Apparently, the folks running Capital One Bank weren’t up to speed on the Soldiers and Sailors Civil Relief Act. And now, they are paying the price. Capital One reached a $12 million settlement in July 2012 with federal regulators to compensate servicemembers who had been improperly foreclosed on, or who did not receive the interest rate reductions on existing debts that the law requires.
The settlement calls for Capital One to pay at least $7 million in damages, not less than $125,000 to every service member who was the victim of an improper or illegal foreclosure, and $10,000 each to servicemembers who had their vehicles repossessed in violation of the law.
Under the terms of the Soldiers’ and Sailors’ Civil Relief Act, foreclosure, eviction and repossession activities are supposed to halt when a servicemember informs the creditor that he or she has entered active duty. Creditors can only continue with foreclosure, eviction or repossession after obtaining the permission of a court – typically after demonstrating to the judge’s satisfaction that the entry onto active duty did not negatively affect the servicemember’s ability to pay the debt as agreed.
The law also requires debtors to lower interest rates on existing debts to 6 percent. In today’s interest rate environment, that may not be a big deal for new mortgage debt. But it’s a very big deal for credit card holders and those who have financed cars, appliances and other consumer debt, because interest rates for those debts are routinely much higher than 6 percent.
At Capital One, the problem goes back, anecdotally, at least, to 2007 or before. But the problem was certainly not limited to that one bank.
The Capital One announcement follows a settlement Bank of America made with a consortium of state Attorneys General earlier this year, in which Bank of America agreed to compensate servicemembers who had been victims of illegal foreclosures in violation of the SSCRA.
According to a Congressional Report authored by the office of Senator John Jay Rockefeller, illegal foreclosures against members of the military on active duty were much more widespread than lenders were first willing to admit: JP Morgan Chase had originally agreed to pay $2 million to settle allegations of illegal foreclosure on active duty servicemembers; they later had to commit $56 million.
The Department of Justice also reached a $20 million settlement with Bank of America.
The issue first came to the attention of Congress following a lawsuit against JP Morgan Chase by Marine Capt. Jonathan Rowles and his wife, Julia. After his entry into active duty as a Marine Corps aviator in 2006, Rowles notified JP Morgan Chase, which was holding his mortgage. He had a variable interest rate loan, which had risen above 6 percent at the time, and he expected that JP Morgan Chase would reset his interest rate to 6 percent, as required by the Soldiers and Sailors Act.
The bank took months to reset the interest rate, though – and wound up overcharging Capt. Rowles and his family by as much as $900 per month.
Eventually, the bank reset the rate, but they did not cancel the outstanding balance that accrued as a result of bank error. According to the couple, the bank harassed them with collection calls, including calls at 3 AM, which is generally a violation of the Fair Credit Collections Act. JP Morgan Chase, doing business as Chase Bank in this instance, threatened to report the couple to credit bureaus and to foreclose on the home.
The Rowles counterattacked, filing suit against the bank.
JP Morgan Chase issued a statement admitting wrongdoing, but pleading that the mistakes were a result of oversight, and were not intentional. After the lawsuit came to light, JP Morgan Chase announced it was conducting a review of its internal procedures concerning the credit accounts of active duty servicemembers.
Bank of America, which also includes mortgages originally written by Countrywide, foreclosed illegally on at least 160 servicemembers, without a court order. Some of those servicemembers were actually serving overseas in Iraq or Afghanistan when their homes were foreclosed on. The majority of these cases were on former Countrywide mortgages. Bank of America, however, admitted their responsibility for righting the wrongdoing.
If you are a Capital One customer or mortgage holder, and you believe the Soldiers’ and Sailors’ Civil Relief Act applies in your case, contact Capital One.