Money and the Law: Agencies Struggle to Protect Service Members from Financial Harm | Company
The Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) have made it a priority to protect service members and their dependents from illegal financial industry activities.
In this sense, on July 29, the CFPB and the DOJ sent a joint “notification letter” to companies involved in auto financing. The letter summarized the restrictions applicable to service members and their dependents under the Servicemembers Civil Relief Act (SCRA) and politely threatened them with penalties if they violated that law.
As a reminder, since the Civil War, Congress has enacted legislation intended to relieve those in active military service of worries about financial problems at home, and the SCRA is the latest version of this legislation. It was first signed into law by President George W. Bush in December 2003 and has been amended regularly since. The stated purpose of the SCRA is to enable the military to “devote all their energies to the defense needs of the nation”.
The SCRA offers many protections and benefits to service members and their dependents regarding auto financing. For example, during a period of military service, an auto finance company cannot repossess a service member’s vehicle without a court order.
In addition, the SCRA allows service members, after entering military service or receiving permanent change of station or deployment orders, to terminate a vehicle lease early and without penalty. In the event of such termination, the leasing company shall reimburse the sums paid in advance covering a period subsequent to the effective date of termination. This includes a “capitalized cost reduction” collected at the time of signing the lease.
In addition, during a period of military service, the SCRA limits interest to 6% per annum for loans taken out before military service. To qualify for this benefit, a military member must provide the lender with a copy of their military orders and a letter from a commanding officer. The 6% rate is applied retroactively to the first SCRA eligibility date. Also, the lender cannot use a 6% rate request as an excuse to accelerate the payment of the principal due under the loan.
Another example of the CFPB’s aggressive protection of the military occurred last month when the CFPB sued an online lender, MoneyLion Technologies, alleging violations of the Military Loans Act, another federal law benefiting the military. . According to the CFPB complaint, filed in federal court in New York, MoneyLion was marketing new loans to active duty members with an annual percentage rate above the 36% limit allowed by law.
To do this, he asked loan applicants to sign up for a “joining plan,” which added an extra $19.99 or $29.00 to their monthly payments. (The 6% interest rate opportunity under the SCRA did not apply because these were new loans to people already in the military.)
MoneyLion then made it difficult for borrowers to repay their loans or otherwise leave the membership plan. According to CFPB’s complaint (this may sound familiar), one of the ways it did this was by having dysfunctional customer service lines. Wait times could exceed an hour.
There were frequent disconnections, even after a long wait. Phone menus malfunctioned, were useless and made it hard to talk to a live person. And the customer service reps were not responding.
Oh, and MoneyLion sometimes prohibited its borrowers from using its website or mobile app to repay their loans.
The CFPB is asking the court for an injunction, damages, civil penalty and attorney’s fees.
Jim Flynn is with the Colorado Springs company of Flynn & Wright LLC. You can contact him at [email protected].