On July 29, the Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) issued a joint letter to auto finance companies, reminding them of the protections the Servicemembers Civil Relief Act (SCRA) affords to servicemembers and their dependents during periods of military service. These protections include several related to auto lending and leasing, which are particularly important given that recent CFPB research has shown that servicemembers tend to carry more auto loan debt at younger ages than their civilian counterparts, largely due to the need for transportation while living on a military base. The SCRA is enforced by the DOJ and covers debts incurred before active duty, while the CFPB is authorized to address unfair, deceptive, or abusive practices related to auto financing for all members of the public, including servicemembers, under the Consumer Financial Protection Act.
Auto finance companies are encouraged to review the applicable SCRA provisions and ensure compliance, including provisions related to:
- Vehicle Repossession Protections
- If a borrower finances or leases a vehicle prior to entering military service, the lender may not repossess the vehicle during the borrower’s military service without a court order.
- Auto finance companies have the burden of identifying whether borrowers are protected by this provision, and servicemembers are not required to give notice of military status to receive this protection.
- Early Vehicle Lease Terminations
- The SCRA permits servicemembers to terminate motor vehicle leases early, and without penalty, after entering military service or receiving orders for a permanent change of station or deployment.
- Auto Loan Interest Rate Caps
- The SCRA limits the amount of interest that can be charged to servicemembers on loans incurred prior to military service to no more than 6% per year.
This joint letter joins a blog post issued by the CFPB in February 2022, which we reported about here, outlining regulatory priorities in the auto finance market and showing that auto finance is a top priority for the CFPB.
We’re Here to Help
The DOJ continues to take aggressive action to ensure the rights of servicemembers under the SCRA. It is advisable for auto finance companies to ensure that their SCRA compliance programs are up to date to prevent compliance issues before they occur. We have the experience to assist. Troutman Pepper’s Military Lending Practice Group includes one of the oldest and most well-respected consumer financial services and regulatory practices in the nation. Let us help you ensure our military members are rewarded for their valuable service to our nation.