On January 28, the GAO issued a report on SCRA mortgage protections required by the 2012 legislation that extended those protections. Using data from three large mortgage servicers and a large credit union, the GAO examined changes in the financial well-being of servicemembers who received foreclosure-prevention and mortgage-related interest rate protections under SCRA, including the extent to which they became delinquent and the impact of protection periods. The report states that the number of servicemembers with mortgages eligible for SCRA mortgage protections is unknown because servicers have not collected this information in a comprehensive manner. For those identified as SCRA-eligible at the two servicers, delinquency rates ranged from 16 to 20 percent and from four to eight percent for other military borrowers. Delinquencies at the credit union were under one percent. GAO concluded that some servicemembers appeared to have benefitted from the SCRA interest rate cap of six percent, but that many eligible borrowers had not taken advantage of the protection. GAO also determined that the data were insufficient to assess the impact of SCRA protections after servicemembers left active duty, although it believes one institution’s limited data indicated that military borrowers had a higher risk of delinquency in the first year after leaving active duty. GAO also reviewed documentation on DOD’s partnerships and relevant education efforts related to SCRA mortgage protections and found relevant information to be limited because DOD has not undertaken any formal evaluations of the partnerships’ effectiveness. Given its finding that many servicemembers did not appear to be taking advantage of the SCRA interest rate cap, GAO concluded that DOD’s SCRA education efforts could be improved and that an assessment of the effectiveness of these efforts is still warranted.
On February 7, the U.S. Court of Appeals for the Ninth Circuit held that the attempted collection of past due foreclosure-related fees from a borrower in active duty military service is a violation of section 533 of the Servicemembers Civil Relief Act (SCRA). Brewster v. Sun Trust Mortg., Inc., No. 12-56560, WL No. (9th Cir. Feb. 7, 2014). The district court dismissed an active duty servicemember’s suit against the current and former servicer of his mortgage loan after the current servicer failed to remove fees associated with a foreclosure initiated, but then withdrawn, by the prior servicer. SCRA section 533 bars the “sale, foreclosure, or seizure of property” for the breach of certain obligations relating to a mortgage made before a servicemember’s military service, unless such action is pursuant to a court order or a valid SCRA waiver, and also establishes criminal penalties for a person who knowingly makes, causes to be made, or attempts to make such a prohibited sale, foreclosure, or seizure of property. On appeal, the Ninth Circuit concluded that the failure to remove the fees incidental to the previous foreclosure’s Notice of Default was a continuation of the previous “foreclosure proceeding,” and, therefore, a violation of section 533. The court did not consider whether the Notice of Default had been initially filed in violation of section 533. The court’s reasoning hinged on its reading of what the word “foreclosure” encompassed and based its interpretation on (i) a state-law statutory definition of foreclosure that the court determined included the attempted collection of foreclosure fees as part of the foreclosure proceeding, and (ii) the U.S. Supreme Court’s unambiguous requirement that courts broadly construe the statutory language of the SCRA. The court declined to determine whether SCRA allows punitive damages, as the DOJ had urged it to do in an amicus brief. The court reversed the district court’s dismissal of the borrower’s suit and remanded for further proceedings.
On October 3, Delaware Attorney General Beau Biden (DE AG) announced that his office sent letters to nearly 30 lending institutions asking for information about their compliance with the Servicemembers Civil Relief Act (SCRA). The letters ask the financial institutions to provide by October 16: (i) documentation of any internal SCRA compliance review, including the findings of any such review; (ii) all written policies, procedures and practices in place used to verify SCRA compliance; (iii) the number of customer files reviewed for SCRA compliance, both in Delaware and nationwide; (iv) documentation concerning any SCRA violations identified during reviews; (v) all written policies, procedures, and practices in place concerning the provision of remediation to account owners to address any judgments obtained in error or other actions taken in violation of the SCRA; (vi) documentation of steps taken to prevent future SCRA violations; and (vii) all SCRA employee training materials. The DE AG also sent a letter to the chairmen of the U.S. House and Senate veterans’ affairs committees, urging the lawmakers to change federal to allow state attorneys general to prosecute SCRA violations.
