DOJ SCRA enforcement: Auto leases

A few weeks ago, we blogged about enforcement actions involving storage service providers and student loans. The Department of Justice (DOJ) is not backing down from its fight to protect servicemembers and has issued two more enforcement actions for violations of the Servicemembers Civil Relief Act (SCRA). These actions involve auto lenders and leaseholders.

Section 3955 of the Act discusses leases and allows a lessee to terminate a lease if they are called to duty or receive a permanent change in station. If a servicemember wishes to terminate an auto lease, they are required to return the motor vehicle to the lessor and provide the notice of lease termination along with a copy of their military orders. The return of the vehicle is required within 15 days after the notice delivery. The termination of the motor vehicle lease is effective on the day on which the requirements for notice delivery, orders and return of the vehicle are met.

The first action is against American Honda Finance Corporation (AHFC), which has agreed to settle a federal lawsuit alleging that it violated the SCRA by failing to refund up-front lease payments to servicemembers who properly cancelled or terminated their auto leases after being called to active duty or receiving a permanent change in station. Specifically, AHFC failed to repay capitalized cost reduction (CCR) derived from vehicle trade-ins. The DOJ explains that CCR is an amount paid by lessees up front, either in cash or derived by the value of the vehicle they are trading in. This amount is credited to the lessee when their lease payment amount is calculated. The DOJ alleges that AHFC had a practice of refunding servicemembers CCR that was paid up front in cash, but did not refund any CCR from vehicle trade-ins.

 

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