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CFPB, DOJ remind on servicemember protections
On December 20, the CFPB and the DOJ issued two joint letters reminding mortgage servicers and landlords to ensure that military homeowners and tenants are safeguarded during the Covid-19 pandemic and benefit equally as the U.S. economically recovers. One letter was sent to landlords and other housing providers on protections for military tenants, reminding property owners of the critical housing protections for military tenants, some of whom may have had to make alterations to their housing arrangements in response to the pandemic. The other letter was sent to mortgage servicers regarding military borrowers who have exited or will be exiting Covid-19 mortgage forbearance programs. The letter comes in response to complaints from military families and veterans on possible mortgage servicing violations, which include, among other things, inaccurate credit reporting and misleading communications to borrowers. According to the second letter, the CFPB and the DOJ warned, “[s]uch actions, if true, may be in violation of the legal protections under the CARES Act or contrary to administrative guidance issued by federal housing agencies,” and that the Bureau “is currently reviewing these complaints to determine if further investigation is warranted.” The announcement also reminded landlord and servicers that “[s]ervicemembers have several legal protections under the SCRA that are designed to enable them to devote their entire energy to the national defense,” which include, among other things, “a prohibition on foreclosing on certain servicemembers’ mortgages without court orders, the ability for military families to terminate residential leases early, and without penalty, upon receipt of military orders, and a prohibition on evicting military families from their homes without court orders. In addition, under the CARES Act and Regulation X, servicemembers and veterans have the same protections available to all mortgage borrowers.” The announcement also noted that approximately 7.6 million homeowners entered forbearance during the Covid-19 pandemic and 1.25 million borrowers, many of whom are military borrowers, are still currently in forbearance programs that will expire at the end of the year.
DOJ proposes SCRA settlement with Texas auto lender
On September 30, the DOJ announced a proposed settlement with a Texas-based auto lender, resolving allegations that the lender denied early motor vehicle lease terminations to qualifying servicemembers as required by the Servicemembers Civil Relief Act (SCRA). The SCRA allows servicemembers to terminate their motor vehicle leases early without penalty if they enter military service or receive qualifying military orders for a permanent change of station or to deploy to another location. According to the DOJ’s complaint, filed concurrently with the proposed settlement, an investigation revealed 10 instances in which the lender allegedly failed to provide early lease terminations to qualifying servicemembers. As a result, the DOJ claimed that the servicemembers, among other things, continued to make payments for vehicles they no longer wanted and were charged early termination penalties. Under the terms of the proposed settlement, the lender is required to pay more than $94,000 in compensation to the affected servicemembers and a $40,000 civil penalty. The proposed settlement also requires the lender to update its SCRA policies and procedures to avoid future violations and to provide SCRA compliance training to any employees whose customer interaction includes discussion of early lease termination benefits.
Auto-financer settles with DOJ on SCRA allegations
On September 29, the DOJ announced a settlement with a California-based auto-financing company resolving allegations that the company failed to refund up-front lease payments to servicemembers who lawfully terminated their motor vehicle leases early, in violation of the Servicemembers Civil Relief Act (SCRA). According to the press release, the SCRA “permits servicemembers to terminate motor vehicle leases early without penalty after entering military service or receiving qualifying military orders for a permanent change of station or to deploy.” When servicemembers end their motor vehicle leases early under the SCRA, the lessor must refund all lease payments made in advance under the SCRA. The settlement, filed by the DOJ in the U.S. District Court for the Central District of California, alleged that the company provided cash refunds for capitalized cost reduction (CCR) by servicemembers, but failed “to refund, on a pro rata basis, lease amounts—in the form of [CCR] from vehicle trade-in value—paid in advance by servicemembers who lawfully terminated their motor vehicle leases upon receipt of qualifying military orders.”
Among other things, the settlement requires the company to compensate 714 servicemembers, pay $64,715 to the U.S. Treasury, adopt new policies, and implement new training requirements consistent with the SCRA. The settlement also notes that the company fully cooperated with the investigation.
