Lender to Pay Fine for SCRA Violation

Lenders and car dealerships beware when repossessing cars. California Auto Finance agreed to pay $80,000 in a settlement with the Department of Justice. This is the company’s second fine for an SCRA violation.

The DOJ filed suit against California Auto Finance for repossessing the vehicle of a servicemember who had enlisted in the military. This, despite the fact the servicemember had informed California Auto Finance of his enlistment.

The Servicemembers Civil Relief Act protects servicemembers from certain court actions while they are on active duty. One of these protections involves making car payments. If a servicemember joins the military or gets called to active duty after entering into an agreement to make payments on a vehicle, whether it is a purchase or lease, the lender cannot repossess the vehicle without a court order.

The purpose of this law is to free servicemembers from worrying about paying bills while on deployment. While they are still responsible for paying their bills, the law requires lenders to proceed with cases through the proper channels.

If, however, the servicemember enters into the agreement after they have joined the military or been called to active duty, then these SCRA protections do not apply and no SCRA violation would result from repossessing a vehicle.

Repeated Fines for SCRA Violations

In this case, the servicemember made California Auto Finance aware of the situation, but it repossessed the vehicle anyway. This, despite the fact the same company was sued by the DOJ last year for essentially committing the same offense.

The DOJ is requiring California Auto Finance to pay the most recently wronged servicemember $30,000. It is also requesting the lender pay a $50,000 civil penalty and help the servicemember repair his credit.

The DOJ is further asking the court to require the company to take steps to prevent further SCRA violations.

How to Avoid Fines for SCRA Violations

Intent can be meaningful in these types of lawsuits. A company that repeatedly commits SCRA violations and is not making an effort to stop will likely incur more wrath from the DOJ than a company that has made an honest mistake and has a system set up to check the military status of its customers.

As a lender, the first step you want to take in staying compliant with the SCRA is to perform military status verifications on any customer you are considering taking court action against. The SCRA prohibits repossessing vehicles without a court order, but you should have a military status verification in hand for any legal action you bring against a customer.

Further, servicemembers are entitled to an interest rate of 6 percent, per the SCRA. If your customers enlist in the military or get called to active duty, they have the right to request — and be granted — a 6 percent interest rate for as long as they are deployed or on active duty. They may even ask for this retroactively.

Failure to grant the rate in a timely fashion — and refund previous overpayments and any fines or late charges — is a violation of the SCRA.

SCRACVS Helps You Stay Compliant

Rely on the Servicemembers Civil Relief Act Centralized Verification Service to provide all your military status verifications, usually within 24 hours. We offer discounts to high-volume customers.

Log in to your account or register today.

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.