SCRA Will Continue to Receive Regulatory Scrutiny

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Will Continue to Receive Regulatory ScrutinyOn March 22, 2016, the U.S. House of Representatives passed the Foreclosure Relief and Extension for Servicemembers Act of 2015. This bill was signed into law by President Obama on March 31, 2016. This follows the recodification of the Servicemembers Civil Relief Act (SCRA). This past December, the Appendix to Title 50 of the U.S. Code was eliminated. The renumbering did not change the text of the Act, only how the Act is cited. For example, 50 U.S.C. app. § 533 is now 50 U.S.C. §3953.

The original SCRA provided for protection of servicemembers against foreclosures for a period of 90 days after the expiration of a period of active duty. Over the past several years, the foreclosure protection was extended to longer terms, but those extensions ended in the absence of congressional action and the protection period returned to the original time period of 90 days. Following the President’s signature, the protection is back to one-year after termination of active duty. It must be noted that the protection is also retroactive to January 1, 2016. As with prior extensions, however, the increase in the time period to one year is temporary. Unless Congress acts again to extend the time period, on January 1, 2018, the time period will revert back to 90 days.

Foreclosure protection is only one of several protections provided by the SCRA for servicemembers.  Other protections include the reduction of interest rates to 6 percent for certain obligations, protections against repossession of personal property including automobiles, and protections to stay court proceedings.

The Consumer Financial Protection Bureau (CFPB), the Department of Justice (DOJ) and the Office of the Comptroller of the Currency (OCC) have conducted several investigations and initiated litigation in order to enforce the protections provided by the SCRA to servicemembers. The CFPB undertook four enforcement actions against auto lenders, military allotment processors, and mortgage servicers related to either alleged abusive debt-collection practices or deceptive advertising. The DOJ entered into separate agreements with servicers and lenders regarding SCRA protections related to residential foreclosure in the National Mortgage Settlement. The DOJ also entered into a consent order with three separate owners or servicers of private and federally guaranteed student loans related to the interest rate protections afforded by the SCRA. Most recently, the OCC entered into a Consent Order with two separate financial institutions for its practices in connection with compliance with the SCRA provisions related to auto finance and leasing.

Federal regulatory agencies are taking a focused look at how financial institutions conduct consumer financial transactions with servicemembers, and SCRA compliance is one very important factor in that focus. Given this scrutiny, we recommend that any consumer financial institution who handles accounts owned by members of the U.S. military continually review its policies and procedures for compliance with the SCRA and expectations for the fair treatment of servicemembers.