SCRA Car Loan: Can I Repossess Servicemembers' Vehicles?

While auto lending frequently involves smaller dollar amounts than mortgages and student loans, the number of auto loans is high. Almost 44 percent of Americans have a car payment.

Add to this the fact that interest rates are higher for used cars, longer-term loans and borrowers who have low credit scores. This trifecta that results from bad luck and poor choices often spirals downward, causing borrowers to fall behind in payments and even default.

The Washington Post reported in February of 2019 that 7 million Americans were at least three months behind on their car payments in United States.

When you’re in the auto lending business, that results in a lot of non-performing loans.

But when you’re trying to recoup your auto lending losses, you must stay cognizant of the Servicemembers Civil Relief Act.

This act provides protections for servicemembers with active military service status. If your client is on active duty, you cannot begin collection proceedings or repossess the vehicle without first obtaining a court order.

Auto Lending Under SCRA

Those who work in the auto lending industry should be aware of the following rules and regulations:

  1. Interest rates – The SCRA caps interest rate for active-duty servicemembers at 6 percent. Thus, lenders must often adjust interest rates on scra car loan taken out before servicemembers go on active duty. Service members are supposed to submit a written notice and a copy of the military orders calling them to action to their lenders to get the rate. But in practice, some courts have punished lenders for not being proactive about determining military status and adjusting interest rates on their own. It’s a good idea to run regular active duty military service checks for all your clients and adjust interest rates accordingly. This is often referred to as “scrubbing” your list of active loans.
  2. Repossession – You can’t repossess a servicemember’s vehicle without a court order while they are on active duty. The court may grant the repossession, or it may opt to do one or more of the following:
    • Make the creditor return the payments made on the loan before granting the repossession.
    • Stay the car repossession proceedings.
    • Require that the creditor pay the servicemember the difference between the car’s value and the debt balance.
  3. Repossession for breach of auto lease – The SCRA prevents contract termination due to nonpayment or breach without a court order. If servicemembers can demonstrate that their active military service status compliance with the terms of the contract is impossible, the court may order a stay.
  4. Lease termination rights – A servicemember who signed a lease before going on active duty may cancel that lease without penalty. An active-duty servicemember who signs an auto lease is generally required to abide by that lease. But not if they get PCS orders outside of the continental U.S. or orders to deploy.

Penalties for Civil Relief Act SCRA Violations

Ignorance of auto lending and SCRA laws is no excuse. It’s important for anyone in an industry that deals with servicemembers keep an eye on the laws. Violations — even unintentional — can result in fines and penalties.

Business owners and managers must regularly determine which of its customers has active military status. The Servicemembers Civil Relief Act Centralized Verification Service can help make this process easier by streamlining search functions and providing helpful resources.

If you’re in the auto lending industry, rely on the SCRACVS for all your military service verifications.

To verify military status, log in to your account or register here.

Attorney Roy Kaufmann serves as the Director of the Servicemembers Civil Relief Act Centralized Verification Service, located in Washington, D.C. As a recognized authority on the Servicemembers Civil Relief Act, Mr. Kaufmann has published hundreds of articles and hosted many webinars. His teachings help law firms and businesses to remain compliant with the SCRA rules and regulations so as to avoid costly fines.