InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Large National Bank Faces Class Action Suit Over Alleged SCRA Violations
On January 15, an Army Reserve sergeant filed a class action suit against a large national bank for allegedly violating the SCRA limitation on a lender's ability to foreclose on an active duty service member's property. According to the complaint, the bank violated the law by foreclosing on the plaintiff’s home and seizing personal property while the sergeant was on active duty. Wensel et al v. The Bank of New York, No 2:15-cv-00068, (W.D. Penn. Jan. 15, 2015)
President Obama Signs Extension of SCRA's One-Year Foreclosure Protection
On December 18, after passing unanimously in both houses of Congress, President Obama signed into law S.3008, the Foreclosure Relief and Extension for Servicemembers Act of 2014. Previously, the SCRA’s protection for servicemembers against foreclosure for one year after the end of active duty was set to expire at the end of 2014. The Act extends this protection until the end of 2015, at which point the foreclosure protection is scheduled to revert to the period of active duty plus 90 days that was in effect in 2008.
ABA Requests Guidance On SCRA Notice Form Expiration
On December 3, the ABA sent a letter to HUD’s General Deputy Assistant Secretary for the Office of Housing requesting guidance on the use of form HUD-92070 under the Servicemembers Civil Relief Act. HUD Form 92070 relates to the debt protections servicemembers receive under the SCRA. However, the most current version of the form expired on November 30, 2014. The letter seeks guidance regarding (i) compliance requirements now that the form has expired; and (ii) how to provide an accurate notice to servicemembers since the current form will be inaccurate effective January 1, 2015. Finally, the letter requests that HUD advise lenders as to how they should remain in compliance with the Congressional mandate until a new form is published.
Federal District Court Looks to State Statute of Limitations for SCRA Action
On November 25, 2014, the U.S. District Court for the Eastern District of Michigan applied the state’s three-year statute of limitations for conversion in granting a motion to dismiss a servicemember’s claims of wrongful foreclosure and eviction under the SCRA. Johnson v. MERS, Inc., No. 14-CV-10921, 2014 WL 6678951 (E.D. Mich. Nov. 25, 2014). The plaintiffs argued that, because the SCRA does not explicitly provide its own limitations period within which a suit must be brought, there was no limit for SCRA-based claims; however, the court rejected this argument. Following Supreme Court precedent, the court looked to the most analogous state law and applied its limitations period to the plaintiffs’ SCRA claim. The court considered, and ultimately rejected, plaintiffs’ argument to apply Michigan’s unlimited limitations period for egregious acts under the state’s criminal law. Similarly, the court held that both the ten-year limitations period for breach of contract and the six-year catch-all limitations period did not apply. Ultimately the court concluded that Michigan’s three-year statute of limitations for civil conversion claims was the most analogous to plaintiffs’ SCRA claims. As a result, plaintiffs’ claims were dismissed as time-barred.
Mortgage Servicers Partner With Obama Administration To Enhance SCRA Protections
On August 26, the Obama Administration announced a new partnership with residential mortgage servicers designed to enhance protections under the Servicemember Civil Relief Act (SCRA). Speaking to the American Legion convention in Charlotte, North Carolina, President Obama observed that under the SCRA, service members and veterans are entitled to certain protections and benefits “but the burden is on them to ask for it and prove they’re eligible.” Under the new partnership, mortgage servicers will proactively identify eligible consumers and inform them of their rights and benefits under the law. Participating servicers will identify eligible participants by regularly checking their servicing portfolios against the Defense Manpower Data Center searchable database of military personnel. The initiative also aims to simplify the process for enrolling and satisfying the SCRA written notice requirements. The announcement was made as part of a White House effort to bolster services for service members, veterans, and their families.
Department Of Education Encourages FFEL Lenders To Adopt New Procedures For Determining SCRA Eligibility
On August 25, the U.S. Department of Education (ED) released a “dear colleague” letter authorizing and encouraging Federal Family Education Loan (FFEL) lenders and lender-servicers to use the new procedures adopted by ED for determining which borrowers are eligible for benefits under the Servicemembers Civil Relief Act. The new ED procedures require ED loan servicers to use the Department of Defense’s website to access the Defense Manpower Data Center (DMDC) database. From there, the ED loan servicers compare their list of borrowers against the DMDC database to identify borrowers who are eligible for the SCRA interest rate limitation. Once the borrower’s status and service dates have been confirmed using the DMDC, the FFEL lenders and lender-servicers using this process may use the DMDC-generated certification information in lieu of having a servicemember submit a copy of his military orders and a written request to receive the SCRA benefits. When the FFEL lender or lender-servicer applies the SCRA interest rate limitation to the borrower’s account, it must notify the borrower of the interest rate change.
