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The United States Department of Justice announced last week that Westlake Services LLC and its subsidiary, Wilshire Consumer Capital LLC, have agreed to pay $760,788 to resolve allegations the companies violated the Servicemembers Civil Relief Act (“SCRA”) by repossessing 70 vehicles owned by SCRA-protected servicemembers without obtaining the required court orders.

The CFPB referred the matter to the Justice Department’s Civil Rights Division’s Housing and Civil Enforcement Section in 2016, after receiving a complaint that Los Angeles-based Westlake Services and Wilshire Consumer Capital were conducting repossessions in violation of the SCRA.  The Justice Department sued the companies in United States District Court for the Central District of California.

The United States’ complaint alleged that Westlake and Wilshire repossessed vehicles in violation of 50 U.S.C. § 3952(a) and 50 U.S.C. § 3953(c), respectively.  Both provisions require lenders to obtain a court order before repossessing a covered servicemember’s motor vehicle, with the latter provision extending that protection for one year following the termination of military service.  The complaint alleged the companies failed to check the Defense Manpower Data Center (DMDC) database to determine whether customers were SCRA-protected servicemembers before repossessing vehicles without a court order.

The settlement agreement requires that Westlake and Wilshire pay $10,000 per violation to each of the affected servicemembers, plus an amount to compensate them for any lost equity they suffered in the repossessed vehicle, plus interest.  The companies must also repair the credit reporting of all affected servicemembers and pay a $60,788 civil penalty to the United States.  The companies also agreed that they would not repossess an SCRA-protected servicemember’s vehicle without obtaining a court order or valid SCRA waiver in the future and that they would implement enhanced policies and procedures and training to ensure compliance with SCRA requirements.  The Settlement Agreement is available here.

This is not the first time that Westlake and Wilshire have been the target of a federal agency.  In 2015, the companies entered into a Consent Order with the CFPB under which the companies agreed to pay a $4.25 million civil money penalty and $44.1 million in refunds and debt forgiveness to borrowers for alleged unlawful conduct including engaging in debt collection practices in violation of the Fair Debt Collection Practice Act and advertising auto financing in violation of the Truth in Lending Act.  The alleged unlawful debt collection conduct included:  threatening to refer borrowers for criminal prosecution; illegally disclosing information about debts to borrowers’ employers, friends and family; and using a software program, Skip Tracy, which disguised the phone number and caller ID text information of outbound calls so that the calls appeared to originate from other callers, such as pizza delivery services, flower shops or the borrower’s family and friends.  See “Consent Order with the CFPB.”

The Military Lending Act (MLA) will apply to credit card accounts starting Tuesday, October 3. The final rule took effect last October but provided a one-year exemption for “credit extended in a credit card account under an open-end (not home-secured) consumer credit plan.” Although the final rule permits the Secretary of Defense to extend the exemption for up to one year (October 3, 2018), the DoD declined to do so and is allowing the exemption to expire next week.

The MLA final rule imposes a host of requirements in connection with extensions of “consumer credit” to active-duty servicemembers and their dependents (“covered borrowers”), including a 36-percent cap on the Military Annual Percentage Rate (MAPR), substantive oral and written disclosures, and prohibitions against subjecting covered borrowers to certain contractual terms. In particular, creditors are prohibited by the final rule from including pre-dispute arbitration provisions in consumer credit contracts extended to covered borrowers, a fact that has been overlooked (or ignored) by some proponents of the CFPB’s arbitration rule. As such, even if Congress were to repeal the CFPB arbitration rule using the Congressional Review Act, servicemembers and their dependents who are protected by the MLA would still have the right to take their cases to court.

Credit card issuers should take steps to ensure that they (and their servicers) are prepared to comply with the MLA final rule with respect to credit card accounts opened on or after Tuesday, October 3.

The FTC has launched a new page on its website dedicated to its Military Task Force.  According to the FTC, it created the Task Force “to focus on identifying the particular needs of military consumers and developing initiatives to empower servicemembers, veterans, and their families more effectively.”  The Task Force consists of representatives of different FTC divisions.

The new webpage includes links to resources for servicemembers and veterans, workshops, related FTC cases and other initiatives, and congressional testimony.

 

A group of Democratic Senators have introduced a bill, the “Military Consumer Protection Act” (S. 1565), that would amend the Consumer Financial Protection Act (CFPA) to include various sections of the Servicemembers Civil Relief Act (SCRA) within the list of laws defined by the CFPA as “enumerated consumer laws.”