On September 19, the CFPB and the OCC announced parallel enforcement actions against a national bank to resolve allegations that the bank engaged in the unfair and deceptive marketing, sale, and billing of “add-on products” across multiple consumer products, and the OCC announced a separate order that resolves claims related to the bank’s non-home loan debt collection litigation practices and compliance with the SCRA.
Under the CFPB’s consent order, the bank will pay a $20 million penalty to resolve allegations that over a seven year period ending in March 2012, the bank, through its vendor, enrolled customers in credit monitoring and identify theft products, and charged some customers for these products without or before having received written authorization to perform the monitoring services. The CFPB order also requires restitution to affected customers, and numerous requirements to enhance compliance, including with regard to vendor oversight. Under the OCC’s parallel action, the bank entered a consent order similar to the one entered with the CFPB, and consented to pay a $60 million penalty.
The CFPB order acknowledges the bank’s representations that it no longer offers the scrutinized products and that it already has credited or refunded affected customers. The bank’s press release also reaffirms its commitment to holding its vendors to high standards.
In a separate action announced by the OCC on the same day, the bank also entered a consent order to resolve allegations of unsafe or unsound practices with regard to its non-mortgage debt collection litigation practices and its non-mortgage SCRA compliance. As the bank pointed out in a press release, the consent order relates to only a slight percentage of credit card, student loan, auto loan, business banking and commercial banking customers who defaulted on their loan or contract and the resulting collections litigation that followed several years ago. The press release explains that the bank uncovered the issue in internal reviews that began in 2010 and took several steps in response, including: (i) halting new credit card collections litigation in 2011, (ii) dismissing the impacted lawsuits, and (iii) improving SCRA controls.
On August 15, Freddie Mac issued Bulletin 2013-05, which, among other things, revises requirements relating to the SCRA and similar state laws and explains servicer responsibilities to effectively implement military relief legal protections. Specifically, Freddie Mac eliminated the requirement that servicers collect and report official documentation of a servicemember’s disability or death and available government benefits in the event a servicemember dies or becomes disabled while on active duty. In addition, Freddie Mac added a new guide section to include the additional foreclosure relief Freddie Mac provides to servicemembers and their dependents, and repurposed another guide section to remind servicers of their responsibilities to evaluate servicemembers and their dependents for the most appropriate relief or workout option from Freddie Mac’s existing options when a servicemember or dependent: (i) does not qualify for mortgage relief under the provisions of the SCRA or similar state laws; or (ii) qualifies for mortgage relief under the provisions of the SCRA or similar state law, but chooses to explore other relief options.
This afternoon, the CFPB published a “mid-year snapshot” of private student loan (PSL) complaints it received from October 2012 through March 2013. The report updates the Bureau’s initial student loan complaint report published in October 2012.
This latest report characterizes the volume of student loan complaints as “relatively steady” over the reporting period, with complaints about loan repayment issues, including an inability to modify loans, outpacing all others. In addition to repayment-related complaints, the CFPB highlights a number of other PSL servicing complaints, including those related to (i) payment processing, (ii) conflicting information provided by lender or servicer, (iii) lack of written notices from lender or servicer, and (iv) co-signer issues.
For example, with regard to payment processing, the CFPB states that many complaints relate to the situation in which the consumer sends one payment to cover several loans handled by the same servicer. The CFPB has found that servicers generally apply those funds to satisfy outstanding fees, interest and principal, and then allocate any remaining overpayment to the outstanding principal across all loans on a pro rata basis. In some cases, depending on the size of overpayment, the servicer may also advance the due date for future payments. The CFPB believes these practices, and the way servicers have communicated them, have caused “significant borrower confusion” while limiting consumers’ ability to control the application of their overpayments. The report notes that certain online servicing platforms do not provide a simple way for consumers to allocate excess payments.
Finally, the CFPB states, in both the report and a related blog post, that, despite improvements by PSL servicers, some servicemembers continue to have difficulties obtaining rate relief under the SCRA and that the Bureau will continue to work with the DOJ on potential SCRA violations.
