The Department of Justice and the Consumer Financial Protection Bureau (CFPB) issued a joint letter las week, reminding auto finance companies of their responsibilities to recognize important legal protections for military families under the Servicemembers Civil Rights Act (SCRA). While servicemembers have the same rights as non-military borrowers, the SCRA provides additional rights to protect servicemembers and their families against unique financial challenges.
“Auto finance companies that play by the rules should not be disadvantaged by competitors that violate the legal rights of military families,” said CFPB Director Rohit Chopra. “The CFPB is closely monitoring the auto finance industry to ensure that servicemembers and their families are being treated fairly.”
“The Civil Rights Division is entrusted with the responsibility of ensuring that the rights of the brave men and women of our Nation’s armed forces are safeguarded from discrimination and unfair treatment,” said Assistant Attorney General Kristen Clarke. “We work every day to ensure that these rights, including those related to auto financing, are protected through litigation, outreach, and policy development.”
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. They’re also commonly the target of unfair or predatory practices including costly loans and expensive contracts because of the financial inexperience of many entering the service as young adults, combined with their steady paychecks and ability to structure payments through the military allotment system.
CFPB’s Spring 2022 Supervisory Highlights also uncovered unfair acts or practices, prohibited by the Consumer Financial Protection Act, in the auto servicing industry.
The letter is designed to ensure that auto finance companies are aware of key provisions within the SCRA, including:
- Wrongful vehicle repossessions: The SCRA prohibits an auto finance company from repossessing a vehicle during the borrower’s military service without a court order, even if the borrower financed or leased the vehicle prior to entering military service.
- Failure to terminate vehicle leases without penalty: The SCRA allows servicemembers to terminate motor vehicle leases early and without penalty after entering military service or receiving qualifying military orders for a permanent change of station or deployment.
- Violations of auto loan interest rate benefits: The SCRA also limits interest rates on loans incurred prior to military service to no more than 6% per year, including most fees. If servicemembers make a proper request, a creditor must forgive and not defer any interest greater than 6%.
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