In late September, the Department of Justice (DOJ) entered into two consent orders to resolve allegations related to violations of the Servicemembers Civil Relief Act (SCRA). The past year has seen an uptick in regulatory scrutiny centered on military consumer protection laws. The DOJ’s recent consent orders highlight this trend.

The SCRA provides various legal and financial protections for active duty servicemembers, including, among other things, a retroactive 6% interest cap on financial obligations and additional rights in connection with the termination and/or collection of a financial obligation.

Consent Order #1: New Jersey Higher Education Student Assistance Authority

On September 20, the DOJ entered into a consent order with New Jersey Higher Education Student Assistance Authority (HESAA) to resolve claims that it violated the SCRA by obtaining unlawful default judgments against two military servicemembers. Section 3931 of the SCRA applies to any civil proceeding where a servicemember does not appear due to their military service. Prior to seeking a default judgment, the plaintiff must file an affidavit stating whether or not the defendant is in military service or that their military status is unknown.

In this instance, HESAA sought default judgments against two servicemembers in connection with the payment of student loans. In its complaint, the DOJ alleged that HESAA conveyed inaccurate information to the courts by misrepresenting the servicemember’s active duty status at the time the default judgment was sought. The consent order requires HESAA to pay $15,000 to each of the servicemembers, as well as a $20,000 civil money penalty.

Consent Order #2: American Honda Finance Corporation

A little over a week after the HESAA settlement, on September 29, the DOJ entered into a consent order with American Honda Finance Corporation (AHFC) for alleged violations of the SCRA. Under the SCRA, a residential or motor lessee has the option to terminate the lease in certain circumstances. For example, a person who enters a lease, then subsequently enters military service during the lease period, may thereafter terminate the lease. Likewise, a servicemember already in military service may terminate the lease upon notice of permanent change of station, deployment, or death or serious injury. Once terminated, the lessor must refund any advance payments on a pro rata basis.

The DOJ’s allegations against AHFC center on the refund of advance vehicle lease payments. In connection with their leases with AHFC, some lessees paid an up-front value at lease signing in the form of cash payments, credit for vehicle trade-in, and/or other rebates. The DOJ alleged that AHFC refused to refund the portion of funds attributable to the servicemember’s vehicle trade-in value. The consent order requires AHFC to refund over $1.58 million dollars to 714 servicemembers. The consent order also requires AHFC to pay a nearly $65,000 civil money penalty and to modify its internal policies and provide training on SCRA compliance.

Looking to the Future

The DOJ’s consent orders are another example of increased regulatory interest in enforcing military consumer protection laws. Earlier this year, we reported on the CFPB’s commitment to supervising lenders under the Military Lending Act, reversing the Trump administration’s position on the matter.

This focus toward military consumer protection is also appearing on Capitol Hill. In January 2021, President Trump signed legislation to permanently establish the Servicemembers and Veterans Initiative within the DOJ to coordinate servicemember-related litigation, including claims under the SCRA. More recently, the House of Representatives passed the National Defense Authorization Act (NDAA) with an amendment that would strengthen SCRA protections. Specifically, the amendment would require written consent to arbitrate a contract dispute that falls within the purview of the SCRA.

As we enter a period of greater regulatory scrutiny and legislative attention, business entities should be cognizant of the unique compliance implications of transacting with members of the armed services and seek to reduce potential risks accordingly.

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Photo of Oliver Hamilton Oliver Hamilton

Oliver is an associate in the firm’s Consumer Financial Services practice. He recently graduated from University of California, Hastings College of The Law, where he completed his J.D., magna cum laude and was a recipient of several CALI Awards. Oliver also served as…

Oliver is an associate in the firm’s Consumer Financial Services practice. He recently graduated from University of California, Hastings College of The Law, where he completed his J.D., magna cum laude and was a recipient of several CALI Awards. Oliver also served as Executive Notes Editor for the Hastings Law Journal.

While in law school, Oliver served as extern in the U.S. District Court for the Northern District of California, and as a summer law clerk in the United States Attorney’s Office. Oliver received his B.A. from the University of North Carolina at Chapel Hill.

Photo of Chris Capurso Chris Capurso

Chris’ practice focuses on consumer financial services law, primarily on federal and state law compliance matters. Chris regularly advises financial institutions, lenders, and sales finance companies in the development and maintenance of closed-end and open-end lending, automobile finance, fintech, point-of-sale, small dollar, and…

Chris’ practice focuses on consumer financial services law, primarily on federal and state law compliance matters. Chris regularly advises financial institutions, lenders, and sales finance companies in the development and maintenance of closed-end and open-end lending, automobile finance, fintech, point-of-sale, small dollar, and other credit programs. He provides guidance on federal consumer protection laws and regulations, including TILA, ECOA, ESIGN, and GLBA.

Photo of Virginia Bell Flynn Virginia Bell Flynn

Virginia specializes in complex litigation, business disputes, financial services litigation, and consumer litigation.

Photo of Alan D. Wingfield Alan D. Wingfield

Alan Wingfield is a partner in the firm’s Consumer Financial Services practice, with a focus on Financial Services Litigation and consumer law compliance counseling. Alan has represented businesses in many venues nationally in class action and individual consumer litigation. Alan’s practice includes compliance…

Alan Wingfield is a partner in the firm’s Consumer Financial Services practice, with a focus on Financial Services Litigation and consumer law compliance counseling. Alan has represented businesses in many venues nationally in class action and individual consumer litigation. Alan’s practice includes compliance counseling to help businesses with the myriad federal and state consumer protection laws and laws regulating financial services companies.