Senators Call for Increased Regulatory Scrutiny of SCRA Compliance

Last week, a group of United States Senators requested the Consumer Financial Protection Bureau (CFPB) and the Department of Defense (DOD) to investigate the findings of a recent report indicating a lack of retailer compliance with the Servicemembers Civil Relief Act (SCRA). This week, with amazing speed, the CFPB took decisive action entering a Consent Order providing for over $350,000 in restitution, a $50,000 penalty and injunctive relief.

The SCRA provides certain benefits and protections for members of the United States Armed Forces when called to active duty military service.  The recent report alleged certain retailers have filed debt collection suits against active duty servicemembers who were not given a reasonable opportunity to defend themselves while in military service out-of-state or overseas – a practice that would violate the SCRA.

According to a press release, Sens. Jack Reed (D-R.I.) Jeanne Shaheen (D-N.H.), Richard Blumenthal (D-Conn.), Mark Warner (D-Va.) and Tim Kaine (D-Va.) submitted a letter to CFPB Director Richard Cordray and DOD Secretary Chuck Hagel requesting that both agencies fully investigate the claims of SCRA violations in a recent report from ProPublica and the Washington Post.  The ProPublica - Washington Post report indicated certain retailers have filed debt collection suits against active duty servicemembers who did not have a reasonable opportunity to defend themselves due to their military service.   While that investigative journalism report, entitled, Thank You for Your Service: How One Company Sues Soldiers Worldwide, profiled the conduct of one retailer, it is an opportunity for all retailers to review their policies and procedures in this area.

Litigation Involving Servicemembers During Periods of Military Service

One of the core protections the SCRA extends to servicemembers is the ability to ensure that civil legal proceedings do not proceed without their involvement during military service.  The purpose of the SCRA is to “protect those who have been obliged to drop their own affairs to take up the burdens of the nation.” Boone v. Lightner, 319 U.S. 561, 575 (1943). The protections of the SCRA reach a broad range of courts and administrative tribunals, mandating stays of proceedings and protections from default judgment entry. The SCRA also suspends the running of limitations periods and allows servicemembers to vacate default judgments that might have been entered in their absence. The recent report alleges that certain retailers fail to adhere to these requirements.

CFPB Provides Swift Justice

In a recently announced Consent Order, the CFPB has obtained over $350,000 in restitution, a

$50,000 penalty and injunctions against future conduct from the entity profiled in the ProPublica- Washington Post report.  At core, the CFPB took issue with the company’s marketing practice, by which it markets its own legal obligations under the SCRA as a service to servicemembers. Specifically, the CFPB found that the retailer’s practice of charging a $5 SCRA Specialists fee as a condition of credit for an obligation it was required by law to perform, namely active duty status searches, was an unfair and deceptive practice in violation of Sections 1031 and 1036 of the Consumer Financial Protection Act, 12 U.S.C. §§ 5531, 5536.  Quite simply, the retailer violated the law by its practice of charging a fee in exchange for services that were either never provided or had no value since the retailer was already obligated to do so by law.

While the conduct in this matter is egregious, this Consent Order and the events leading  up to it, provide an invitation to review compliance management systems in place for SCRA litigation compliance:

  • It is critical for compliance personnel to inquire with management regarding the controls in place to check a debtors’ military status or previous invocation of protections under the SCRA.
  • Similarly, compliance personnel should review the mechanisms by which vendors, including law firms, handle litigation regarding active duty servicemembers.

Take Away

Of particular relevance to SCRA compliance is the request in the Senators’ letter that the CFPB “determine whether there are any actions we can take to ensure due process for our servicemembers, especially the practice of including contractual provisions that may limit servicemembers’ ability to defend themselves while they are on active duty.”   In other words, the CFPB has been invited by members of Congress to undertake a granular look into consumer- facing contracts to ensure SCRA compliance.