CFPB and DOJ remind auto finance companies of SCRA protections for service members

On July 29, the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) issued a joint letter to auto finance companies, reminding them of the protections that the Servicemembers Civil Relief Act (SCRA) offers service members. and their dependents during periods of military service. These protections include several related to car loans and leases, which are particularly important given that recent CFPB research has shown that military members tend to have more car loan debt at a younger age than their civilian counterparts, largely due to the need for transportation while living on a military base. The SCRA is enforced by the DOJ and covers debt incurred prior to active duty, while the CFPB is authorized to combat unfair, deceptive, or abusive practices related to auto financing for all members of the public, including military members, by under the Consumer Financial Protection Act.

Auto finance companies are encouraged to review applicable SCRA provisions and ensure compliance, including provisions relating to:

  • Vehicle repossession protections
    • If a borrower finances or leases a vehicle before entering military service, the lender cannot repossess the vehicle during the borrower’s military service without a court order.
    • Auto finance companies are responsible for determining whether borrowers are protected by this provision, and members of the military are not required to notify their military status to receive this protection.
  • Early termination of vehicle rental
    • The SCRA allows service members to terminate motor vehicle leases earlier, and without penalty, after entering military service or receiving orders for a permanent change of station or deployment.
  • Auto Loan Interest Rate Limits
    • The SCRA limits the amount of interest that can be charged to members of the military on loans taken out before military service to a maximum of 6% per year.

This joint letter joins a blog post published by the CFPB in February 2022, which we discussed here, outlining regulatory priorities in the auto finance market and showing that auto finance is a top priority for the CFPB.

We are here to help you

The DOJ continues to take aggressive action to secure service members’ rights under the SCRA. Auto finance companies are advised to ensure their SCRA compliance programs are up to date to prevent compliance issues before they arise. We have the experience to help you. Troutman Pepper’s Military Lending Practice Group comprises one of the oldest and most respected consumer financial services and regulatory practices in the nation. Let us help you ensure that our service members are rewarded for their valuable service to our country.

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