By Lisa M. Goolik, J.D.
A recent settlement between HSBC Finance Corporation, as successor to HSBC
Auto Finance Inc., and the Department of Justice may serve as a reminder to creditors that they must make certain that they follow the requirements of the Servicemembers Civil Relief Act when collecting on debts held by servicemembers.
Last week, HSBC agreed to pay $434,500 to resolve DOJ charges that it violated the SCRA by
repossessing at least 75 cars owned by protected servicemembers without
obtaining the necessary court orders. The DOJ alleged that HSBC repossessed the vehicles even when it had
evidence in its own records suggesting that a borrower could be a protected
servicemember—in one case, the vehicle was on military property. The consent order requires also that HSBC repair the affected
servicemembers’ credit.
SCRA protections. The SCRA requires a
court to review and approve any repossession if the servicemember took out the
loan and made a payment before entering military service. The DOJ alleged that by allegedly failing
to obtain court orders before repossessing the vehicles, HSBC prevented servicemembers from exercising their rights under the SCRA, such as a review of whether
their repossessions should be delayed, whether the loan should be adjusted to
account for their military service, if bond should be required, or if an
attorney should be appointed.
"HSBC repossessed cars without taking into
account their owners’ ongoing service to our country," said Principal Deputy Associate Attorney General Bill Baer.
"This settlement rights this wrong, compensates the affected servicemembers and
honors our commitment to making sure military members are treated fairly at all
times." Principal Deputy Assistant Attorney General Vanita Gupta, head of the
DOJ’s Civil Rights Division, commended HSBC for "working cooperatively to reach
an appropriate resolution."
Prior settlement with Santander. The
settlement covers repossessions that occurred between 2008 and 2010. In 2010,
HSBC sold its car lending operations and assets to Santander Consumer USA Inc.
Included in the sale were the rights to collect debts owed by servicemembers
after their cars had been repossessed by HSBC. In February 2015, the DOJ entered
a settlement with Santander that provided servicemembers with more than $10.5
million in compensation for repossessions that violated the SCRA.
According to the DOJ, most of the servicemembers
compensated through the settlement with HSBC received partial compensation
through the settlement with Santander, and the agreement requires HSBC to pay
$5,500 to each of these servicemembers. HSBC must pay $11,000 to affected
servicemembers who did not receive payments from the Santander settlement.
For more information about protections for servicemembers, subscribe to the Banking and Finance Law Daily.