Deputy Comptroller Describes OCC's SCRA, Consumer Compliance Focus
On August 18, in a speech to the Association of Military Banks of America, Deputy Comptroller for Compliance Policy Grovetta Gardineer described the OCC’s increasing supervisory and enforcement focus on SCRA compliance. Ms. Gardineer explained that given the significant risks presented by a bank’s failure to comply with the SCRA, the OCC has “stepped up its focus on compliance” and “now requires . . . examiners to include evaluation of SCRA compliance during every supervisory cycle”—even though this closer scrutiny is not required by statute. Ms. Gardineer also highlighted the OCC’s concern regarding potential unfair and deceptive practices associated with overdraft and other administrative fees, especially when “poorly worded disclosures about fees” are contained in “page after page of legal notices and disclaimers.” And while Ms. Gardineer stated that the OCC itself is willing to take enforcement actions where necessary, she also stressed the importance of coordination between regulators to more effectively implement rules and help create a “culture that encourages . . . financial readiness” among servicemembers.
Delaware Enacts State SCRA Law
On July 23, Delaware Governor Jack Markell signed SB 206, which incorporates federal protections for servicemembers under the Servicemembers Civil Relief Act into state law, extends those protections to members of the Delaware National Guard who are called into active military service for the State of Delaware for a period of more than 30 consecutive days, and gives the state attorney general authority to enforce the new protections. The bill took effect immediately upon enactment.
President Obama Announces Student Loan Initiatives; Senate Student Loan Refinance Bill Fails
On June 9, President Obama announced numerous initiatives related to federal student loans and signed a presidential memorandum directing the Education and Treasury Departments to execute certain of those initiatives. The central directive instructs the Education Department to initiate a rulemaking that will allow students who borrowed before October 2007 or who have not borrowed since October 2011 to cap their payments at 10 percent of their monthly incomes. The Education Department aims to finalize the program by December 2015. In addition, the President announced that, among other things, (i) the Education Department will renegotiate its contracts with federal loan servicers to alter financial incentives “to help borrowers repay their loans on time, lower payments for servicers when loans enter delinquency or default, and increase the value of borrowers’ customer satisfaction when allocating new loan volume”; (ii) the Education Department will proactively apply SCRA protections by reducing interest rates automatically for eligible servicemembers and will also provide additional guidance to Federal Family Education Loan program servicers to provide for a similar streamlined process; (iii) Treasury and the Education Department will work with tax preparation companies to communicate information about federal student loan repayment options; and (iv) the Education Department will expand other existing efforts to identify borrowers who may be struggling to repay and provide them with information about repayment options. The President also called on Congress to pass federal student loan refinance legislation championed by Senator Elizabeth Warren (D-MA). On June 11, the Senate failed to advance that bill, which was designed to allow federal loan borrowers to reat rates set last year by the Bipartisan Student Loan Certainty Act, and allow private loan borrowers to refinance loans into the federal program at the same rates.
Senator Durbin Presses Student Loan Servicers On SCRA; Consumer Group Wants More Student Borrower Information
On May 14, Senator Dick Durbin (D-IL) sent a letter to student loan servicers calling on them to voluntarily establish a liaison for servicemembers with student loan accounts to assist those servicemember with obtaining SCRA protections. On May 12, the National Consumer Law Center sent a letter to Education Secretary Arne Duncan complaining about the Department of Education’s alleged inadequate responses to NCLC inquiries seeking (i) information and data about why borrowers default and incidence of re-default; (ii) information about the Department’s commission and compensation system for servicers and collectors and performance evaluation metrics; (iii) copies of guidance to servicers and collectors; (iv) information about servicer performance broken down by percentage of loans in various stages of delinquency, percentage of borrowers enrolled in income-driven repayment (IDR), retention rates for those enrolled in IDR, re-default rates, and percentage of borrowers in deferments and forbearances; (v) information about collection and servicer complaint systems; and (vi) breakdown of accounts sent to the Department of Treasury for offset, including by type of benefit program and by demographic information including age. The letter also outlines NCLC’s operational concerns, including with regard to loan rehabilitation and affordable repayment, collection agency oversight, and servicing performance metrics.