UPDATED: CFPB hits SNAAC with another $1.25M penalty

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The Consumer Financial Protection Bureau said on Wednesday that Security National Automotive Acceptance Company (SNAAC) violated a consent order from 2015, demanding that the finance company make good on the redress it owes to consumers and pay an additional $1.25 million penalty.

The CFPB initially ordered SNAAC, which specializes in working with servicemembers, to pay both redress and a civil penalty for illegal debt collection tactics, including making threats to contact servicemembers’ commanding officers about debts and exaggerating the consequences of not paying. The bureau determined SNAAC violated the 2015 order by failing to provide more than $1 million in refunds and credits, affecting more than 1,000 consumers.

“This company violated a bureau order when it failed to get money back to servicemembers it had hounded with illegal debt collection tactics,” CFPB Director Richard Cordray said. “We are making sure this company finally rights its wrongs.”

SNAAC, based in Mason, Ohio, is an auto finance company that operates in more than two dozen states and specializes in loans to servicemembers, primarily to buy used vehicles.

The company shared a statement with SubPrime Auto Finance News, stating that “the settlement resolves a disagreement between SNAAC and the CFPB over the interpretation of part of a consent order.”

The company continued, “SNAAC agreed to this settlement to close this matter and move forward in serving customers in the respectful, honorable manner that has been the company’s tradition.”

SNAAC pointed out that the CFPB acknowledges in the settlement agreement that “SNAAC has consented” to the order “without admitting” to its findings. The original consent order covered approximately 2,200 of the more than 83,000 accounts serviced by SNAAC between 2011 and 2015.

“At issue in this disagreement was the application of credits provided to a fraction of those accounts that had already benefited from a settlement balance for substantially less than was owed,” SNAAC said.

“Although SNAAC disagreed with the CFPB’s interpretation of the 2015 consent order, the company offered to pay all the disputed amounts in order to move forward,” the company continued. “The CFPB declined the offer and began an inquiry.

“SNAAC fully cooperated and responded quickly to all requests for data, reports and testimony,” the company went on to say. “SNAAC is proud of its work over the past 30 years for its customers, many of whom would not have had access to the credit they and their families need.”

Back in June 2015, the CFPB sued SNAAC for aggressive collection tactics against consumers who fell behind on their vehicle installment contracts. If servicemembers lagged behind on payments, the bureau said SNAAC’s collectors would threaten to contact — and in many cases did contact — their chain of command about their debts.

Also, the bureau said the company exaggerated the consequences of not paying. For instance, the regulator indicated SNAAC representatives told some consumers that failure to pay could result in action under the Uniform Code of Military Justice, demotion, discharge, or loss of security clearance. But these consequences were extremely unlikely.

The CFPB alleged that SNAAC’s aggressive tactics, which took advantage of servicemembers’ special obligations to remain current on debts, victimized thousands of borrowers.

Then in October of that year, a CFPB consent order indicated that SNAAC engaged in “unfair, deceptive, and abusive acts and practices” while collecting on these vehicle installment contracts. The order required SNAAC to pay $2.275 million in consumer redress through credits and refunds, and a $1 million civil penalty.

Consumers with an account balance were to receive credits to their accounts, and consumers with a zero balance were to receive cash refunds. While SNAAC submitted two plans that claimed to provide the full amount of redress ordered, the bureau insisted both were designed to underpay such redress.

Acting on a tip from a servicemember’s father, the CFPB discovered that SNAAC had issued worthless “credits” to hundreds of consumers and failed to provide proper redress to many more.

The CFPB reiterated that it is issued this new consent order against SNAAC for violating the terms of the 2015 consent order by failing to properly give refunds or credits to affected borrowers. In this latest development, the CFPB found that the company had failed to meet its obligation to pay redress to consumers by:

— Issuing worthless “credits” to settled-in-full accounts: In purporting to provide redress, the CFPB said SNAAC treated accounts that were settled-in-full as having a positive account balance. Instead of providing refunds to consumers with settled-in-full accounts, the bureau said SNAAC issued worthless account “credits.” Those consumers received no benefit from such a “credit” because they no longer owed SNAAC money and could not use such a credit toward any new or existing loan.

— Issuing worthless “credits” to discharged accounts: The CFPB indicated SNAAC also issued worthless account “credits” to consumers whose debts had been discharged in bankruptcy, and who no longer owed SNAAC money on their vehicle installment contract. The bureau asserted that SNAAC had no legal claim to any unpaid balance, and these consumers received no benefit from the “credits.” SNAAC had, in fact, already stopped collections on these accounts, according to the regulator.

— Failing to properly give redress to consumers making payments under settlement agreements:  Some SNAAC consumers were making payments under settlement agreements, the CFPB said. But the bureau noted SNAAC based redress on the original, higher account balance in place before it agreed on a settlement with the borrower. As a result, in many instances, the CFPB said SNAAC issued credits that exceeded consumers’ settlement balances, rather than refund any amount above what the consumers actually owed. And because their settlement balances were improperly credited, some consumers unwittingly overpaid SNAAC to settle their accounts, according to the bureau.

More details of enforcement action

Under the Dodd-Frank Act, the CFPB is authorized to take action against institutions engaged in unfair, deceptive, or abusive acts or practices, or that otherwise violate federal consumer financial laws. Under this consent order:

— SNAAC must pay redress as promised to affected consumers: SNAAC must pay the bureau roughly $720,000, which the bureau will send as refunds to about 925 consumers. SNAAC must issue about $370,000 in new credits to over 1,000 consumers with remaining account balances as well as properly credit roughly 1,000 consumers making payments under settlement agreements. SNAAC must also pay $75,000 to the bureau to cover the costs of distributing these payments.

— SNAAC must pay a $1.25 million penalty: SNAAC must pay a penalty of $1.25 million to the CFPB Civil Penalty Fund, in addition to the $1 million penalty it paid under the 2015 consent order.

The text of the consent order can be found here