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CFPB sues online lender to servicemembers
On September 29, the CFPB filed a complaint against a New York-based online lender and 38 of its subsidiaries for allegedly violating the Military Lending Act (MLA) and the Consumer Financial Protection Act by imposing excessive charges on loans to servicemembers and their dependents. The Bureau alleges that the defendants required consumers to join its membership program and pay monthly membership fees ranging from $19.99 to $29 to access certain “low-APR” installment loans. The complaint says that when the membership fees are combined with loan-interest-rate charges, the total fees exceed the MLA’s allowable rate cap, contending that the MLA serves to protect active duty servicemembers and their dependents by limiting the APR applicable to extensions of credit to 36 percent. The Bureau further claims that the defendants deceived consumers by representing that they owed loan payments and fees that were actually void under the MLA. In addition, the Bureau claims that the defendants refused to allow customers to cancel their memberships and stop paying monthly fees until their loans were paid, despite leading many consumers to believe they could cancel their memberships for any reason at any time, thereby “avoid[ing] such automatic renewals and associated membership fees.” In certain cases, the defendants refused to cancel memberships if a consumer had unpaid membership fees even if the loan was paid off, the Bureau says. The Bureau is seeking permanent injunctive relief, damages, restitution, disgorgement, civil money penalties, and other relief.
DOJ resolves SCRA violations with landlords
On August 8, the DOJ announced a settlement with two landlords resolving allegations that they violated the Servicemembers Civil Relief Act (SCRA) by obtaining unlawful court judgments against military tenants. The DOJ explained that, under the SCRA, if a landlord files a civil lawsuit against a tenant and the tenant does not appear in court, the landlord must file an affidavit with the court stating whether the tenant is in the military before seeking a judgment. The DOJ further noted that if the affidavit states that the tenant is in military service, the court cannot enter judgment until an attorney is appointed to represent the servicemember. The court must also postpone the case for at least 90 days. According to the DOJ’s complaint, which was filed in the U.S. District Court for the Eastern District of Virginia, the property owners allegedly filed false affidavits stating that the servicemembers were “not in military service” and failed to file affidavits of military service, as required by the SCRA, prior to obtaining default judgments against numerous servicemembers. The DOJ further alleged that the property owners had information in their files that would have allowed them to easily verify their tenants’ military status.
The consent decree requires the property owners to pay $162,971 to affected servicemembers and a $62,029 civil penalty to the U.S. The order also requires the property owners to, among other things, vacate the eviction judgments, repair the servicemembers’ credit, and provide SCRA training to their employees. The property owners must also reimburse affected servicemembers for any amounts collected pursuant to an unlawful judgment.
CFPB, DOJ issue letter to auto companies on SCRA provisions
On July 29, the CFPB and DOJ issued a joint letter reminding auto finance companies of legal protections for military families under the Servicemembers Civil Relief Act (SCRA). Among other things, the letter outlines several SCRA provisions that apply to vehicle financing, including: (i) prohibiting vehicle repossession without a court order during the borrower’s military service if a borrower financed or leased the vehicle prior to entering military service; (ii) permitting servicemembers and joint lessee dependents to terminate motor vehicle leases early, and without penalty, after entering military service or receiving qualifying military orders during active duty; and (iii) capping the amount of interest on loans incurred prior to military service to 6 percent per year.
Louisiana appellate court affirms district court’s decision in SCRA case
On June 29, the Court of Appeal for the Second District of Louisiana affirmed a trial court’s grant of summary judgment in favor of a national bank in an SCRA case. According to the opinion, an active duty servicemember and his wife filed for bankruptcy after purchasing a mortgage on a property from a national bank (defendant). The defendant appeared in the bankruptcy proceedings and moved to abandon the property for purposes of eventual foreclosure. The plaintiffs moved out of the state and were granted a discharge under Chapter 7 bankruptcy laws. The defendant has not foreclosed on the property, asserting that the mortgage account remains subject to the protections of the federal SCRA. The plaintiffs filed suit, claiming ownership of the property due to the defendant’s failure to foreclose against them within five years of the abandonment of the property in the bankruptcy, asserting that their obligations under the mortgage are prescribed.
