The Consumer Financial Protection Bureau (CFPB) announced yesterday that it has filed an administrative order against Security National Automotive Acceptance Company (SNAAC), an auto lender specializing in loans to servicemembers, for engaging in illegal debt collection practices. The order requires the company to refund or credit about $2.28 million to servicemembers and other consumers who were allegedly harmed, and pay a penalty of $1 million. A separate court order bans SNAAC from using aggressive tactics, such as exaggeration, deception, and threats to contact commanding officers, to coerce servicemembers into making payments.
SNAAC, LLC is an Ohio-based auto finance company that operates in more than two dozen states and specializes in lending to servicemembers. It lends money primarily to active duty and former military to buy used motor vehicles. The CFPB sued SNAAC in June 2015. When consumers defaulted on their loans, the CFPB alleged, SNAAC used aggressive collection tactics that took advantage of servicemembers’ special obligations to remain current on debts. Both active duty and former servicemembers could encounter trouble with the company if they missed or were late on payments. Once servicemembers defaulted, they became subject to repeated threats to contact their chain of command. In many other instances, the company exaggerated the consequences of not paying. Thousands of people were victims of the company’s aggressive tactics. Specifically, the CFPB alleged that the company:
- Exaggerated potential disciplinary action that servicemembers would face: The CFPB alleged that the company routinely exaggerated the potential impacts of a delinquency on servicemembers’ careers. The company told customers that their failure to pay could result in action under the Uniform Code of Military Justice, as well as a number of other adverse career consequences, including demotion, loss of promotion, discharge, denial of re-enlistment, loss of security clearance, or reassignment. In fact, these consequences were extremely unlikely.
- Contacted and threatened to contact commanding officers to pressure servicemembers into repayment: The company buried a provision within the fine print of contracts saying that it could contact commanding officers about servicemembers’ debts. The company suggested that the servicemembers were in violation of military law and other regulations and threatened to notify their commanding officers about the purported violations.
- Falsely threatened to garnish servicemembers’ wages: The company implied to consumers that it could immediately commence an involuntary allotment or wage garnishment. But such consequences could not or would not occur because, 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 servicemember would be sued.
- Misled servicemembers about imminent legal action: In many instances, the company threatened to take legal action against customers when, in fact, it had not determined whether to take such action.
Pursuant to the Dodd-Frank Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. Under the terms of the administrative order filed today and the separate court order, SNAAC will be required to:
- Provide about $2.28 million to thousands of harmed servicemembers and other consumers: SNAAC must identify the affected consumers and provide credits or refunds. The amount that each consumer receives will correspond to the amount of debt they were allegedly unlawfully pressured into paying. The company must submit a written plan to the CFPB for approval detailing how the company will identify and provide relief to the thousands of affected consumers.
- End threats to contact commanding officers: The company cannot contact or threaten to contact a servicemember’s chain of command in order to pressure the servicemember to pay, and it may not disclose a servicemember’s debt to a commanding officer or employer.
- End misstatements about potential disciplinary action: The company cannot tell servicemembers that their delinquency or default constitutes a violation of military law or regulation and that not paying could result in negative impacts on such things as their careers or security clearance.
- End false threats of legal action against a consumer: The company cannot tell consumers that it is taking legal action unless it intends to take such action.
- End false threats of garnishing wages: The company cannot tell consumers it will garnish their wages unless it has a judgment from a court permitting such garnishment.
- Pay a civil monetary penalty of $1 million: SNAAC will pay $1 million to the CFPB’s Civil Penalty Fund.
The administrative consent order is available at: http://www.consumerfinance.
The district court consent order is available at: http://www.consumerfinance.
The CFPB’s allegations in the lawsuit can be found at: http://files.consumerfinance.
SNAAC has neither admitted nor denied the allegations of the complaint.