Thursday, Sep. 29, 2016, 04:02 PM UPDATED 10:31 AMBy SubPrime Auto Finance News Staff
WASHINGTON, D.C. -
Another action involving regulators leveraging the power of the Servicemembers Civil Relief Act (SCRA) surfaced on Thursday afternoon.
The Justice Department announced that Wells Fargo Bank, doing business as Wells Fargo Dealer Services, has agreed to change its policies and pay more than $4.1 million to resolve allegations that it violated the SCRA by repossessing 413 vehicles owned by protected servicemembers without obtaining a court order.
In a separate announcement, the Office of the Comptroller of the Currency (OCC) assessed a $20 million civil money penalty against Wells Fargo for the same infractions.
DOJ officials explained the settlement, which is still subject to court approval, was filed in the U.S. District Court for the Central District of California. The department launched an investigation after it received a complaint in March 2015 from the U.S. Army’s Legal Assistance Program alleging that Wells Fargo had repossessed Army National Guardsman Dennis Singleton’s used vehicle in Hendersonville, N.C., while he was preparing to deploy to Afghanistan to fight in Operation Enduring Freedom.
After Wells Fargo repossessed the vehicle, DOJ recapped that the finance company sold it at a public auction and then tried to collect a deficiency balance of more than $10,000 from Singleton and his family.
In October 2014, while seeking assistance with debt consolidation, the Justice Department said Singleton met with a National Guard attorney, who informed him of his rights under the SCRA. The attorney requested information from Wells Fargo about the original loan and repossession, and asked for copies of the correspondence and payment history.
According to officials, the attorney never received a response from Wells Fargo. The department’s subsequent investigation corroborated Singleton’s complaint and found a pattern of unlawful repossessions spanning more than seven years.
The SCRA protects servicemembers against certain civil proceedings that could affect their legal rights while they are in military service. It requires a court to review and approve any repossession if the servicemember took out the loan and made a payment before entering military service.
The court may delay the repossession or require the finance company to refund prior payments before repossessing. The court may also appoint an attorney to represent the servicemember, require the finance company to post a bond with the court and issue any other orders it deems necessary to protect the servicemember.
By failing to obtain court orders before repossessing vehicles owned by protected servicemembers, DOJ asserted that Wells Fargo prevented servicemembers from obtaining a court’s review of whether their repossessions should be delayed or adjusted to account for their military service.
Officials indicated the settlement covers repossessions that occurred between Jan. 1, 2008 and July 1, 2015. The agreement requires Wells Fargo to pay $10,000 to each of the affected servicemembers, plus any lost equity in the vehicle with interest. Wells Fargo also must repair the credit of all affected servicemembers.
DOJ noted that Wells Fargo sent payments to many of the affected servicemembers in August. The department added that Wells Fargo will locate additional victims and distribute payments through this settlement in the upcoming months, at no cost to the servicemembers.
The agreement also requires Wells Fargo to pay a $60,000 civil penalty to the United States and to determine, in the future, whether any vehicle it is planning to repossess is owned by an active duty servicemember. If so, Wells Fargo will not repossess the vehicle without first obtaining a court order.
The agreement also contains provisions ensuring that all eligible servicemembers will receive the benefit of the SCRA’s 6 percent interest rate cap on their vehicle installment contracts.
“Wells Fargo Bank unlawfully repossessed hundreds of servicemembers’ cars without the proper process, and the bank will now rightfully pay for its violations,” said Principal Deputy Associate Attorney General Bill Baer. “The Justice Department is committed to protecting our country’s servicemembers as they continue to fight for our freedom.”
Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department’s Civil Rights Division, continued, “Auto lenders cannot repossess the cars of the brave men and women who risk their lives to defend our freedom without providing them the required legal protections under the SCRA.
“I commend Wells Fargo for owning up to its shortcomings and providing all the information we requested after learning of our investigation,” Gupta added. “This settlement should help ensure that servicemembers are not penalized financially for protecting our nation.”
U.S. Attorney Eileen Decker of the Central District of California also touched on the matter, saying, “We all have an obligation to ensure that the women and men who serve our country in the Armed Forces are afforded all of the rights they are due. Wells Fargo failed in that obligation.
“The settlement announced today, however, vindicates the rights of our servicemembers and will help ensure better lending practices in the future by one of the nation's largest motor vehicle lenders,” Decker went on to say.
Like the Justice Department, the OCC found that between approximately 2006 and 2016, the bank violated three separate provisions of the SCRA. The bank failed to:
—Provide the 6-percent interest rate limit to servicemember obligations or liabilities incurred before military service
—Accurately disclose servicemembers’ active duty status to the court via affidavits prior to evicting those servicemembers
—Obtain court orders prior to repossessing servicemembers’ vehicles
The $20 million penalty reflects a number of factors, including the duration and frequency of violations, the financial harm to the servicemembers, deficiencies and weaknesses in the bank’s SCRA compliance program and ineffective compliance risk management. The penalty will be paid to the U.S. Treasury.
This summer, the Justice Department reached a settlement with HSBC Finance Corp., as successor to HSBC Auto Finance, which agreed to pay $434,500 to resolve allegations that it violated the SCRA by repossessing 75 vehicles owned by protected servicemembers without obtaining the necessary court orders.
Also, DOJ filed a lawsuit in the Eastern District of Michigan to recover damages from the COPOCO Community Credit Union, alleging that the institution violated the Servicemembers Civil Relief Act (SCRA) by repossessing protected servicemembers’ vehicles without obtaining the necessary court orders.