The appellate court agreed that the mortgage account is subject to the protections of the SCRA, which tolls any state prescriptive period for the duration of one’s active-duty military service. According to the opinion, despite “no evidence of repayment” to the bank of any of the underlying mortgage debt, the plaintiffs claimed ownership of the subject property because the bank failed to “foreclose against them within five years of the abandonment of the property in the bankruptcy.” Agreeing with the bank that the mortgage account still remained subject to the protections of the SCRA, the court determined that: (i) the servicemember and his wife “cannot point to any law or jurisprudence that would provide an exception to the mandatory tolling provision of the SCRA [50 U.S.C. § 3936] in these circumstances;” (ii) the couple “never executed a waiver of rights form”; (iii) the “five-year prescriptive period [under Louisiana law] has been tolled on the mortgage” for the entirety of the servicemember’s active-duty military service; and (iv) the bank’s time to foreclose on the subject property “has not prescribed, as the prescriptive period has not started to run.” The appellate court concluded that the couple’s “obligations on the mortgage have not been extinguished, and they are not the owners of the subject property.”
FTC, state AGs order says retailer used illegal tactics on servicemembers
On July 20, the FTC and 18 state attorneys general announced a proposed order against a national jewelry retailer (defendant) for allegedly using illegal financing and sales practices on service members and their families. In the complaint, the FTC alleged that the defendants violated the TILA, Holder Rule, and EFTA, among other things, by: (i) making false or unsubstantiated claims that financing jewelry purchases through the company would result in higher credit scores; (ii) misrepresenting that the protection plan was required to finance purchases; and (iii) failing to provide clear written disclosures and meet authorization requirements for contracts. The complaint also alleged that the defendant violated the Military Lending Act (MLA), the FTC’s first action under this Act, because, by failing to “provide disclosures in accord with TILA, including the Itemization of the Amount Financed, they also do not provide all disclosures required by the MLA.” The proposed order requires that the defendants are, among other things: (i) prohibited from making misrepresentations; (ii) prohibited from making unsubstantiated claims; (ii) banned from the marketing or sale of ancillary products or services; and (iii) banned from transferring retail installment contracts to third parties. The order also requires the defendant to refund approximately $10.9 million for purchased protection plans, and provide refunds for overpayments.
CFPB testifies on commitment to servicemembers
On July 13, the CFPB testified before Subcommittee on National Security of the House Committee on Oversight and Reform regarding the Bureau’s efforts with respect to servicemembers. The testimony began by noting that the Bureau “is committed to our mission . . . to educate and empower servicemembers, monitor their complaints, and coordinate efforts across the government to protect servicemembers and their families in the financial marketplace.” The Bureau pointed out that it has received more than 4.2 million consumer complaints since June 30, including more than 286,000 complaints from servicemembers, veterans, and military family members. The testimony highlighted efforts by the Bureau to protect military members, such as: (i) issuing a consent order against a Nevada-based consumer lender for allegedly violating the Military Lending Act (MLA), the Electronic Fund Transfer Act (EFTA), and the CFPA when making installment loans (covered by InfoBytes here); (ii) filing a complaint in the U.S. District Court for the Northern District of California against a California-based online lender for allegedly made making more than 4,000 single-payment or installment loans to over 1,200 covered borrowers in violation of the MLA (covered by InfoBytes here); and (iii) filing a complaint against a Texas-based pawn lender and its wholly owned subsidiary for allegedly violating the MLA by charging active-duty servicemembers and their dependents more than the allowable 36 percent annual percentage rate on pawn loans (covered by InfoBytes here). The testimony, among other things, also discussed the Bureau’s collaborations with other agencies such as the FTC and the VA to protect servicemembers from scams and fraud.
FTC testifies on its efforts to combat fraud against servicemembers
On July 13, the FTC announced that it testified before the House Committee on Oversight and Reform Subcommittee on National Security regarding the Commission’s efforts to combat fraud and related threats against servicemembers. The testimony highlighted efforts by the Commission to protect military members, such as: (i) proposing a rule to eliminate “junk fees” and “bait-and-switch” advertising tactics related to the sale, financing, and leasing of motor vehicles by dealers (covered by InfoBytes here); (ii) taking action against a fast-food chain that allegedly targeted veterans with false promises while withholding information required by the FTC’s Franchise Rule; and (iii) providing $1.2 million in refunds and debt cancellation for students who allegedly were deceived by a for-profit medical school. The testimony also discussed other “challenges in protecting consumers from fraud and abuse,” and referenced the U.S. Supreme Court's ruling in AMG Capital Mgmt., LLC v. FTC, which held that the FTC does not have the ability to obtain monetary relief under Section 13(b) of the FTC Act (covered by InfoBytes here). Additionally, the FTC said its education and outreach efforts, including its focus on identity theft, is a “critical part of the agency’s consumer protection and fraud prevention work.”
