A July 2012 Government Accountability Office (GAO) report revealed that, although the total number of violations of the Servicemembers Civil Relief Act (SCRA) aren’t known, thousands of violations have been uncovered in the wake of Congressional inquiries, Justice Department investigations, and record class-action settlements against large bank mortgage servicers during the past few years.
That’s why credit unions should expect to see NCUA and the banking regulators step up their efforts to review financial institutions’ SCRA compliance.
The SCRA provides certain financial protections to active-duty military personnel, such as requiring creditors to reduce interest rates to 6% on preservice debts, prohibiting foreclosures and repossessions without a court order, and allowing servicemembers to terminate leases under certain circumstances.
The Justice Department enforces the SCRA.
The GAO report on the regulatory oversight of compliance with the SCRA recommended that the agencies conduct more extensive loan file testing for SCRA compliance, because of the large numbers of violations found during federal inquiries and investigations.
Addressing these violations and educating the financial services industry on SCRA requirements have moved to the top of the regulatory to-do list.
In addition, the Consumer Financial Protection Bureau’s (CFPB) Office of Servicemembers Affairs has played a key role in providing SCRA outreach to servicemembers and mortgage servicers responsible for complying with the Act.
GAO report findings
In reviewing financial institution regulators’ compliance examinations, GAO found that NCUA and the federal banking agencies identified only 251 instances of SCRA compliance problems at depository institutions between 2007 and 2011 (such as 6% rate cap violations, mortgage foreclosures without a court order, etc.). This number was nowhere near the number of violations apparently occurring in the marketplace.
The Federal Deposit Insurance Corp. (FDIC) identified 230 SCRA compliance problems, the Federal Reserve Board identified 16, the Office of the Comptroller of the Currency (OCC) identified four, and NCUA identified just one.
According to the report, NCUA identified only one problem because the agency had focused more on safety and soundness during the recent economic crisis than on consumer compliance. NCUA doesn’t have a separate consumer compliance examination, although consumer compliance is part of the overall safety and soundness evaluation.
But NCUA stated that along with testing during fair-lending examinations, the agency has incorporated reviews for SCRA compliance in its analysis and investigations of member complaints.
As it advances its consumer protection initiatives, the agency said that it would continue to encourage credit unions to consistently demonstrate best practices in mortgage lending and to pay particular attention to the SCRA. (See NCUA’s comments in the report’s Appendix IX.)
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