vacate the judgment; (ii) forgive deficiency balances and request that the credit bureau remove evictions from effected credit reports; and (iii) pay a civil penalty of $60,000 to the United States. The consent order is pending approval by the U.S. District Court for the Southern District of California. The DOJ noted that this is the first case it has filed alleging illicit eviction of servicemembers from their homes.

    California AG Harris filed a parallel suit against the defendants, arguing that the evictions violated the California Military and Veterans Code, the SCRA, state debt collection laws, and state privacy laws.

    SCRA DOJ State AG

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  • DOJ Files SCRA Complaint against Credit Union

    Consumer Finance

    On July 26, the DOJ filed a complaint against a Michigan-based credit union for alleged violations of the SCRA’s prohibition against motor vehicle repossession from an active-duty servicemember without a court order. Under the SCRA, a court must “review and approve a lender’s repossession of any motor vehicle owned by a servicemember if the servicemember took out the loan and made a deposit or an installment payment before entering military service.” According to the complaint, the credit union failed to, among other things, (i) establish vehicle repossession procedures that included checking the Department of Defense’s database to determine customers’ military status; (ii) implement written policies concerning compliance with the SCRA; and (iii) obtain the necessary court order to initiate and complete repossession of a motor vehicle owned by a member of the U.S. Army. The DOJ further alleges that the credit union’s conduct was “intentional, willful, and taken in disregard for the rights of servicemembers.” The complaint seeks monetary consumer relief, civil penalties, and changes to the credit union’s repossession procedures.

    SCRA DOJ

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  • OCC Issues Bulletin Regarding Temporary Extensions of SCRA Protections

    Lending

    On June 10, the OCC released Bulletin 2016-20 to inform national banks, federal savings associations, and federal branches and agencies of foreign banks (OCC-supervised institutions) of recent temporary amendments to the Servicemembers Civil Relief Act (SCRA). As previously covered in InfoBytes and as outlined in the OCC’s Bulletin, the Foreclosure Relief and Extension for Servicemembers Act 2015 extends through December 31, 2017 the SCRA provision that protects servicemembers against sale, foreclosure, or seizure of property based on a breach of a secured obligation without a court order or waiver for one year following completion of their service. The OCC’s Bulletin notes that HUD updated its “Servicemembers Civil Relief Act Notice Disclosure” (Form 92070) to reflect the temporary extensions.

    Foreclosure OCC SCRA

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  • Third Circuit Upholds District Court’s Ruling in its First Case Interpreting the Scope of SCRA Protections

    Consumer Finance

    Last month, the U.S. Court of Appeals for the Third Circuit affirmed the district court’s ruling that protections pursuant to the Servicemembers Civil Relief Act (SCRA) do not apply to a business owned by a servicemember. Davis v. City of Philadelphia, No. 15-2937 (3d Cir. May 4, 2016). In 2004, the servicemember plaintiff transferred his and his wife’s property to a Pennsylvania company that he and his wife owned. The plaintiff, having served in the military between 2008 and 2011, claimed that the property’s tax debt should have been reduced under the SCRA. The district court granted the City’s motion to dismiss, holding that because the plaintiff was not personally liable for his company’s debt, the City had not denied him relief under the SCRA.

    The Third Circuit affirmed, finding that the plain language of the SCRA’s property tax interest rate cap and its protection against penalties extend only to “property…owned individually by a servicemember or jointly by a servicemember and a dependent or dependents.” 50 U.S.C. § 3991(e) (emphasis added). The SCRA defines “servicemember” as “a member of the uniformed services;” therefore, the court reasoned that property owned by a servicemember is a separate legal entity from the actual servicemember and is ineligible for the SCRA’s protections. The court held that the servicemember failed to prove that an interest in excess of six percent was assessed against him while on active duty or that he actually owned the property. Rather, because the company was the actual owner of the property and was solely liable for tax debt, the Third Circuit affirmed the district court’s ruling.

    SCRA

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