SCRA Enforcement Action Highlights Need for Strong Collateral Repossession Policies

The U.S. Department of Justice’s (DOJ) recent enforcement action under the Servicemembers Civil Relief Act (SCRA) underscores the heightened compliance risks facing lenders engaged in collateral repossession.

DOJ recently reached a settlement with a large Virginia used car dealer over allegations the dealer violated the SCRA by repossessing vehicles of servicemembers without court orders.

This settlement follows several other SCRA enforcement actions brought by the DOJ during President Trump’s first year and underscores the importance the DOJ is placing on protecting servicemembers under the SCRA.

Under the SCRA, real or personal property (including a motor vehicle) securing an installment contract may not be repossessed without a court order, unless the servicemember waives this right. The dealer agreed to pay nearly $500,000, mostly in the form of compensation to the affected servicemembers, to resolve the allegations.

The Importance of Policies

The settlement agreement emphasizes that most of the violations occurred because of the dealer’s deficient policies. In particular, the dealer’s policies:

1. Did not require a search the Defense Manpower Data Center website to determine an owner’s military status prior to repossessing his or her vehicle
2. Did not prohibit the dealer from repossessing vehicles of members of a reserve component who had received orders for active-duty service at a future date

Practical Steps to Take Next

Banks, credit unions, finance companies, and others that take security in motor vehicles should examine their policies to ensure they comply with the repossession protections under SCRA.

The settlement agreement describes in some detail policies that the dealer must adopt as part of the settlement. An institution would be well-served to consider adopting a form of these policies as their own to ensure compliance.

Violations of SCRA expose an institution to damages and penalties. But just as importantly, they expose an institution to significant reputational risk in failing to afford those serving our country their rights.

If you have questions about repossessions and SCRA compliance, please contact the author of this article.