Alert August 07, 2012

Federal Agencies Settle with Bank on Violations of the Servicemembers Civil Relief Act

The OCC and the Department of Justice announced they have entered settlements with a bank and its bank holding company arising from violations of the Servicemembers Civil Relief Act.  Pursuant to the consent orders against the bank and its bank holding company, the OCC found that the bank obtained default judgments without filing accurate affidavits of military service, improperly denied requests for interest rate reductions, provided insufficient benefits when interest rates were reduced and improperly foreclosed on mortgages, and repossessed motor vehicles of protected servicemembers without necessary waivers or court orders.  The OCC also found that the bank failed to oversee its third party vendors.

Under the consent orders, the bank must develop a written compliance program to ensure compliance with SCRA, develop policies and procedures for outsourcing functions to third parties, and develop a written internal SCRA audit program.  In addition, the bank must engage an independent consultant to conduct a comprehensive account review of actions (e.g. foreclosures, repossessions, and default judgments) taken against servicemembers eligible for SCRA protection, as well as a review of loan and credit card accounts for which service members requested SCRA benefits.  The account review will cover a six-year period.  The bank will also be required to develop a remediation plan to make restitution to protected service members.  The remediation plan will include restitution to borrowers whose mortgage loans were foreclosed upon in violation of SCRA consisting of a $125,000 cash payment and payment of lost equity of the foreclosed property and interest accrued on lost equity.