DOJ settles SCRA violations with New Jersey student lending authority
On September 20, the DOJ announced a settlement with a New Jersey’s student lending authority, resolving allegations that the authority obtained unlawful court judgments in violation of the Servicemembers Civil Relief Act (SCRA) against two military servicemembers who co-signed student loans . According to the press release, the DOJ launched an investigation into the authority after receiving a report from the Coast Guard that the authority obtained a default judgment in 2019 against a Coast Guard petty officer who co-signed on behalf of the two student loans. The complaint, filed by the DOJ in the U.S. District Court for the District of New Jersey, states that the authority “obtained default judgments against two SCRA-protected servicemembers” by failing “to file true and accurate affidavits indicating the military status of [the two service servicemembers].” According to the DOJ, lenders can verify an individual’s military status by utilizing a defense data center’s free and public website, or by reviewing their files to confirm military status. The authority allegedly filed affidavits in state court that inaccurately stated that the servicemembers were not in military service, even though the authority had conducted searches in the defense data center’s website that confirmed that the individuals were active military servicemembers.
The settlement notes that the authority must pay $15,000 each to the two servicemembers who had default judgments entered against them, and must pay a $20,000 civil penalty. Among other things, the settlement also requires the authority to provide compliance training to its employees and to develop new policies and procedures consistent with the SCRA. The settlement also notes that the authority, since the opening of the investigation, has been fully cooperative and has “taken steps to improve its compliance with the SCRA.”
CFPB Office of Servicemember Affairs releases annual report on servicemembers’ financial needs
On May 6, the CFPB’s Office of Servicemember Affairs (OSA) released its annual report, which provides an overview of OSA’s activities in fulfilling its statutory responsibilities for fiscal year 2020 and covers the period between January 1, 2020 to December 31, 2020. The report also addresses concerns raised by military consumers based on approximately 40,000 complaints submitted by servicemembers, veterans, and their families (collectively “servicemembers”). Key takeaways from the report include the following:
- Financial help due to the Covid-19 pandemic. In response to Covid-19, the Bureau released an online resource “to highlight tools and information that consumers can use to protect themselves and manage their finances, including information on topics such as mortgage and housing assistance, student loans, and avoiding scams.” For servicemembers, the page connects to an OSA blog detailing resources that military personnel can use for immediate financial assistance and to sustain long-term financial well-being.
- Misadventures in Money Management (MiMM). MiMM serves as an online educational tool that provides young servicemembers with an important “baseline of financial education through the power of storytelling and gamification.”
- Consumer Financial Protection Week and Military Consumer Protection Month. OSA took part in a joint webinar with the CFPB’s Office of Older Americans and the Office of Community Affairs, which highlighted initiatives for vulnerable populations and emphasized the “importance of research in understanding the financial well-being of military consumers.” The webinar also unveiled the Bureau’s “first research report that studied how the credit records of young servicemembers coevolve with military service.”
- National Veterans and Military Families Month. During November 2020, OSA organized with other agencies and organizations to encourage the military community to leverage available resources to help improve their financial well-being. These initiatives included, among other things: (i) publishing OSA’s Debt and Delinquency after Military Service research report; (ii) participating in the Bureau’s Financial inTuition Repayment Podcast Series; and (iii) convening “a virtual military consumer webinar with partner agencies and organizations to discuss financial challenges facing servicemembers, veterans, and their families in the financial marketplace.”
- Education and empowerment. The Bureau also “deployed and amplif[ied] [its] financial education tools through partners, engaging servicemembers and military families at townhall-style listening sessions at military installations.”
District court: No SCRA foreclosure protections for servicemember not on the note
On September 23, the U.S. District Court for the Eastern District of New York held that an active duty servicemember could not avail herself of the foreclosure protections provided by the Servicemembers Civil Relief Act (SCRA) even though she was a signatory on the mortgage, because she was not a signatory on the note. According to the opinion, the SCRA foreclosure protections are afforded only to an “obligation on real . . . property” which is “secured by a mortgage” and that it is the note “which evidences the obligations, i.e. the promise to pay the debt.” By signing the mortgage, the servicemember-spouse “merely mortgaged her interest in the property, to secure her husband’s obligation to pay.” Accordingly, the court vacated a prior stay of foreclosure.
