NEWS: The U.S. Department of Justice (DOJ) recently announced a settlement with a Virginia credit union, which agreed to pay nearly $110,000 to resolve allegations that it violated the federal Servicemembers Civil Relief Act (SCRA). The credit union allegedly charged excessive interest on servicemembers’ loans and repossessed servicemembers’ cars without first getting a court order.
According to the DOJ’s complaint, which was filed at the same time as the proposed settlement, the credit union allegedly charged interest exceeding 6% to 21 servicemembers who qualified for SCRA interest rate benefits. Under the SCRA, creditors must reduce the interest rates on retail installment sales contracts to 6% in certain circumstances. However, the DOJ asserted that in at least one instance, a servicemember was told that “reducing the interest rate would increase her monthly payment.” The DOJ also alleged that the credit union repossessed three servicemembers’ vehicles without court orders, in violation of the SCRA, including one instance where the vehicle was repossessed from a military base.
The consent order, which is pending court approval, requires the credit union to pay nearly $70,000 to the affected servicemembers, along with a $40,000 civil penalty. The settlement also requires the credit union to review and update its SCRA policies and procedures to prevent future violations and to provide SCRA compliance training to its employees.
Wisconsin credit unions can help avoid similar SCRA violations by reviewing The League’s ii Release No. 0072 – “Servicemembers’ Civil Relief Act.” It summarizes the SCRA requirements. For example, it explains that the SCRA sets a 6% limit on the interest that can be charged on loans that were taken out before entry into active military service. This interest rate cap applies during the time of active duty. On mortgage loans, it continues to apply for a year after active duty ends. Loan payments must be reduced to correspond with the 6% interest rate.
In addition, be sure to review ii Release No. B067 – Lending to Servicemembers. It summarizes the federal Military Lending Act (MLA), which limits the costs and terms allowed for consumer loans made to people during active military service or to their dependents.