Importantly, the report is a “snapshot,” and the CFPB cautions in its introduction that the report is not intended to communicate the frequency to which certain practices exist in the market and that readers should recognize that there are inherent limitations with the underlying data. This is perhaps most evident in the CFPB’s listing of complaints by company, without providing any context as to each company’s market share, and without connecting the types of resolution – which themselves have limited utility – with the various companies named.
On June 27, the U.S. Attorney for the Northern District of Alabama announced that a used car dealer pleaded guilty to charges that he violated the Servicemembers Civil Relief Act (SCRA). United States v. Nuss, No. 13-102 (N.D. Ala. Plea entered Jun. 27, 2013). In March, a federal grand jury returned a two-count indictment charging the car dealer with failing to follow the SCRA when asked to do so by an Alabama National Guard member who had been called to active duty in Afghanistan. The guardsman allegedly had sent a letter from his deployed location, in which he asked that his interest rate be reduced to six percent as required by the SCRA. According to the indictment, the dealer refused to reduce the interest rate, and hired two individuals to repossess the guardsman’s vehicle without first obtaining a SCRA-required court order. Notably, the dealer entered his plea without a plea agreement with the government. He is scheduled for sentencing on September 12, 2013. The maximum penalty for each SCRA violation is one year in prison, and a $100,000 fine.
Thus far SCRA enforcement activity has focused on the federal act, leaving the states overlooked. “Most states have an SCRA equivalent,” explains Kirk Jensen, Partner in BuckleySandler’s Washington, DC office. “One of the biggest differences is the populations they protect.”
State SCRA equivalents are designed to protect state guard members acting on behalf of the state; for example, when the state guard is called upon in the situation of Katrina, the wildfires, or the flooding in the Midwest. In each of the situations, the state’s SCRA equivalent would provide protections to servicemembers. Read more…
Recent enforcement activity has demonstrated the agencies have taken to viewing the SCRA as a strict liability statute. This shift in interpretation makes financial institutions legally responsible for compliance with the SCRA. According to Kirk Jensen, Partner in BuckleySandler’s Washington, DC office, “this is a big game changer in how financial institutions react to the SCRA.”
The Department of Justice has had some success in bringing litigation in these matters against the smaller, unsophisticated companies. However, it is important to note that the court is not hearing all the relevant arguments. There has been an uptick in private litigation and some of the issues raised in the enforcement matters may also be raised in court. It is our hope that the defendants will make the relevant arguments to resolve some of the outstanding issues. Read more…
The Servicemembers Civil Relief Act (SCRA) is designed to provide protection for military members as they enter active duty. The Act has origins dating back to the Civil War, but was first solidified in 1940 with the passage of the Soldiers and Sailors Civil Relief Act (SSCRA). In 2003, the SSCRA underwent modernizations, but the intent and language remained intact, to become what is known today as the SCRA.
Following the 2009 financial crisis and the rising number of foreclosures, reports began surfacing about banks and other financial institutions violating the SCRA. The Department of Justice began actively pursuing actions against institutions with the Office of the Comptroller of the Currency becoming involved later. Read more…
On April 4, the DOJ announced that two mortgage servicers will pay a combined $39 million to 316 servicemembers pursuant to SCRA settlements from 2011. Those settlement agreements resolved allegations that the mortgage servicers unlawfully foreclosed upon servicemembers between 2006 and 2010. One of the servicers also is subject to the national mortgage servicing settlement, which required an audit to identify violations of SCRA’s foreclosure provisions between January 1, 2006 and April 4, 2012 and its 6 percent interest rate cap provision between January 1, 2008 and April 4, 2012. DOJ stated that the payment is separate from the national servicing settlement review and represents only the non-judicial foreclosures conducted by the bank during the relevant time period. As the national settlement audits progress, the DOJ will require the servicer to make additional payments for alleged judicial foreclosure and interest rate violations uncovered in the audit.
On March 29, the Federal Reserve Board published its quarterly Consumer Compliance Outlook, which includes the Board’s response to questions raised during a September 2012 interagency webinar on servicemember protection issues and SCRA compliance. Because that event had limited time for questions, the Board responded in writing to the most common questions received. The publication includes answers to questions related to (i) notification of active duty, (ii) maximum rate of interest on debts incurred prior to military service, (iii) foreclosure protection, (iv) the Homeownership Counseling Act, (v) permanent change of station orders, (vi) the Defense Manpower Data Center, and (vii) other miscellaneous issues.