DOJ settles with Texas furniture company on SCRA violations
On September 15, the DOJ announced a settlement with a Texas-based furniture and appliance company, resolving allegations that the company charged excess interest on servicemembers’ purchases in violation of the Servicemembers Civil Relief Act (SCRA). According to the press release, the DOJ launched an investigation into the company after receiving a referral from a United States Army Staff Judge Advocate. After receiving notice of the investigation, the company conducted a self-audit and determined that between March 2014 and May 2019, it had not granted the request for the full six percent interest rate cap required by the SCRA for 184 out of the 322 servicemembers that requested the relief. The complaint, filed by the DOJ in the U.S. District Court for the Southern District of Texas, states that the company “engaged in a pattern or practice of violating” the SCRA by “failing or refusing to timely and/or accurately lower the interest rate on pre-service obligations obtained by at least 184 SCRA protected servicemembers to 6% per year after being provided with the documentation required by the SCRA.”
The settlement notes that the company voluntarily disclosed its findings to the DOJ and issued over $59,000 in refund checks and over $28,000 in account credits to affected servicemembers. The settlement requires the company to pay an additional $500 to each affected servicemember, and to hire an independent consultant to determine if any other servicemembers were overcharged. Additionally, the company is required to make a $50,000 payment to the United States.
DOJ settles SCRA action with Florida towing company
On September 10, the DOJ announced a Servicemembers Civil Relief Act (SCRA) settlement with a Florida-based towing and storage company, resolving allegations that the company auctioned cars owned by active duty servicemembers without first obtaining a court order. According to the complaint, filed on the same day as the settlement, the DOJ initiated the investigation into the company after “becoming aware of a complaint” by a U.S. Navy Lieutenant whose car was towed while he was deployed abroad. The DOJ asserts that between 2013 and 2020, the company “auctioned off motor vehicles, without court orders, belonging to at least 33 SCRA-protected servicemembers.” The settlement requires the company to pay nearly $100,000 in compensation to affected servicemembers and a $20,000 civil money penalty. Additionally, the company must develop new SCRA policies and procedures for enforcing storage liens and provide annual SCRA compliance training to all of its employees.
DOJ initiates two SCRA actions for auctions without court orders
On August 18, the DOJ announced (see here and here) two separate Servicemembers Civil Relief Act (SCRA) actions. First, the DOJ filed a complaint against a Massachusetts-based moving and storage company for failing to obtain a court order prior to auctioning an active duty servicemember’s storage unit, while he was deployed overseas. The DOJ asserts that while a servicemember has no duty to inform lienholders of their military service, the servicemember told the storage company’s agent about his military status during a phone call. Additionally, the servicemember provided the storage company with his address on Hanscom Air Force Base. In the second complaint, the DOJ alleges a Florida-based towing company auctioned a car belonging to an active duty servicemember without obtaining a court order. The DOJ asserts that the towing company had reason to believe the car was owned by a servicemember, including that there was a military decal on the car and the owner’s auto loan was through a military-oriented financial institution. In both actions, the DOJ is seeking damages, injunctive relief and civil penalties.
SCRA’s lease protections expanded for stop movement orders
On August 14, President Trump signed S.3637, which amends the Servicemembers Civil Relief Act (SCRA) to expand the lease protections for servicemembers under stop movement orders in response to the Covid-19 pandemic. Specifically, the SCRA’s lease termination protections are expanded to include situations in which a servicemember executes a residential or motor vehicle lease upon the receipt of military orders for a permanent change of station or deployment and then subsequently receives a stop movement order “in response to a local, national, or global emergency, effective for an indefinite period or for a period of not less than 30 days,” which would prevent the servicemember from occupying the residence or using the vehicle. The amendments are retroactively effective and apply to stop movement orders issued on or after March 1.