On June 17, the Consumer Financial Protection Bureau filed a lawsuit against Security National Automotive Acceptance Company, LLC, an Ohio-based auto-finance company specializing in lending to members of the United States military to purchase used vehicles.  Security National operates in approximately 30 states.

The CFPB’s lawsuit alleges that Security National engaged in unfair, deceptive, or abusive acts and practices (UDAAP) in its collection of consumer debts owed by servicemembers by:

  • threatening to contact delinquent borrowers’ commanding officers and exaggerating the potential disciplinary action that servicemembers would face if their debt remained in default;
  • contacting borrowers’ commanding officers and disclosing details about borrowers’ debts and delinquencies based on language buried in a contract  addendum purporting to give Security National permission to contact the borrower’s “employer/commanding officer” to assist in collecting in the event of default and for other purposes;
  • making misleading statements regarding the potential impacts on borrowers’ military careers and tax liability if they remained delinquent; and
  • making misleading statements regarding its intention to take legal action and its ability to obtain involuntary allotments and garnishments, when, in fact, the company had not made any decision to take legal action.

In its lawsuit, the CFPB has requested that an injunction be issued against Security National to cease the alleged unlawful practices of the company.  The CFPB has also requested penalties and consumer restitution.

This lawsuit against Security National highlights three of the CFPB’s current important issues:  heightened oversight of the auto lending industry, regulation of debt collection practices by first-party creditors, and protection of servicemembers.  In particular, while historically federal regulation of debt collection has focused on the conduct of collection agencies and debt buyers subject to the Fair Debt Collection Practices Act, the CFPB is currently fine-tuning regulation of first-party creditors’ collection practices using its authority to regulate companies committing unfair, deceptive, or abusive acts or practices aimed at consumers.

In addition, the CFPB from its earliest days has expressed a particular interest in looking out for “vulnerable populations,” such as the elderly and servicemembers.  First-party creditors and those who lend to servicemembers, therefore, should have particular interest in this lawsuit.

Troutman Sanders will continue to follow this and related issues.