In March 2016, the Consumer Financial Protection Bureau (CFPB) issued its annual report on servicemember complaints titled, “Servicemembers 2015: A Year in Review.” In 2015, the CFPB received 19,000 complaints from servicemembers, veterans and their families, which represents a 13 percent increase from 2014. The top three areas for complaints were debt collection (46 percent), mortgage reporting (15 percent) and credit reporting (11 percent).
The CFPB’s Office of Servicemember Affairs (OSA) was created by the Dodd-Frank Act. The OSA monitors servicemember complaints submitted to the CFPB and coordinates with state and federal agencies on military protection measures. It’s critical that lenders and consumer debt servicers focus on protecting servicemembers and their families by complying with applicable regulations to avoid enforcement actions and reputational risk.
CFPB 2015 Enforcement Actions
The CFPB detailed the following enforcement actions in its 2015 report:
- CFPB brought an enforcement action against an Ohio auto lender, Security National Automotive Acceptance Company, LLC (SNAAC), for engaging in unfair, deceptive and abusive acts or practices in violation of the Consumer Financial Protection Act of 2010 (CFPA). These included threatening to contact consumers’ commanding officers regarding unpaid debt, disclosing consumers’ debts to commanding officers, characterizing delinquencies as military violations, subjecting consumers to discipline and falsely implying that the company intended to sue consumers when it hadn’t yet determined if it would take such action. SNAAC was ordered to refund or credit more than $2 million to servicemembers and other consumers who were allegedly harmed and to pay a $1 million penalty.
- The CFPB took action against Fort Knox National Company and Military Assistance Company, a processor of military allotments, for charging servicemembers fees without adequate disclosures. The CFPB determined that the company’s failure to disclose fees to servicemembers constituted unfair, deceptive and abusive acts and practices in violation of the CFPA. Fort Knox agreed to a consent order to pay approximately $3 million in redress to affected servicemembers, and the CFPB required the company to clearly disclose consumer fees in its payment processing businesses.
- The CFPB took action against RMK Financial Corporation for deceptive mortgage advertising practices and failure to comply with the disclosure requirements for variable-rate mortgage products. The CFPB found that RMK Financial made material misrepresentations in its advertisements by improperly suggesting it was a U.S. government entity or affiliated with one. In addition, the company falsely advertised mortgage credit products as endorsed or sponsored by a government program. RMK sent its ads to tens of thousands of U.S. military servicemembers, veterans and other holders of Veterans Administration-guaranteed mortgages. The CFPB found that the conduct violated Regulation N and was prohibited by the CFPA. In addition, the CFPB found that RMK’s ads contained misrepresentations about loan interest rates and estimated monthly payments—conduct that violated the CFPA, Truth in Lending Act and Regulation Z. RMK was ordered to pay $250,000 in civil penalties and comply with applicable federal laws.
- Through a consent order, NewDay Financial, LLC was required to pay a $2 million civil penalty for violating the CFPA and Section 8 of the Real Estate Settlement Procedures Act (RESPA). NewDay is a nonbank mortgage lender focused on originating refinance mortgage loans guaranteed by the Veterans Administration. In 2010, NewDay entered into a marketing relationship with a veterans organization and was named the exclusive lender. However, the organization failed to disclose in advertising materials that it had a financial relationship with NewDay, constituting a deceptive act or practice prohibited by the CFPA. In addition, NewDay’s payments to the veterans organization and the coordinating company for referral activities constituted illegal referral payments that violated RESPA.
Servicemembers are protected from foreclosure for one year following the end of their service. In March 2016, Congress voted to renew a section of the Servicemembers Civil Relief Act (SCRA), which provides one-year foreclosure protection for military personnel leaving active duty through 2017. The original extension expired at the end of 2015. The protection will be retroactive to the first of the year. This law, originally passed in 1918 as the Soldiers’ and Sailors’ Civil Relief Act, is intended to protect military servicemembers from civil action while on duty. In 2003, it was revised and renamed SCRA.
Focusing on Compliance
Board oversight and continuous monitoring, as well as adequate policies, procedures, training and testing, are essential elements of complying with SCRA and other regulations. Routine use of the Department of Defense website to verify military service and track state laws also should be part of your compliance management system. The CFPB likely will continue its focus on consumer financial challenges affecting military personnel, veterans and their families given the recent increase in servicemember complaints and CFPB enforcement actions.
For more information about the importance of complying with servicemember lending and servicing regulations, contact your BKD advisor.