On March 28, the U.S. Attorney for the Northern District of Alabama announced that a federal grand jury had returned a two-count indictment against a used car dealer for violating the Servicemembers Civil Relief Act (SCRA). United States v. Nuss, No. 13-102 (N.D. Ala. Filed March, 28, 2013). According to the announcement, the indictment charged the car dealer with failing to follow the SCRA when asked to do so by an Alabama National Guard member who had been called to active duty in Afghanistan. The guardsman allegedly had sent a letter from his deployed location, in which he asked that his interest rate be reduced to six percent as required by the SCRA. According to the indictment, the dealer refused to reduce the interest rate, and hired two individuals to repossess the guardsman’s vehicle without first obtaining a SCRA-required court order. The maximum penalty for each SCRA violation is one year in prison, and a $100,000 fine.
Special Alert: CFPB and DOJ Announce MOU to Coordinate Fair Lending Enforcement Efforts; CFPB Issues First Annual Report to Congress on Fair Lending Activities
On December 6, the Consumer Financial Protection Bureau (CFPB or Bureau) and the U.S. Department of Justice (DOJ) announced a Memorandum of Understanding (MOU) to coordinate enforcement of the federal fair lending laws, including the Equal Credit Opportunity Act (ECOA). Simultaneously, the CFPB issued its first annual Fair Lending Report to Congress as required by the Dodd-Frank Act, which describes the Bureau’s efforts to build its Office of Fair Lending and Equal Opportunity and reviews its fair lending accomplishments. Together, these initiatives demonstrate that the CFPB and DOJ are continuing to work together closely to aggressively enforce the federal fair lending laws.
Memorandum of Understanding Regarding Fair Lending Coordination
The new MOU supplements an existing Information Sharing Agreement Regarding Fair Lending Investigations among the DOJ, the U.S. Department of Housing and Urban Development, and the Federal Trade Commission, which allows these fair lending enforcement agencies to share confidential information related to fair lending investigations, screening procedures, and investigative techniques. It also follows a general cooperation MOU that the DOJ and CFPB entered into earlier this year.
The new MOU focuses on information sharing and referral of matters alleging ECOA violations, but also governs the agencies’ referral processes for other fair lending-related laws and joint fair lending investigations.
Referral of ECOA Violations to DOJ: The MOU explains the circumstances under which the CFPB will refer potential ECOA violations to the DOJ for further investigation or prosecution. Consistent with the established practice of the prudential federal bank regulators, the MOU requires the CFPB to refer to the DOJ all matters where it has “reason to believe” that one or more creditors has engaged in a pattern or practice of lending discrimination. The CFPB may also refer to DOJ any violation of Section 701(a) of ECOA, including a recommendation that a civil action be commenced if the CFPB cannot obtain compliance from the financial institution.
Following referral, the DOJ has 60 days to determine whether to proceed with its own investigation. Within that period, the CFPB may not unilaterally commence its own action with regard to the referred violation(s). Even if exigent circumstances arise during the 60-day review period, the CFPB must first consult with the DOJ before taking independent action. Read more…
On November 19, the OCC issued Bulletin 2012-37, which advises all national banks and federal savings associations of the extension of certain servicemember protections afforded by the Servicemembers Civil Relief Act (SCRA). Currently, SCRA grants an individual protection from foreclosure during the period of active duty and for nine months thereafter, a benefit that was due to expire at the end of 2012. The Bulletin notes that the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012, which was enacted in August 2012, provides that (i) SCRA will continue to provide servicemembers with foreclosure protection during the period of active duty and for nine months thereafter past the end of the current calendar year into 2013, (ii) beginning February 2, 2013, the mortgage foreclosure protection will extend to one full year after the period of active duty, and (iii) on January 1, 2015, SCRA’s expanded foreclosure protection will sunset, and the protection period will revert to the period of active duty service plus 90 days.