Putting the brakes on what it viewed as aggressive debt-collection tactics, the Consumer Financial Protection Bureau (CFPB) filed suit in Ohio federal court on June 17, 2015, against Security National Automotive Acceptance Company LLC (SNAAC) for several violations of the Consumer Financial Protection Act of 2010 (CFPA), specifically pertaining to Sections 1031 & 1036(a)(1)(B), 12 U.S.C §§ 5531, 5536(a)(1)(B). The alleged violations included deceptive claims and illegal threats utilized by SNAAC as the company conducted its business as an auto-finance company specializing in lending to members of the United States military. The lawsuit noted that since July 21, 2011, SNAAC has collected millions of dollars in consumer debt from thousands of service members.
The CFPB alleged in its complaint that SNAAC steered away from proper debt-collection practices by unlawfully employing unfair, deceptive and abusive methods:
- Threatening to contact delinquent borrowers’ commanding officers and, in fact, making such contact
- Disclosing details about borrowers’ debts and delinquencies
- Making misleading statements regarding the potential impacts on borrowers’ military careers and tax liability if they remained delinquent
- Making misleading statements regarding its intention to take legal action and its ability to obtain involuntary allotments and garnishments
In pursuing these allegations, the CFPB sought to impose civil money penalties, disgorgement of ill-gotten revenue, redress to harmed consumers, and damages, and to prevent future violations of the CFPA by SNAAC.
Director Richard Cordray’s statement in conjunction with the CFPB’s lawsuit echoed the tough relief pursued by the CFPB’s complaint: “[SNAAC] took advantage of military rules to put enormous pressures on servicemembers to pay their debts. For all the security they provide us, servicemembers should not have their financial and career security threatened by false information from an auto loan company.” SNAAC representatives recently stated they were surprised by the lawsuit and noted that they were in active discussions with the CFPB about resolving potential issues prior to the filing of the lawsuit.
Although the allegations made by the CFPB in this instance likely will be viewed as an extreme example of a company exploiting military rules to prey on borrowers, the CFPB does have wide authority to bring actions to prevent unfair, deceptive or abusive acts under federal law in connection with any transaction with, or offering of, a consumer financial product or service. Companies should maintain robust compliance programs in order to ensure that debt-collection methods are in line with regulatory expectations.
A great resource for companies who deal with consumer financial products is the CFPB’s Supervisory Highlights: Summer 2015 report. The CFPB has specifically observed weaknesses in debt collection compliance management systems (CMS). The CFPB sets expectations for financial institutions to maintain adequate CMS tailored to its operations and believes this is vital to preventing violations of federal consumer financial laws. Examples of such weaknesses include the following:
- Boards of directors did not hold regularly scheduled meetings or receive information sufficient to adequately oversee compliance practices.
- Absence of formal follow-up or escalation procedures for third-party debt collection personnel who were delinquent in completing their required training.
- Absence of comprehensive compliance audit programs.
Additionally, the CFPB has observed company failures to conduct investigations of dispute notices from consumers and consumer reporting agencies, as well as companies failing to have reasonable written policies and procedures regarding information furnished to consumer reporting agencies. While the outcome of this latest CFPB lawsuit is undetermined, the CFPB is firmly in the driver’s seat and determined to continue its enforcement of federal consumer financial laws.