On October 28, the Consumer Financial Protection Bureau filed an administrative consent order against Security National Automotive Acceptance Company (“SNAAC”), an Ohio auto lender specializing in loans to service members, for engaging in illegal debt collection practices.  The order requires the company to refund or credit about $2.28 million to service members and other consumers who were allegedly harmed by illegal debt collection activities, and to pay a penalty of $1 million.  A separate district court consent order bans SNAAC from using aggressive collection tactics, such as exaggeration, deception, and threats to contact commanding officers, to coerce service members into making payments.

SNAAC purchases and services retail sales finance contracts from auto dealers in the sale of new and used automobiles, and it does business in more than thirty states.  The resolution of this enforcement action comes more than two years after the CFPB launched an inquiry into SNAAC, which led to the CFPB suing this auto lender in June 2015 for permanent injunctive and other relief.  The CFPB alleged in its complaint that when consumers defaulted on their loans, SNAAC used aggressive collection tactics that took advantage of service members’ special obligations to remain current on debts.  Specifically, the CFPB alleged that SNAAC:

  • Exaggerated potential disciplinary action that service members would face – The CFPB alleged that SNAAC routinely exaggerated the potential impacts of a delinquency on service members’ careers, including telling customers that their failure to pay could result in action under the Uniform Code of Military Justice, as well as demotion, loss of promotion, discharge, denial of re-enlistment, loss of security clearance, or reassignment.
  • Contacted and threatened to contact commanding officers to pressure service members into repayment – The CFPB claimed the company “buried” a provision within “the fine print of contracts” saying that it could contact commanding officers about service members’ debts.  The CFPB alleged SNAAC suggested that the service members were in violation of military law and other regulations, and threatened to notify their commanding officers about the purported violations.
  • Falsely threatened to garnish service members’ wages – The CFPB asserted that SNAAC implied to consumers that it could immediately commence an involuntary allotment or wage garnishment, despite the fact that such consequences could not or would not occur; through the military pay system, involuntary allotments are only processed once a judgment by a court is obtained.  The company would threaten to pursue an involuntary allotment before it had even determined whether the service member would be sued.
  • Misled service members about imminent legal action – In many instances, according to the CFPB, the company threatened to take legal action against consumers when, in fact, it had not determined whether to take such action.

“Service members should not be forced to pay because a debt collector used deceptive tactics,” said CFPB Director Richard Cordray.  According to the CFPB’s press release, SNAAC “has neither admitted nor denied the allegations of the complaint.”  However, SNAAC said in a news release that the settlement is not an admission of liability.  SNAAC spokesperson Craig Stevens said, “Despite our strong disagreement with the CFPB’s complaint, the cost and distraction of continuing to fight this was simply not in the best interests of our customers, associates or shareholders.  It’s time to move on.  We’re proud of the work that we’ve done for our customers over the past twenty-five years, many of whom would not have had access to the credit they and their families need.  Every day we strive to treat our customers with the dignity and respect they deserve and we look forward to continuing in that tradition.”

This lawsuit against SNAAC emphasizes three areas that are at the forefront of the CFPB’s agenda:  (1) heightened oversight of the auto lending industry, (2) regulation of debt collection practices by first-party creditors, and (3) protection of service members.  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 on the verge of issuing rules to cover first-party creditors’ collection practices using its authority to regulate companies committing unfair, deceptive, or abusive acts or practices aimed at consumers.  Also, the CFPB has consistently expressed a particular interest in looking out for “vulnerable populations” such as military service members and the elderly.  First-party creditors and those who lend to service members, therefore, should have particular interest in this enforcement action.