|Wells Fargo Servicemembers Civil Relief Act Consent Order|
In this legal update, we will provide an explanation of the Wells Fargo Servicemembers Civil Relief Act Consent Order and explain how it will impact lease servicing where the lessee is a natural person.
Servicemembers Civil Relief Act
On September 29, 2016, the United States Department of Justice entered into a Consent Order with Wells Fargo Bank, N.A. (“Wells Fargo”) primarily in connection with repossession of servicemembers vehicles without a court order in violation of the Servicemembers Civil Relief Act (“SCRA”), 50 U.S.C. § 3902(a)(1) which reads as follows:
(a) Protection upon breach of contract
(1) Protection after entering military service
After a servicemember enters military service, a contract by the servicemember for--
(A) the purchase of real or personal property (including a motor vehicle); or
(B) the lease or bailment of such property,
may not be rescinded or terminated for a breach of terms of the contract occurring before or during that person's military service, nor may the property be repossessed for such breach without a court order.
This section applies only to a contract for which a deposit or installment has been paid by the servicemember before the servicemember enters military service.
50 U.S.C.A. § 3952(a).
The DOJ investigation covered the period from January 1, 2008 and July 1, 2015. In the Complaint, the DOJ indicated that until 2011 Wells Fargo written policies did not require cross check against the Department of Defense’s Defense Manpower Data Center (“DMDC database”) and that for at least one purchaser the credit application held by Wells Fargo indicated that she was a reservist and therefore potentially an eligible servicemember.
Court Order for Repossession Rule: Check, Repossess, Check, Check, Dispose
The Consent Order requires Wells Fargo to provide to the DOJ, within 60 days, proposed SCRA Policies and Procedures for repossession. Following similar, but streamlined, procedures will be an excellent way for NVLA members to ensure that for natural person lessees the SCRA requirements are followed. The procedures are as follows:
1. SCRA eligibility assessment 2 to 5 days before repossession, again 2 to 5 days after repossession, and once more 2 to 5 days prior to disposition of the repossessed motor vehicles.
2. Eligibility must be assessed based on (1) military service information provided by the borrower, (2) search of the DMDC database for SCRA eligibility by either (a) last name and social security number or (b) last name and date of birth.
3. Where the pre-repossession assessment yields a positive eligibility result, as required under Section 3952(a), obtain a court order for repossession.
4. Where one of the two post-repossession assessments yields a positive eligibility result, (a) reverse the repossession charges and attempt to contact the borrower within 72 hours, and (b) correct any negative credit reporting related to repossession, and (c) either, (i) if the borrower is successfully contacted, arrange the return of the vehicle or, (ii) return the vehicle to the location of repossession unless doing so would but the vehicle at risk (significant risk of physical damage or impoundment, or if there are indications the vehicle was abandoned).
5. A vehicle that is not returned due to risks to the vehicle may only be sold after 3 additional attempts to reach the borrower.
6. Actions in court to repossess will require the creditor, if the borrower fails to appear, to file an affidavit of military service before seeking default judgment and will attached DMDC information or other relevant document.
7. Wells Fargo may ask a servicemember for a waiver of SCRA rights under 50 U.S.C. § 3918, but must do so at least 30 days before repossession.
8. For abandoned or impounded vehicles, Wells Fargo may take possession but must provide the servicemember notice of the recovery and inform them of their SCRA rights.
Other SCRA Rules
Wells Fargo must also adopt SCRA Policies and Procedures that ensure compliance with the SCRA 6% interest rate cap (which does not apply to true leases) and other unspecified SCRA rules, which presumably include the SCRA right to cancel a lease without penalty. Those SCRA Policies and Procedures must contain the following provisions:
1. Acceptance of fax, mail, and email delivery of notice of military service.
2. Designated SCRA trained customer service representatives.
3. Designated SCRA customer service number and email.
4. Website explaining the SCRA and providing the SCRA customer service number and email to “obtain SCRA relief, or raise questions or concerns regarding such relief.”
5. Review of all a servicemembers loans within 60 days when it receives notice of military service.
6. Notify servicemember of eligibility determination within 20 days of the determination and, if there is a denial, state the reason and provide an opportunity to respond.
7. Search of the DMDC where the servicemember fails to provide a copy of military orders and, if the DMDC confirms eligibility, base the relief on the DMDC dates and provide the servicemember to submit additional documents if they disagree with the DMDC dates. If the DMDC does not confirm eligibility, notify the servicemember and provide an opportunity for the servicemember to send documents showing they are eligible.
We do not believe NVLA members should dedicate the extensive resources required for Wells Fargo to these Other SCRA Rules since they are all triggered when the natural person lessee provides notice of military service to the creditor. The key is recognizing that a communication about entering service should be escalated and reviewed at a manager level. Under the Consent Order, Wells Fargo is being punished for past failure to respond when notified.
Impact and Recommendation.
Lessors should review the Consent Order and compare the required policies and procedures to their own policies and procedures for natural person lessees. The biggest issue for NVLA members to address is the Court Order for Repossession rule. Compliance with the Court Order for Repossession Rule should start with a procedure for pro-actively checking the DMDC database on each natural person account. For purposes of the Court Order for Repossession Rule, we recommend using the procedures outlined in the Wells Fargo Consent Order. For purposes of the Other SCRA Rules (specifically penalty free lease termination), lessors should ensure that personnel know to escalate an account whenever a customer indicates that they have entered military service. That will require basic training on the SCRA for all customer service personnel. Such training should be formal and documented.
We will continue to track these, and other, motor vehicle leasing developments in our monthly publication Auto Alert, which is available on a subscription basis.
Nisen & Elliott, LLC
David E. Gemperle
Kenneth J. Rojc