The Department of Justice recently reached a settlement with BayPort Credit Union to resolve allegations that it violated the Military Civil Assistance Act (SCRA) by charging the military illegal interest and repossessing vehicles belonging to the military personnel without first obtaining the required court orders. As detailed below, the consent order demands that BayPort pay compensation to service members who have been accused of unlawful interests and whose vehicles are alleged to have been illegally repossessed. It also forces BayPort to pay a civil penalty of $40,000 in the United States.
SCRA (50 USC Section 3937) requires creditors to reduce the interest rate on certain credit obligations to 6% during the period of active service when the obligation was incurred before the buyer or borrower became service member. It also requires (50 USC Section 3952) that a court order be obtained before an active duty service member’s vehicle can be repossessed due to a defect under an installment retail contract for the purchase of the vehicle for which the member made at least one deposit or stage payment before being called up for active service.
The DOJ Complaint alleged that he had initiated an investigation into possible violations by BayPort of USC 50 Section 3937 in relation to a military member who, prior to being called to active duty, had entered into a retail sales contract (RIC ) for the purchase of a vehicle with a car dealer who has awarded the RIC to BayPort. Prior to being called up for active duty, the member also had an outstanding balance on a BayPort-issued credit card. According to the complaint, despite receiving a written request from the service member to reduce his interest rate to 6% that included a copy of his active duty orders and follow-up requests, BayPort initially reduced his interest rate. interest on the RIC at 6% but increased the amount of his monthly payment. It also failed to apply the 6% rate retroactively to the date the member entered active duty. Subsequently, BayPort retroactively credited interest, miscalculated the amount of credit owed, and reset the member’s monthly payment to the amount owed under the RIC.
The complaint also alleges:
- Although BayPort reduced the interest rate on the member’s credit card balance to 6%, it did not apply the reduction retroactively to his entry into active duty.
- For at least 20 additional service members, BayPort wrongly denied their interest rate reduction requests or incorrectly implemented the reduction. Four reductions were denied because the military was not deployed in a combat zone and the remaining sixteen reductions were incorrectly applied. The policies produced by BayPort incorrectly stated that a military member must be deployed to a combat zone to be eligible for a rate reduction under Section 3937 and did not contain any guidance on how to process and apply a request for SCRA interest rate reduction.
Regarding the repossessions, the complaint alleges that the DOJ expanded its investigation into BayPort’s possible violations of 50 USC 3952 in relation to a military member to whom BayPort wrongly applied an interest rate reduction. on a car loan. According to the complaint, despite knowledge of the member’s active duty status, BayPort, without a court order, repossessed the member’s vehicle and then auctioned the vehicle. The complaint alleges that documents produced by BayPort indicated that it repossessed the vehicles of at least two other service members without a court order in violation of SCRA and that, although BayPort policies indicated that a loan would be considered for SCRA eligibility using the Department of Defense. database prior to a repossession, the policies were silent as to what should be done if the database indicated that the consumer was an active member of the service.
The Consent Order outlines the policies and procedures BayPort must develop to ensure compliance with Sections 3937 and 3952. It also requires BayPort to provide SCRA compliance training to all management officials and other employees who provide a customer service to service members in the maintenance of RICs and/or have a significant involvement in the service of RICs.
Based on the DOJ’s determinations that BayPort violated Sections 3937 and 3952, the consent order requires BayPort to:
- Reimburse all interest and fees charged above 6% paid by 21 service members during the period the SCRA protections applied, plus an additional payment equal to the greater of $500 or three times the amount of interest and costs reimbursed; and
- Pay $10,000 in compensation to each of the three service members whose vehicles were illegally repossessed, plus any lost equity in their vehicles with interest.
The settlement with BayPort follows other lawsuits filed by the DOJ alleging similar SCRA violations.