Highway To The Danger Zone: Automotive Lending And The Servicemembers Civil Relief Act

This past March, Carl Nuss — a 75-year-old used car dealer from Birmingham, Alabama — received a letter from one of his customers, requesting that Mr. Nuss reduce the customer’s interest rate to six percent since the customer was overseas with the military. Instead, because the customer was thousands of dollars behind on his car payments, Mr. Nuss repossessed and sold the car, as permitted under the contract. Two months later, Mr. Nuss was indicted on two counts of violating of the Servicemembers Civil Relief Act (“SCRA”) — first for failing to reduce the customer’s interest rate, and second for repossessing the vehicle without a court order while the customer was on active duty. Each count is punishable by up to one year in jail and a $100,000 fine. On June 27, Mr. Nuss pled guilty to both SCRA violations.

Over the past few years, federal regulators — led by the Department of Justice — have sharply increased their focus on SCRA compliance. Although most recent headlines related to SCRA enforcement have arisen in the area of home mortgages, several major enforcement actions and multi-million dollar settlements indicate that regulators are looking beyond residential mortgage loans to identify possible violations involving all consumer asset classes, including auto loans.

Originally Published in the Banking Law Journal - February 2014.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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