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From Banking and Finance Law Daily, June 17, 2015

CFPB calls military auto finance company practices deceptive

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has filed a lawsuit in U.S. District Court for the Southern District of Ohio against an Ohio-based auto finance company claiming that the company used a combination of illegal threats and deceptive claims in order to collect debts owed by active duty and former servicemembers.

Aggressive collection tactics. In its complaint against Security National Automotive Acceptance Company, LLC (SNAAC), the bureau alleged that the company violated the Dodd-Frank Act prohibitions against unfair, deceptive, and abusive acts and practices by using aggressive collection tactics that took advantage of servicemembers’ special obligations to remain current on debts. It should be noted that it is the policy of the Department of Defense that military members pay their just financial obligations in a proper and timely manner.

Specifically, the CFPB claimed that:

  • SNAAC exaggerated potential disciplinary action that servicemembers would face. For example, SNAAC told customers that their failure to pay could result in action under the Uniform Code of Military Justice, as well as a number of other adverse career consequences, including demotion, loss of promotion, discharge, denial of re-enlistment, loss of security clearance, or reassignment. The bureau noted these consequences were extremely unlikely.

  • The company contacted and threatened to contact commanding officers to pressure servicemembers into repayment based on contractual “fine print.” The CFPB alleged that many consumers were unaware of the provision, and those who were aware of it did not understand the pressure that would be brought to bear on them because of it. The bureau added that SNAAC took advantage of the servicemembers’ inability to protect their interests in their transactions with the company and that conduct was unfair.

  • SNAAC falsely threatened to garnish servicemembers’ wages through an involuntary allotment. The bureau noted that under the military pay system, involuntary allotments are only processed once a judgment by a court is obtained. The company would threaten to pursue an involuntary allotment before they had even determined whether the servicemember would be sued.

  • The company misled servicemembers about imminent legal action. The CFPB’s compliant alleged that “[u]nder company policy, SNAAC does not file a collection action unless an account meets multiple internal criteria.”

Damages and other relief. If the bureau prevails in its lawsuit, it is seeking: to permanently enjoin SNAAC from committing future violations of the Dodd-Frank Act; unspecified damages; consumer redress; disgorgement of ill-gotten revenue; civil money penalties; and litigation costs.

Took advantage. Commenting on the lawsuit, CFPB Director Richard Cordray noted, “Security National Automotive Acceptance Company took advantage of military rules to put enormous pressures on servicemembers to pay their debts. For all the security they provide us, servicemembers should not have their financial and career security threatened by false information from an auto loan company.”

Companies: Security National Automotive Acceptance Company, LLC

MainStory: TopStory CFPB ConsumerCredit DebtCollection DoddFrankAct EnforcementActions Loans UDAAP

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