Regulator Focus on Servicemembers' Treatment Continues With Newest OCC Consent Order Against Chase

Broad-based regulatory scrutiny by multiple regulators on the fair treatment of servicemembers goes beyond compliance with the SCRA.

On July 8, 2015, the Office of the Comptroller of the Currency (OCC) took the unusual step of assessing a $30 million civil penalty against JP Morgan Chase Bank N.A. (Chase) for improper debt collections practices and violations of the Servicemember’s Civil Relief Act (SCRA) that were originally cited by the OCC in a 2013 order. The OCC’s action came on the same day the CFPB, along with the Attorneys General in 47 states and the District of Columbia, announced debt collection enforcement actions against Chase ordering reimbursement and penalties totaling $186 million. Comptroller Thomas Curry explained the OCC’s action by stating:

Today, after having taken time to assess the full extent of the deficiencies, we are joining with the CFPB and the states in assessing monetary penalties. These come on top of the restitution required by our previous order, and they will help ensure that banks treat all customers, including member[s] of the armed services, fairly.[1]

In the same statement, Comptroller Curry emphasized that “Compliance with the Servicemembers Civil Relief Act, or SCRA, is a matter of great concern to me and to the OCC” and reiterated that “SCRA compliance [will continue to] be evaluated as part of every exam at every institution we supervise.”[2] This latest OCC SCRA enforcement action follows the OCC’s $30 million civil penalty on June 1^st against Bank of America for violations of the SCRA.[3]

Recent enforcement actions aimed at protecting servicemembers from financial harm have not been confined to matters involving SCRA compliance. For example, in addition to issuing its own consent order against Chase, the CFPB announced three formal enforcement actions during the past three months for alleged unfair, deceptive, or abusive acts or practices (UDAAP) involving marketing, debt collection practices, and assessments of fees affecting servicemembers.[4] In short, examiners are taking a deep, comprehensive look at the treatment servicemembers are receiving in their consumer financial dealings, and SCRA compliance is just one factor in that broad-based focus—albeit, a highly important factor.

On April 27, 2015, in connection with the CFPB’s issuance of its annual Snapshot of Complaints Received from Servicemembers Veterans and their Families, CFPB Assistant Director for the Office of Servicemember Affairs, Holly Petraeus singled-out servicemember account servicing as a particular focus of attention:

Basic account servicing stands out as a significant area of concern for servicemembers. Most customers can call their financial institution, visit a branch, or connect online to try and get the help they need to maintain their account. Unfortunately, for military personnel and their families, the realities of military life, including deployments, frequent moves, and a high operational tempo, can sometimes make access to those services extremely challenging.[5]

In addition to regulator enforcement actions, the protection of servicemembers against financial abuse is the subject of two pending federal proposed rulemakings. First, in its proposed rulemaking interpreting the Fair Debt Collections Practices Act through Regulation F, the CFPB suggests a number of new regulatory restrictions regarding permissible debt collection communications practices with servicemembers, their commanding officers and spouses, certain of which the CFPB has begun to enforce through UDAAP.[6] The following exemplifies negative practices that the CFPB is looking to limit:

Collectors may communicate with spouses while servicemembers are deployed to combat zones or qualified hazardous duty areas. Collectors may ask military spouses to pay the debts of these consumers during periods when it is difficult for the spouse to contact these consumers, or when such contact may interfere with combat readiness. Alternatively, collectors may contact military spouses during the potentially sensitive period immediately following the death of a servicemember serving in a combat zone or qualified hazardous duty zone, with the hope of obtaining payment from the spouse’s military death gratuity.[7]

Second, the Department of Defense (DOD) interpreted the Military Lending Act (MLA) to propose revisions to 32 C.F.R. Part 232, which protects servicemembers and their covered dependents from predatory lending practices. The proposed revisions would provide a broader range of closed-end and open-end credit products, including credit card accounts.[8] The MLA imposes a maximum interest cap of 36% (which is calculated according to DOD rules that are more stringent than those of Regulation Z by encompassing all fees), mandates certain disclosures, and prohibits mandatory arbitration. Further action on both of these proposed rulemakings is expected later this year.

In sum, today’s supervisory environment for issuers of consumer financial products is marked by unprecedented close scrutiny by a number of different federal agencies who are seeking to ensure that servicemembers are treated fairly in all aspects of their financial dealings. Bridgeforce Law can provide assistance in assessing the current state of your institution’s compliance with the SCRA and emerging expectations for the fair treatment of servicemembers. We work with a variety of banks, ranging from the nation’s largest financial institutions to community banks, to arrive at solutions that are both technically compliant and practical in operation. To this end, we frequently call upon industry consultants whenever real-life, deep operational experience will help facilitate long term, sustainable compliance solutions.