The “enumerated consumer laws” are included within the CFPA’s definition of “Federal consumer financial laws.”  Section 1054 authorizes the CFPB to bring a civil action against a person who violates a “Federal consumer financial law.”  As a result, the bill would appear to give the CFPB direct SCRA enforcement authority.  While the CFPB currently examines supervised entities for SCRA compliance, it refers SCRA matters to the DOJ for enforcement.

The bill would appear to give the CFPB authority to enforce the following SCRA sections:

  • Section 107. Waiver of rights pursuant to written agreement (except with respect to bailments)
  • Section 108. Exercise of rights under the SCRA not to affect certain future financial transactions (except with respect to insurance)
  • Section 201. Protection of servicemembers against default judgments, which excludes child custody proceedings
  • Section 207. Maximum rate of interest on debts incurred before military service
  • Section 301. Evictions and distress
  • Section 302. Protection under installment contracts for purchase or lease
  • Section 303. Mortgages and trust deeds
  • Section 305. Termination of residential or motor vehicle leases
  • Section 305A. Termination of telephone service contracts

 

 

 

 

We recently reported on a bill introduced in the House of Representatives by Congressman Dan Kildee (D-Michigan) that would amend the Military Lending Act (“MLA”) to require that creditors provide additional disclosures to covered members of the armed forces and their families. The text of H.R. 2697 is now available.

Titled the “Transparency in Military Lending Act of 2017,” the bill would add the following items to the list of mandatory disclosures required under the MLA:

  • A statement that the Department of Defense (“DoD”) and each service branch offers a variety of financial counseling services.
  • A statement that other, lower interest rate loans, including potentially 0 percent interest loans, may be available through other financial institutions and military relief societies.
  • Contact information for the nearest Department of Defense financial counseling office.
  • A statement of the actual cost of the extension of credit, prepared as an amortization table showing what the cost to the member or dependent will be if the extension of credit is paid off at different points over time.

H.R. 2697 would require the disclosures to be provided on a single sheet of paper and be in a bold, 14-point font.  In addition, the bill would require creditors to (1) obtain separate, signed acknowledgments for each of the four disclosures and (2) compile and make publicly available a list of Department of Defense financial counseling offices. As the bill is drafted, the additional disclosures appear to be required for any consumer credit covered by the MLA, as currently implemented by the DoD.  Nevertheless, in a subsection titled “TRANSPARENCY FOR PAYDAY LOANS AND VEHICLE LOANS,” the bill separately provides that “the term ‘consumer credit’ shall include ‘payday loans’ and ‘vehicle title loans’ as those terms were defined” by the MLA regulations in effect on July 1, 2015.  Perhaps Congressman Kildee expects the scope of the bill to be narrowed during the negotiation process to reach only payday and vehicle title loans.  Or perhaps he was uncertain whether the new regulations, which went into effect on October 1, 2015, still cover payday and vehicle title loans (they do).

If unedited, H.R. 2697 would represent a significant expansion of the MLA’s already onerous disclosure requirements.   While the bill does not expressly call for promulgation of new rules, the DoD would likely have to prescribe additional regulations if it becomes law.  For instance, the bill is bereft of details concerning the cost of credit disclosure other than to say it must be prepared as an amortization table showing the cost of credit if the credit is paid off “at different points over time.”

The bill has been referred to the House Armed Services Committee, and we will provide updates as developments occur.

On May 25, Congressman Dan Kildee (D-Michigan) referred a bill to the House Committee on Armed Services titled the “Transparency in Military Lending Act of 2017.” The proposed bill, H.R. 2697, would amend Title 10 of the United States Code, requiring creditors to provide active servicemembers (and their dependents) applying for loans with additional disclosures regarding the potential availability of lower-cost credit, as well as information about financial counseling services. The proposed act is part of a larger package of legislation introduced by Rep. Kildee aimed at assisting service members, veterans, and their dependents.  We will provide additional details on the bill when the text is publicly available.

According to an announcement posted on the Military Lending Act (“MLA”) Website,
“[b]etween February 9, 2017 and February 15, 2017 there was a problem with MLA Multiple Record Requests that prevented 149 request files from processing.” The Defense Manpower Data Center advises any creditor who, during the time period in question, submitted a Multiple Record Request file that failed to process submit the file again for processing.

