The Department of Justice recently entered into a settlement with BayPort Credit Union to resolve allegations that it violated the Servicemembers Civil Relief Act (SCRA) by charging unlawful interest to servicemembers and repossessing vehicles owned by servicemembers without first obtaining the required court orders.  As detailed below, the consent order requires BayPort to pay compensation to servicemembers who were charged unlawful interest and whose vehicles were alleged to have been unlawfully repossessed.  It also requires BayPort to pay a $40,000 civil penalty to the United States.

The SCRA (50 U.S.C. Section 3937) requires creditors to reduce the interest rate on certain credit obligations to 6% during the period of active duty service when the obligation was entered into before the buyer or borrower became a servicemember.  It also (50 U.S.C. Section 3952) generally requires a court order to be obtained before the vehicle of an active duty servicemember can be repossessed based on a default under a retail installment sales contract for the vehicle’s purchase as to which the servicemember made at least one deposit or installment payment before being called to active duty.

The DOJ’s complaint alleged that it launched an investigation into BayPort’s possible violations of 50 U.S.C. Section 3937 in connection with a servicemember who, before being called to active duty, had entered into a retail installment contract (RIC) for the purchase of a vehicle with an auto dealer who assigned the RIC to BayPort.  Before being called to active duty, the servicemember also had an outstanding balance on a credit card issued by BayPort.  According to the complaint, despite receiving a written request from the servicemember to reduce her interest rate to 6% that included a copy of her active duty orders and follow up requests, BayPort initially reduced her interest rate on the RIC to 6% but increased the amount of her monthly payment.  It also failed to apply the 6% rate retroactively to the date that the servicemember entered active duty.  Subsequently, BayPort retroactively credited interest, miscalculated the amount of the credit due, and reset the servicemember’s monthly payment to the amount due under the RIC.

The complaint also alleges:

  • Although BayPort reduced the interest rate on the servicemember’s credit card balance to 6%, it did not apply the reduction retroactively to her entry into active duty.
  • With regard to at least 20 additional servicemembers, BayPort improperly denied their requests for an interest rate reduction or incorrectly implemented the reduction.  Four reductions were denied because the servicemembers were not deployed to a combat zone and the remaining sixteen reductions were applied incorrectly.  Policies produced by BayPort incorrectly stated that a servicemember must be deployed to a combat zone to be eligible for a Section 3937 rate reduction and did not contain any guidance on how to process and apply an SCRA interest rate reduction request.

With regard to repossessions, the complaint alleges that the DOJ expanded its investigation into BayPort’s possible violations of 50 U.S.C. Section 3952 in connection with a servicemember as to whom BayPort had incorrectly applied an interest rate reduction on an auto loan.  According to the complaint, despite knowledge of the servicemember’s active duty status, BayPort, without a court order, repossessed the servicemember’s vehicle and subsequently sold the vehicle at auction.  The complaint alleges that documents produced by BayPort indicated that it had repossessed the vehicles of at least two other servicemembers without a court order in violation of the SCRA and that although BayPort’s policies indicated that a loan would be reviewed for SCRA eligibility using the Department of Defense database before a repossession, the policies were silent as to what should be done if the database indicated the consumer was an active duty servicemember.

The consent order describes the policies and procedures that BayPort must develop to ensure compliance with Sections 3937 and 3952.  It also requires BayPort to provide SCRA compliance training to all management officials and other employees who provide customer service to servicemembers in connection with servicing RICs and/or have significant involvement in servicing RICs.

Based on the DOJ’s determinations that BayPort had violated Sections 3937 and 3952, the consent order requires BayPort to:

  • Refund all interest and fees charged above 6% paid by 21 servicemembers during the period in which SCRA protections applied plus an additional payment equal to the greater of $500 or three times the amount of interest and fees refunded; and
  • Pay $10,000 in compensation to each of three servicemembers whose vehicles were unlawfully repossessed, plus any lost equity in their vehicles with interest.

The settlement with BayPort follows other lawsuits filed by the DOJ alleging similar SCRA violations.