Auto finance companies and others in the auto space should take note of a recent joint letter issued by the Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) about the legal protections under the Servicemembers Civil Relief Act (SCRA). In the letter, CFPB Director Rohit Chopra set out that “[t]he CFPB is closely monitoring the auto finance industry to ensure that servicemembers and their families are being treated fairly.”

The letter outlined three main provisions that the auto world should be aware of:

1. Wrongful vehicle repossessions – The SCRA prohibits repossession of a car during a period of military service unless there is a court order or if the car loan was incurred before the period of service. There is no notice requirement from the borrower for this protection as the auto finance company has the burden of identifying whether the borrower is protected. Verification can be conducted via the Defense Manpower Data Center (DMDC) website.

• Failure to terminate vehicle leases without penalty – Under the SCRA, a servicemember can terminate motor vehicle leases early without penalty after entering service or upon receiving qualifying permanent change of station (PCS) or deployment orders. When servicemembers terminate motor vehicle leases, the SCRA requires that they be refunded all lease amounts paid in advance after the effective date, including “capitalized cost reduction” amounts.

• Interest rate benefits – If a loan was incurred prior to service, the SCRA limits the interest rate to 6% upon a proper request from the servicemember. The amount above 6% must be forgiven and not merely deferred and applied retroactively back to the date of SCRA eligibility. This provision of the SCRA requires a written notice from the servicemember during the period of service or within 180 days of leaving service. 

The joint letter noted that many servicemembers carry higher auto loan debt at younger ages due to their need for transportation on military bases and are commonly targets for predatory lending practices. The DOJ is directly responsible for enforcing the SCRA, whereas the CFPB monitors complaints and can enforce unfair, deceptive, or abusive practices against servicemembers. 

The joint letter should serve as a reminder to auto finance lenders and servicers to have a robust SCRA compliance program as the DOJ and CFPB will be watching.