Watch Your Step: Justice Department Reaches Yet Another Settlement with Auto Finance Company for Violating SCRA
Practice on October 7, 2019
Over the last couple of years, it seems I keep seeing the same headline over and over: “Justice Department settles with auto finance company for illegally repossessing servicemembers’ cars.” And it’s not my imagination. The United States Department of Justice recently issued a press release (“Press Release”) advising of yet another multi-million dollar settlement with a large captive auto finance company for violating the Servicemembers Civil Relief Act (SCRA) by repossessing vehicles from servicemembers without first obtaining the required court order. The Press Release notes that this settlement is the Justice Department’s 10th settlement with an auto finance provider since 2015 and exemplifies continued efforts to enforce the SCRA.
Justice Department’s Press Releases
To bring the point home, here’s a list of several of the more notable press releases from the Justice Department announcing settlements with auto finance providers for illegal repossessions from servicemembers:
- March 2019: $80,000 Settlement against Subprime Auto Lender
- November 2018: $95,000 Settlement with Credit Union
- November 2017: $10.1 Million Settlement with Bank
- September 2017: $700,000 to Resolve Allegations against Auto Finance Providers
- September 2017: $907,000 Secured from Auto Finance Provider
- July 2017: Five Figure Settlement with Credit Union
- August 2016: $434,500 to Resolve Allegations against Auto Finance Provider
- February 2015: $9.35 Million Settlement with Auto Finance Company
The Justice Department further advises that since 2011, it has obtained over $474 million in monetary relief for over 120,000 servicemembers through its enforcement of the SCRA.
Justice Department’s Recent Press Release – August 2019
SCRA Provision Prohibiting Repossession Without Court Order. The relevant SCRA provision prohibiting repossession without court order is relatively simple and straightforward. First, it applies only to a contract for which a deposit or installment has been paid by the servicemember before the servicemember enters military service. After the servicemember enters military service, a motor vehicle purchased or leased by the servicemember under the contract may not be repossessed for breach of the contract (occurring before or during the person’s military service) without a court order.
Put more simply, and in the words of the Justice Department’s recent Press Release: “[t]he SCRA prohibits repossessing a motor vehicle from a servicemember during military service without a court order if the individual made a deposit or installment payment…before entering military service.”
SCRA Provision Requiring Refund of Lease Amounts Paid in Advance for a Period After the Effective Date of Termination. The Justice Department’s settlement also concerns separate and distinct SCRA provisions relating to a servicemember’s right to terminate a motor vehicle lease at any time after entry into military service or the date of certain military orders. More specifically, the settlement concerns the auto finance company’s alleged failure to refund lease amounts paid in advance for a period after the effective date of a servicemember’s termination of his or her motor vehicle lease. In this regard, the Press Release notes that individuals who lease vehicles from the auto finance company often contribute an up-front monetary amount at lease signing, a portion of which are capitalized 3 cost reduction (CCR) amounts which reduce the monthly payment the lessee must make over the term of the lease. The Justice Department’s investigation revealed that when servicemembers terminated their motor vehicle leases early pursuant to the SCRA, the auto finance company retained the entire CCR amount.
Action Required Under the Settlement. The settlement agreement requires the auto finance company to create a fund to the tune of $3 million dollars to compensate servicemembers whose rights were violated under the SCRA; and to pay approximately $62,000 to the United States Treasury. The settlement agreement further requires the auto finance company to revise its policies and procedures to 1) prevent future unlawful repossessions of servicemembers’ vehicles, and 2) ensure that servicemembers who terminate their auto leases early receive a full refund of all eligible pre-paid CCR amounts. The auto finance company must also provide training to its employees and representatives.
The Justice Department’s Aggressive Pursuit of Auto Finance Providers Violating the SCRA. As is evident from the several recent and substantial settlements with auto finance providers for illegal repossessions from servicemembers, the Justice Department is vigorously pursuing auto finance providers who fail to comply with the SCRA. To this end, the Press Release notes that “[w]e will aggressively hold those institutions and businesses accountable who are required to comply with the Act…[o]ur military deserves no less.”
Takeaways and Best Practices
Considering these settlements, you should ensure that you have proper compliance systems and practices in place, including but not limited to the following:
- Prior to proceeding with a repossession, ensure that the debtor is not a servicemember who has entered military service and who has paid a deposit or installment before entering military service; and if the debtor is such a 4 servicemember, ensure that you obtain the appropriate required court order before proceeding with repossession;
- Have policies and procedures, and training, in place to otherwise prevent unlawful repossessions of servicemembers’ vehicles; and
- Have policies and procedures, and training, in place to ensure that servicemembers who terminate their auto leases early receive a full refund of all eligible pre-paid CCR amounts.
William J. Denius is a Shareholder with the law firm of Killgore, Pearlman, Semanie, Denius & Squires, P.A. in Orlando, Florida. Mr. Denius can be reached at 407-425-1020 or via email at firstname.lastname@example.org. This article is provided for informational purposes and is not intended nor should it be taken as legal advice.