CFPB publishes annual report on servicemember complaints
On June 13, 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 2021. The report highlights issues facing military consumers based on approximately 42,700 complaints submitted by servicemembers, veterans, and their families (collectively “servicemembers”). Key takeaways from the report include the following:
- Credit or consumer reporting. In 2021, servicemembers submitted over 17,000 credit or consumer reporting complaints, making it the most complained about financial product or service. The report found that the most common issue that servicemembers noted in their credit or consumer reporting complaints concern problems with incorrect information on a report.
- Medical billing. The report found that over half of medical debt collection complaints from servicemembers were about debts the individuals reported they did not owe. Many of these complaints stemmed from breakdowns in communication between private health care providers and TRICARE, the health insurance program for active-duty military. The report also discussed how frequent moves can increase the difficulty in receiving information or resolving the matter.
- Policy developments. The report noted that earlier this year, the VA published a final rule in the Federal Register amending its regulations around the conditions by which VA benefits debts or medical debts are reported to consumer reporting agencies (CRAs), and creating a methodology for determining a minimum threshold for debts reported to the CRAs (covered by InfoBytes here). According to the report, the final rule by the VA “set a clear and important precedent for the health care industry.”
- Recommendations. Among other things, the report recommended that there should be “more robust data” on the scope and impact of medical debt on servicemembers, and that “[m]edical providers and third-party billing companies should have adequate systems in place to serve servicemembers.”
CFPB highlights abuses in military allotment system
On June 2, the CFPB posted a blog post highlighting abuses within the military allotment system with respect to servicemembers’ automatic recurring payments. According to the Bureau, the allotment system was established to help servicemembers make payments directly from their paychecks, especially when deployed away from home. However, according to the CFPB some lenders have been abusing the allotment system, with certain lenders using the system “as a means of prioritizing repayment of that lender’s loan over the servicemember’s payments of other expenses.” The Bureau noted that servicemembers have other options for automatic payments that are usually free of charge and provide more legal protections than the allotment system, and reiterated that the Department of Defense (DoD) made significant changes in 2014 that prohibited new allotments to purchase, lease, or rent personal property like cars, furniture, and electronics, and “expanded the allotment prohibition in the Military Lending Act (MLA) to include a wider range of credit products, like installment loans, that cannot be repaid by allotment” (revised MLA regulations covered by InfoBytes here).
Through consumer complaints and the work of the agency’s Office of Servicemember Affairs, the Bureau stated it continues to hear about significant concerns in this space, including that some lenders are requiring servicemembers to repay by allotment (a violation of the MLA), and other lenders are entering into partnerships with allotment processing banks to create “allotment-funded savings accounts” for servicemembers in order to evade DoD protections. The blog post emphasized the Bureau’s commitment to protecting servicemembers from abuses and provided information for servicemembers on filing complaints should they believe they have been unfairly treated by a company through the military allotment system.
DOJ initiates SCRA action for auctioning servicemember vehicles without court orders
On April 15, the DOJ filed a complaint in the U.S. District Court for the Eastern District of Virginia against a Virginia-based towing company for allegedly auctioning vehicles owned by at least seven active duty servicemembers without first obtaining the required court orders. Under the Servicemembers Civil Relief Act (SCRA), a person holding a lien on property or effects of a servicemember may not enforce or foreclose on that lien during, or within 90 days after, a period of military service without a court order. According to the complaint, several factors should have alerted the towing company to the fact that the vehicles belonged to a servicemember, including that the vehicles were towed from a military base and one contained a duffel bag containing military uniforms and other evidence of the servicemember’s military service. Additionally, the DOJ contended, among other things, that the company’s policies and procedures “failed to include any mention at all of the SCRA or the protections it grants to servicemembers whose vehicles have been towed,” nor did these policies include the use of the Defense Manpower Data Center database “to determine a vehicle owner’s military status prior to selling, auctioning off, or otherwise disposing of a vehicle without a court order.” The DOJ seeks damages for the affected servicemembers and civil penalties, as well as a court order enjoining the company and all associated persons from engaging in the illegal conduct.