The United States Department of Justice (“DOJ”) and the Consumer Finance Protection Bureau (“CFPB”) have issued a joint letter reminding the auto finance industry to enforce certain interest rate restrictions and other consumer protections that benefit active duty members and their families. The joint letter advises auto finance providers to comply with the protections afforded to active duty military personnel and their dependents under the Military Civil Assistance Act (“SCRA”). This law provides legal protections and financial benefits to service members that are not available to civilian consumers.
The Bureau has focused on auto finance regulatory compliance for months. Earlier in the year, the agency issued a compliance bulletin that included CFPB reviews and enforcement actions, including illegal seizure of cars, sloppy record keeping, unreliable pay statements and a ransom for personal property.
Recent research from the CFPB indicates that military members have more car loan debt at a younger age than their civilian counterparts. Furthermore, the CFPB has found that the military is often the target of unfair or predatory lending practices. In response, the DOJ and CFPB have highlighted certain obligations auto finance companies have under the SCRA. The joint letter focuses on SCRA’s three key enforcement priorities:
- Limits on Vehicle Repossessions – The SCRA prohibits an auto finance company from repossessing a vehicle during the borrower’s military service without a court order, if the borrower financed or leased the vehicle before entering in military service.
- Early Lease Termination – The SCRA allows service members to terminate motor vehicle leases early and without penalty after entering military service or receiving eligible military orders for a permanent change of station or deployment.
- Capped Interest Rates on Auto Loans – The SCRA also limits interest rates on loans taken out before military service to a maximum of 6% per annum, including most fees. If the military makes an appropriate request, a creditor must forgive and not defer any interest over 6%.
The CFPB is responsible for reviews and enforcement under the Military Loans Act, a federal law that limits interest and fees on certain types of loans made while a borrower is on active duty. Consumer complaints are investigated and investigated by the CFPB, which is also authorized “to combat unfair, deceptive or abusive practices relating to automobile financing for all members of the public, including the military, under the consumer financial protection,” as stated in the joint letter. In contrast, SCRA is enforced by the DOJ and covers debts incurred prior to active duty. Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division said, “The Civil Rights Division is responsible for ensuring that the rights of those who serve in our country’s armed forces are protected from discrimination and unfair treatment”.