In line with a regulatory focus on auto lending the Consumer Financial Protection Bureau (CFPB) and the Department of Justice have issued a joint letter to “auto lending and leasing companies”. The letter reminds auto loan and lease servicers of certain protections afforded to servicemembers by the Servicemembers Civil Relief Act (SCRA). The letter details three main protections under the SCRA.
- Repossession must be with court order – When a servicemember obtained an auto loan prior to joining the service and the lender now seeks a repossession of the active servicemember’s vehicle they must obtain a court order for the repossession. The burden of knowing the military status of the borrower falls on the loan servicer, the borrower is not required to inform the servicer of their status to receive this protection.
- Early Lease Termination without Penalty – When a leasee enters military service or receives military orders for a change of station, the lease servicer must allow an early termination of the lease without penalty and must refund any prepaid lease amounts.
- Interest Caps – For loans entered into prior to military service the borrower can submit a written request for a rate cap of 6% per year. The lender must honor the request and forgive, not forbear, interest in excess of 6%. This forgiveness must be retroactive to the first day the borrower was protected under SCRA and generally must be effective until one year after the borrower leaves the service.
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