OCC Lays Out SCRA Compliance Management System Expectations in New Wells Fargo Consent Order

They say bad news comes in threes and Wells Fargo capped off September entering into its third Consent Order in roughly a month. This time, the Consent Order resolved issues with the bank’s compliance with the Servicemembers Civil Relief Act (“SCRA”). According to the OCC, the bank violated three separate provisions of the SCRA by failing to provide the 6% interest rate limit to servicemembers’ obligations or liabilities incurred before military service, failing to accurately disclose servicemembers’ active duty status to courts via affidavits prior to evictions and by failing to obtain proper court orders prior to repossessing vehicles. The Order comes a year have the OCC re-emphasized its focus on bank compliance with the SCRA and its intentions to ramp up on enforcement. In 2015, regulators took corrective actions against both JP Morgan Chase and Bank of America regarding the SCRA. The Wells Fargo Consent Orders require the bank to pay a $20 million civil monetary penalty, provide restitution to affected consumers, and establish an enterprise wide SCRA compliance program.

 

As is often the case, the consent orders provide guidance for other regulated entities as to the elements of a robust compliance management system. Among other things, the Consent Orders, which do not include any admission of wrongdoing, requires the bank establish a written program to ensure the bank’s compliance with the SCRA. At a minimum, regulated entities should review their own SCRA Compliance program to ensure it meets regulator’s expectations. According to the Consent Order entered into by Wells Fargo, a SCRA Compliance Program should:

• Include written policies and procedures which provide:
• Uniform standards and processes for identifying customers eligible for SCRA benefits and protections;
•  Uniform standards and processes for determining whether a servicemember who submits a request for SCRA benefits and protections is eligible for such benefits and protections not only for the requested account, but for all accounts (including commercial accounts) for which the servicemember is personally liable;
• Processes for notifying servicemembers of the bank’s denial of SCRA benefits and protections;
• Processes to insure affidavits filed by or on behalf of the bank are accurate, complete and reliable;
• Procedures for when searches of the Department of Defense database must be conducted before filing and obtaining a default judgment and for making a determination of the servicemembers eligibility for SCRA benefits and protections;
• Procedures for initiating and obtaining waiver of rights under the SCRA; and
• Procedures for applying relevant state laws which provide more benefits or procedures than those provided by the SCRA;
• Include written policies and procedures regarding record retention including:
• Written procedures and processes requiring the Bank obtain and maintain sufficient documentation to support:
• The dates of military service for servicemembers who request SCRA benefits and protections;
• The method, date, and results of military status verifications prior to seeking or obtaining a default judgment;
• Dates of any correspondence with any servicemember covered by the SCRA; and
• The calculation of benefits and protections provided to the servicemember by the SCRA.
• Written procedures and processes for documenting the basis for the bank’s determination of an account’s eligibility for SCRA benefits or protections or the bank’s denial of benefits and protections;
• The development of internal guidance, guidelines and formats that convey general information regarding the SCRA to bank employees;
• Written policies and procedures for conducting periodic reviews and updating;
• Written policies and procedures to ensure deficiencies in SCRA policies, procedures or processes are identified and corrected;
• Establishment of an ongoing system of monitoring and testing within all potentially affected lines of business to ensure compliance with the SCRA and ensure policies and procedures are being followed and are effective;
• Establishment of an enterprise-wide customer complaint management program designed to capture, identify and address SCRA-related complaints; and
• Establishment of a written program to ensure all relevant personnel (including compliance, management, loan officers and customer service) are trained periodically regarding the SCRA and related state laws.

Banks and other financial service providers should also keep in mind that amendments to the Military Lending Act began to take effect October 3, 2016.