Protecting servicemembers from costly auto loans and wrongful repossessions
If you take a drive down the main road leading to most military bases in the country, you’ll likely see car dealerships lining both sides of the street. The CFPB’s prior research has shown that young servicemembers tend to take out auto loans soon after joining the military and carry more auto debt than their civilian peers. This isn’t altogether surprising. When many servicemembers finish basic training, their first duty station is often in an area where a car is needed to get around or leave the base.
Access to credit can be an important and valuable tool for servicemembers. At the same time, if a servicemember becomes unable to keep up with financial obligations, it can lead to adverse personnel actions such as a lost security clearance or potential discharge. Many servicemembers are young, first-time car buyers with limited knowledge of credit products and terms. Accordingly, they may be more likely to agree to products they don’t need or understand or receive loan terms that are not in their best interest. While we expect that lenders will treat all borrowers fairly and responsibly, lenders need to pay particular attention to how they treat servicemembers and their families.
CFPB research shows that by the age of 24, around 20 percent of young servicemembers have at least $20,000 in auto debt, which is nearly two-thirds of a young enlisted soldier’s typical base salary at that age. In comparison, only seven percent of civilians at age 24 have the same amount of auto debt while 71 percent don’t have any. Young servicemembers also generally have higher rates of delinquency and repossession, especially those who serve fewer than five years. Those who remain in service longer than five years have rates of delinquency that are virtually indistinguishable from civilians.
To better protect those who serve in our military, Congress passed the Servicemembers Civil Relief Act (SCRA). Among other protections, the SCRA provides specific safeguards for active-duty military members facing repossession of their cars. While we know that many lenders take following the SCRA seriously, over the past five years the Department of Justice (DOJ) has sued multiple lenders for violating the law in their auto repossession practices.
The CFPB recently released a bulletin outlining some concerns about auto loan servicing and wrongful repossessions with respect to all consumers. Additionally, it’s less costly to repossess a car because many lenders now use certain technologies that make it easier to locate the vehicle, including starter-interrupt devices, GPS locators, and license plate recognition. We’re concerned that the use of these technologies may disproportionally impact certain communities and we’re taking steps to better understand their impact, including potential privacy concerns.
We expect servicers, lenders, and repossession agents to adhere to the requirements under the SCRA, particularly when using new repossession technologies to ensure that servicemembers are treated fairly and that all applicable laws and regulations are carefully followed.
If you’re a servicemember and believe your SCRA rights have been violated, we encourage you to reach out to your local legal assistance office and file a complaint directly with DOJ . If you have more general trouble with a financial product or service, you can submit a complaint to the CFPB. Servicemembers are responsible for keeping our country safe from harm, and we’re committed to protecting them from unfair or illegal financial services practices.