WASHINGTON, D.C. -

The Consumer Financial Protection Bureau pinched another player in the auto finance space over its debt collection practices.

On Wednesday, the CFPB filed an administrative order against Security National Automotive Acceptance Co. (SNAAC), a finance company specializing in loans to servicemembers, for engaging in illegal debt collection practices. Officials indicated 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.

The bureau added that 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.

“Security National Automotive Acceptance Company must refund or credit its customers $2.28 million for coercing money out of them using illegal debt collection practices,” CFPB director Richard Cordray said. “Servicemembers should not be forced to pay because a debt collector used deceptive pressure tactics.”

In a statement to SubPrime Auto Finance News, SNAAC recapped that this agreement comes more than two years after the CFPB launched an inquiry. During the span, SNAAC insisted it fully cooperated with the agency’s process and voluntarily adjusted some of its policies and personnel to ensure the company continued to provide its customers with the best service possible. 

Despite admitting no wrongdoing, SNAAC thought it best to settle with the CFPB at this time.

“We are agreeing to this settlement in an effort to move forward serving our customers in the respectful, honorable manner we have always done,” SNAAC said.

“Despite our strong disagreement with the CFPB’s complaint, the cost and distraction of continuing to fight this was simply not in the best interests of our customers, associates or shareholders,” the company continued. “It’s time to move on. We’re proud of the work that we’ve done for our customers over the past 25 years, many of whom would not have had access to the credit they and their families need.  

“Every day we strive to treat our customers with the dignity and respect they deserve and we look forward to continuing in that tradition,” SNAAC went on to say.

Ohio-based SNAAC 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 vehicles. The CFPB first sued SNAAC back in June after having already made an enforcement action against Westlake Financial Services earlier this month as well as against DriveTime Automotive Group last November.

The CFPB alleged that when consumers defaulted on their loans, SNAAC used aggressive collection tactics that took advantage of servicemembers’ special obligations to remain current on debts. The regulator noted both active duty and former servicemembers could encounter trouble with the company if they missed or were late on payments.

Once servicemembers defaulted, the bureau said they became subject to repeated threats to contact their chain of command. In many other instances, the CFPB claimed SNAAC exaggerated the consequences of not paying. Thousands of people were victims of the company’s aggressive tactics, according to the CFPB, which articulated a trio of other allegation against the company.

• Exaggerated potential disciplinary action that servicemembers would face: The CFPB alleged that SNAAC routinely exaggerated the potential impacts of a delinquency on servicemembers’ careers. The bureau claimed 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 CFPB indicated SNAAC “buried a provision within the fine print of contracts” saying that it could contact commanding officers about servicemembers’ debts. The bureau added 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: Officials claimed SNAAC implied to consumers that it could immediately commence an involuntary allotment or wage garnishment. But officials explained 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 CFPB added that SNAAC 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 bureau said SNAAC threatened to take legal action against customers when, in fact, it had not determined whether to take such action.

More details enforcement 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 on Wednesday 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: SNAAC 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: SNAAC 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.