Today's Trends in Credit Regulation

Crossing the Delaware
By Michael A. Benoit

The CFPB is very interested in SCRA -- Servicemembers Civil Relief Act -- compliance, so much so, it even has an office dedicated to servicemember affairs. This is not news to any bank that's been through a CFPB exam, nor to any financial institution that caters to military customers.

SCRA compliance is tricky, largely because there are a lot of moving parts and it's difficult to know when a service person is actually on "active duty," the trigger for many protections. Most institutions have detailed procedures for servicing their military customers, but sometimes that's not enough. There have been more than a few instances where the heavy hand of government has "required" financial institutions to provide SCRA protections to ineligible personnel.

Unfortunately, this is nothing new. More and more examinees and enforcement targets are agreeing to do things the law doesn't require in order to minimize fines and avoid litigation. The CFPB has even said that going above and beyond legal requirements is a responsible lending principle:

"Unlike self-policing and remediation, which may occur with or without Bureau involvement, cooperation relates to the quality of a party's interactions with the Bureau after the Bureau becomes aware of a potential violation of federal consumer financial laws, either through a party's self-reporting or the Bureau's own discovery efforts. In order to receive credit for cooperation in this context, a party must take substantial and material steps above and beyond what the law requires in its interactions with the Bureau. Simply meeting [your legal] obligations will not be rewarded by any special consideration."

CFPB Bulletin 2013-06, June 25, 2013.

Now it appears the Delaware AG -- Beau Biden (Joe's son) -- is looking to get in on the action. However, he's putting the cart before the horse. In an October 2, 2013, letter to the chairmen of the House and Senate veterans' affairs committees, he acknowledges he lacks the power to enforce the SCRA by requesting legislation to grant such authority. This is after he sent letters on September 26, 2013, to a number of leading banks and finance companies requesting the following:

1. Documentation of any internal review conducted to determine whether there has been compliance with the SCRA, including documents reflecting the findings of such review.

2. All written policies, procedures and practices in place used to verify compliance with the SCRA.

3. The total number of customer files reviewed for SCRA compliance.

4. The total number of Delaware customer files reviewed for SCRA compliance.

5. Documentation concerning any SCRA violations identified during your review.

6. All written policies, procedures and practices in place concerning the provision of remediation to account owners to address any judgments obtained in error or other actions taken in violation of the SCRA.

7. Documentation of steps taken to prevent future SCRA violations.

8. All materials used to train employees regarding compliance with the SCRA.

It's commendable that the Delaware AG is looking into SCRA compliance inasmuch as it is limited to Delaware-resident servicemembers. However, his request goes too far in that as he seeks information relating to servicemembers resident in other states. Any parts of this request, e.g., items 4 and 5, that ask for information not specific to a Delaware-resident servicemember is out of bounds, and it's clear that Mr. Biden knows that.

One can argue that a state AG may investigate suspected violations of federal law. I would be willing to concede this point to the extent an AG is doing so pursuant to state law prohibiting unfair and deceptive practices or the like. However, absent federally granted authority, the state AG's jurisdiction doesn't extend beyond his state's borders. Neither the SCRA nor the Dodd-Frank Act (DFA) give Mr. Biden authority to enforce the SCRA. Ergo, his request should, at most, be limited to actions and evidence directly related to Delaware-resident servicemembers.

Section 801 of the SCRA provides that, "the Attorney General may commence a civil action in any appropriate district court of the United States against any person who (1) engages in a pattern or practice of violating this Act; or (2) engages in a violation of this Act that raises an issue of significant public importance." 50 USCS Appx. §597. Note that Congress used a singular article - "the" -- before "Attorney General" in initial caps. That's hardly an accident, and it's a clear indication that Congress was referring to the U.S. Attorney General, currently, Eric Holder. Not Beau Biden.

Similarly, section 1042(a) of the DFA provides, "the attorney general (or the equivalent thereof) of any State may bring a civil action in the name of such State in any district court of the United States in that State or in State court that is located in that State and that has jurisdiction over the defendant, to enforce provisions of this title or regulations issued under this title, and to secure remedies under provisions of this title or remedies otherwise provided under other law."

The SCRA is not part of DFA Title 10, i.e., the "title" referred to in §1042(a), above. Therefore, Mr. Biden has no enforcement authority. Nor is the SCRA a regulation promulgated pursuant to the DFA. It's an honest-to-goodness federal law enacted by Congress. Accordingly, Mr. Biden is without authority.

When George Washington crossed the Delaware in 1776, he was fighting for two things -- independence from Britain and the formation of a self-governing new nation, a nation of laws. While SCRA compliance and federal law enforcement are appropriate goals of the federal government, Mr. Biden's attempts to cross the Delaware, unlike Gen. Washington's, are for naught.

Michael A. Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. Michael can be reached at 202-327-9705 or

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