Pub. 7 2017 Issue 3

8 www.azbankers.org In 2016 Navy Federal Credit Union paid $23 million in restitution to consumers and a $5.5 million civil penalty for UDAAP violations consisting of training deficiencies and collection attempts threatening to contact servicemember commanding officers. Of note in the case, the CFPB found that these collection attempts were deceptive despite the servicemember having signed an account agreement expressly providing permission to contact a commanding officer because the language was buried in fine print, non-negotiable, and not bargained for. The previous year, Santander and Bank of America felt the sting of multi-million dollar civil money penalties resulting from viola - tions of the SCRA. The DOJ website boasts of awards in cases against financial insti - tutions as recent as September ranging from just over $1,000 to just under $1 million. The cases include violations of the SCRA by lend - ers who repossessed servicemember vehicles. Recent private actions against banks by servicemembers include liability for foreclosure, repossession, and interest rate violations. SCRA Unlike other regulations that target specific areas of a bank, the SCRA is broad with provisions penetrating multiple departments and product lines. The Act primarily covers active duty military and their dependents; in limited circumstances business agree - ments are covered. Violations are subject to enforcement actions, civil penalties, and private suits. The SCRA piles on with criminal penalties for several violations, making the stakes even higher for bankers. The crown jewel in the Act for new servicemembers is the interest rate cap of 6 percent on all loans (including mortgages) consummat - ed before entering military service. Servicemembers must expressly invoke this right within 180 days of release from the military. You read that correctly – the regulation permits retroactive interest reduc - tion. Calculation of the interest rate is unique and can be tricky. The SCRA, among other things, also provides protections against default judgment, rights to terminate leases, judicial stays or exten - sions, revised statutes of limitation, amended contractual liability, and prohibition on creditor self-help actions like foreclosure and repossession without court approval. MLA Three areas of the MLA for banks to note: 1. Certain oral and written (yes – both) disclosures are to be made before extending credit; 2. Prohibitions are placed on mandatory arbitration clauses, pre - payment penalties, and waivers of certain legal rights, including those under the SCRA; and 3. Rates are capped at 36 percent on all covered loans, with a dis - tinct rate calculation inclusive of “add on” products like credit insurance and ancillary fees. Coverage is limited to servicemem - bers on active duty and dependents. Originally MLA applicability was limited, but the 2015 amendments expanded coverage to most Truth in Lending (TILA) loans. Thus, most consumer credit subject to a finance charges or with installments is now included. Credit cards and student loans are the big additions, while mortgages, most auto loans, and overdraft protection remain excluded. The final piece of the amendments became effective in October. Creditors are required to determine if a borrower is covered by the Act, but safe harbor is available if verification is obtained through the MLA online database or consumer credit report containing military status. Violations can result in enforcement actions, civil penalties, private suits, and criminal liability. UDAAP Definitions for unfair, deceptive, and abusive are found in the regu - lation itself and the CFPB has provided additional guidance and ex - amples in their manual online. Actual instances of actions the Bureau claimed were violations include threatening to call a commanding officer, misrepresenting the creditor’s intended actions with respect to legal remedies, hidden fees, and deceptive advertising. State Laws Some states have enacted stronger protections than the federal reg - ulations. These are not preempted by federal regulations so long as Military Lending w Continued from page 6 THE ACT PRIMARILY COVERS ACTIVE DUTY MILITARY AND THEIR DEPENDENTS; IN LIMITED CIRCUMSTANCES BUSINESS AGREEMENTS ARE COVERED. VIOLATIONS ARE SUBJECT TO ENFORCEMENT ACTIONS, CIVIL PENALTIES, AND PRIVATE SUITS.