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DOJ steers toward auto lender in SCRA action

Military lending compliance law leads to lawsuit

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  • Written by  Donna L. Wilson, Manatt, Phelps & Phillips, LLP
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  • Comments:   DISQUS_COMMENTS
Lenders must pay close attention to strictures of the Servicemembers Civil Relief Act. Lenders must pay close attention to strictures of the Servicemembers Civil Relief Act.

Servicemembers Civil Relief Act (SCRA) actions against auto lenders remain popular with the Department of Justice (DOJ), with the agency filing a new complaint in California federal court.

Importantly, while the case is based on a complaint filed by a single Army private, the DOJ alleged a “pattern or practice” of statutory violations given the lender’s lack of policies with regard to the SCRA.

What happened

In September 2015, Andrea Starks purchased a used 2006 Chevrolet HHR from an Arizona dealership. She made a downpayment of $1,000 and obtained a $7,572.07 loan at 24% interest from a California-based indirect auto lender. Starks made a loan payment under the agreement.

The following April, Starks enlisted in the United States Army and submitted a copy of her military orders to the lender. The same day in May that she began her active military service as a U.S. Army private, the lender repossessed her vehicle without a court order. The lender sold the car at a public auction the same month.

Starks contacted the DOJ in November 2016 to raise concerns about the repossession. The agency launched an investigation into the lender’s loan servicing policies, practices, and procedures.

The SCRA provides that “[a]fter a servicemember enters military service, a contract by [a] servicemember for … the purchase of real or personal property (including a motor vehicle)” and “for which a deposit or installment has been paid by the servicemember before the servicemember enters military service” “may not be rescinded or terminated for a breach of terms of the contract … nor may the property be repossessed for such breach without a court order.”

The lender violated this provision by initiating and completing the repossession of Starks’ car without a court order, as she had made an installment payment to the lender prior to entering military service and was in military service at the time of the repossession, according to the California federal complaint. The defendant was aware that Starks was in the military at the time of repossession, the DOJ added.

Further, the defendant did not have—and still lacks—policies or practices in place to verify the military status of borrowers before repossessing the vehicles, despite having the opportunity to make use of the Department of Defense’s Manpower Data Center that allows lenders seeking to comply with the SCRA to check and see whether their customers are protected by the statute, the DOJ alleged. Without such policies or practices in place, the agency accused the defendant of engaging in a pattern or practice of violating the SCRA, characterizing the lender’s conduct as “intentional, willful, and taken in disregard for the rights of servicemembers.”

The complaint seeks to enjoin the defendant from future violations of the statute and requests monetary damages for the servicemembers who were injured by the defendant’s actions, as well as civil penalties.

“The members of our armed forces should be able to devote their full attention to their duties without having to worry about whether their legal rights will be violated by lenders,” Acting Assistant Attorney General John Gore of the DOJ’s Civil Rights Division said in a statement about the lawsuit. “Repossessing vehicles without required court orders is both wrong and illegal. The Justice Department continues to ensure that we are doing all we can to protect and assist servicemembers, veterans, and their families from unlawful conduct by lenders.”

To read the DOJ’s complaint, click here.

Why it matters

The DOJ has been busy with SCRA actions in recent months. Last October, another California-based indirect auto financing company settled with the agency over similar charges of repossessing vehicles without the SCRA-mandated court orders. Earlier this year, the DOJ brought a separate suit against a Hawaiian city and its general contractor for towing the vehicles of servicemembers without first obtaining court approval. Lenders should be on notice of the agency’s enthusiasm for enforcement actions, demonstrated in the most recent complaint based on a single servicemember complaint that alleges a pattern or practice of statutory violations.

This article originally appeared on the Manatt, Phelps & Phillips, LLP website.

About the author

Donna L. Wilson is chief, privacy and data security, at Manatt, Phelps & Phillips, LLP

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