Under the Department of Defense (“DoD”) final rule, using information obtained directly or indirectly from the DoD’s MLA Website is one of the safe-harbor methods for conclusively determining whether a credit applicant is a covered borrower eligible for MLA protections. (A safe harbor is also available to a creditor that uses a consumer report from a nationwide consumer reporting agency.) Users of the MLA Website can retrieve information on one individual via a Single Record Request or on multiple individuals (or multiple dates for a single individual) via a Multiple Record Request, or “batch” request.

The MLA Website is an important compliance resource for creditors, who face serious penalties and remedies for MLA violations. As a practical matter, to protect against file generation failures, creditors might wish to consider establishing backup arrangements with a consumer reporting agency to determine covered-borrower status for MLA purposes.

The CFPB announced that it has entered into a consent order with Military Credit Services, LLC, a company providing revolving credit to military consumers, to settle allegations that the company’s open-end credit agreements violated the Truth in Lending Act and the Electronic Fund Transfer Act.  MCS had entered into a consent order with the CFPB in 2014 to settle a complaint that named several other companies as defendants, including Freedom Stores, Inc. (Freedom), a retailer catering to military customers that offered financing through retail installment contracts.  While that complaint charged MCS with TILA violations similar to those described in the new consent order, it only charged Freedom with similar EFTA violations.  Nevertheless, the 2014 consent order required all defendants to ensure that their contract provisions included required EFTA disclosures and required TILA account-opening disclosures.

According to the new consent order (whose findings of fact and conclusions of law are not admitted or denied by MCS), the provision in MCS’s revolving credit agreements that authorized electronic payments were not “clear and understandable” as required by the EFTA and Regulation E.  The consent order also states that the credit agreements violated TILA and Regulation Z because they did not include all required account-opening disclosures in the required form, such as the APR that corresponds to each periodic rate that may be used to compute the finance charge.

The consent order requires MCS to pay a $200,000 civil money penalty and ensure that its contracts comply with EFTA/Regulation E and TILA/Regulation Z disclosure requirements.  MCS must also hire an independent consultant “with specialized experience in consumer-finance compliance” and who is acceptable to the CFPB to review the company’s issuance and servicing of credit.  The purpose of the review is to determine whether MCS has updated its contracts for compliance.  The company must develop a compliance plan to correct any deficiencies identified by the consultant and provide the report and compliance plan to the CFPB for a determination of non-objection.

On November 18, the GAO released a report examining issues related to implementation of the Servicemembers Civil Relief Act (SCRA) interest rate cap for student loans. The Senate Committee on Homeland Security and Governmental Affairs requested the report in response to indications that servicemembers with student loans who are eligible for an SCRA rate reduction may not always be receiving the benefit. (The SCRA requires creditors and servicers to reduce the interest rate to 6 percent during active-duty service on any pre-service obligation or liability, including student loans.) The GAO report concluded that servicemembers with private student loans may be particularly at risk of not receiving a rate reduction because nonbank private student loan lenders and servicers are subject to neither the same rules nor oversight as those of federal student loans and commercial FFEL student loans (FFEL loans made by private and state lenders that are not owned by the Department of Education). For example, unlike for federal and FFEL loans, servicers of private student loans are not required to identify eligible borrowers and automatically apply the rate cap. Additionally, no agency is currently authorized to routinely oversee SCRA compliance for private student loans made or serviced by nonbank lenders and servicers, such as private companies and institutions of higher education.

In its report, the GAO made a number of recommendations to ensure consistent treatment of eligible servicemembers across all types of student loans. In particular, the GAO recommended that the CFPB coordinate with the DOJ “to determine the best way to ensure routine oversight of SCRA compliance for all nonbank private student loan lenders and servicers,” including developing a legislative proposal to seek additional statutory authority to facilitate such oversight, if necessary.

In its written comments to the report, the CFPB acknowledged that it “shares the GAO’s interest in maximizing the effectiveness of [the] SCRA’s protections” and highlighted the tools currently at its disposal to facilitate SCRA enforcement, such as its collection of SCRA-related consumer complaints and ability to refer potential SCRA violations to the DOJ. Nevertheless, the GAO maintained that the existing tools are insufficient and additional interagency coordination is necessary to close the gap in SCRA oversight.