Checking the Defense Manpower Data Center (DMDC) for active-duty servicemembers “is not a safe harbor” for avoiding violations of the Servicemembers Civil Relief Act (SCRA), said David Gemperle, partner at Nisen & Elliott.
Lenders should also take “detailed account notes,” and train their representatives to “have their ears ready to hear about something about the military or someone being in the military,” he told attendees at PowerSports Finance 2017 in late October. “This might be someone who doesn’t have the rights under the SCRA, but using DMDC database is not a safe harbor. So, it’s whether the person is in the military, not whether the DMDC database had a hit.”
Notably, there have been numerous investigations and fines attached to the SCRA over the past few years — particularly in auto finance. Wells Fargo & Co., for example, was fined more than $24 million in 2015 and HSBC Finance Corp. paid $434,500 in 2016. And in February 2015, the Justice Department reached a $9.3 million settlement with Santander Consumer USA for allegations that it had violated the SCRA.
Most recently, in September the Justice Department said that CitiFinancial Credit Co. — a successor to CitiFinancial Auto Corp. — would pay $907,000 to resolve allegations that it violated the SCRA.
Between 2007 and 2010, CitiFinancial repossessed 164 cars owned by SCRA-protected servicemembers without first obtaining the required court orders, according to a DOJ press release.
“Where the company had tripped up was they failed to read their loan files and failed to read their account notes that actually said that this was an active-duty servicemember, or that a servicemember had reported to this lender that they had been ordered into service,” said Molly Calkins, partner of the Consumer Financial Practices Group at Akerman LLP.
During the investigation, the DOJ learned that CitiFinancial conducted repossessions without court orders — even when CitiFinancial had evidence in its own records suggesting that a borrower could be a protected servicemember, sister publication Auto Finance News previously reported. In several cases, loan servicing notes indicated that CitiFinancial was informed that the borrower was an active-duty servicemember or had received orders to report for military service. However, CitiFinancial allegedly continued repossession efforts for the servicemembers’ vehicles.
“They may well have been checking that [DMDC] database that they are required to, but they had all that information in front of them but just didn’t read it,” she told attendees. “And for that reason, they didn’t go get court orders before repossessing those vehicles as they are required to under the SCRA.”
Watch the panelists discuss the regulatory environment in the video below — the sixth video in a series from PowerSports Finance 2017, held recently in Las Vegas.