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DOJ Announces SCRA Pilot Program Offering Dedicated Legal Support to Military Communities
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.
DOJ and OCC Reach Consent Agreement With Bank Over Alleged SCRA Violations
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.
OCC Senior Deputy Comptroller Highlights the Importance of SCRA and MLA Compliance
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.”
DOJ Files Suit Against Military Housing Provider for Alleged SCRA Violations
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.
DOJ Files SCRA Complaint against Credit Union
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.
OCC Issues Bulletin Regarding Temporary Extensions of SCRA Protections
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.
Third Circuit Upholds District Court's Ruling in its First Case Interpreting the Scope of SCRA Protections
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.
Congress Passes Bill to Extend Foreclosure Protection Element of the SCRA
On March 21, the U.S. House of Representatives passed S.B. 2393, which extends through 2017 the provision of the Servicemembers Civil Relief Act’s (SCRA) that protects servicemembers against foreclosure without a court order or waiver for one year following completion of their service. On January 1, 2016, the foreclosure protection provision reverted back to the period of active duty military service plus 90 days, rather than the period of active duty military service plus one year. Upon the President’s signature, the SCRA’s protection against foreclosure without a court order or waiver will return to the period of active duty military service plus one year through December 31, 2017.
Senator Murray Sponsors Bill to Expand and Strengthen the SCRA
On March 17, Senator Patty Murray (D-WA) sponsored the SCRA Enhancement and Improvement Act of 2016 (the Act). The Act focuses especially on student loan servicers, but encompasses all financial institutions covered by the SCRA. Although the text of the Act is not yet available, the recently issued press release on the Act describes its proposed changes to the SCRA. Among other changes, the Act would revise the SCRA by: (i) requiring automatic application of the SCRA’s interest rate cap; (ii) ensuring that student loan servicers have a dedicated SCRA representative; (iii) reducing the SCRA’s interest rate cap from 6% to 3%; (iv) protecting servicemembers when their loans are transferred or sold by requiring “sufficient notice”; (v) forgiving all federal and private student loan debt if a servicemember dies in the line of duty; (vi) expanding the interest rate cap to all debts, no matter when incurred; (vii) clarifying that servicemembers may bring a private right of action under the SCRA; (viii) doubling the fines for violations of the SCRA; and (ix) expanding certain protections on mortgages, leases, and cable and internet contracts.
OIG Conducts Review of Department of Education Program for Ensuring Compliance with SCRA
On February 29, the Department of Education Office of Inspector General (OIG) published a response to a congressional request that the OIG conduct a review of student loan servicers’ compliance with the SCRA. The OIG analyzed SCRA reviews performed by the Department of Education (Department), obtained relevant documentation, and met with officials involved in planning and conducting SCRA program reviews. The OIG found that the Department’s sampling design for SCRA reviews did not accurately identify borrowers eligible for SCRA benefits. Specifically, the OIG found that the Department’s May 26, 2015 press release claiming 99% compliance with the SCRA was unreliable; of the 597 loans that the OIG reviewed, only 55 requested SCRA benefits and only 37 were eligible. The OIG also noted that the Department “did not make any effort to require the TIVAS [Title IV Approved Student Loan Servicers] to identify and correct all potential instances of incorrect denials of the SCRA interest rate cap.”