American Honda Finance SCRA Settlement: Trade-In Credit Not Refunded

What happened

On September 29, 2021 the United States sued American Honda Finance Corporation (AHFC) in the Western Division of the Central District of California, filing a proposed consent order the same day. The complaint describes AHFC as a wholly owned subsidiary of American Honda Motor Co., Inc., itself wholly owned by the Japanese corporation Honda Motor Co., Ltd., financing Honda and Acura vehicles, with total assets in excess of $81 billion as of June 30, 2021.

The dispute was over capitalized cost reduction, or CCR: the part of an up-front lease payment, made in cash, trade-in credit, or rebates, that lowers the monthly payment. According to the complaint, AHFC settled a putative class action in 2015 over unrefunded CCR, compensating servicemembers who had paid CCR in cash but not those whose CCR came from a trade-in, and around then adopted a policy of refunding cash CCR on a pro rata basis while refusing any refund of trade-in CCR. That written policy stood until at least July 2019, when the United States opened its investigation. The United States identified 714 servicemembers harmed by that policy in lease terminations from at least July 2014 to at least July 2019.

The complaint's example is an Army sergeant who leased a 2018 Honda Accord in Daytona Beach, Florida in April 2018, paying $3,500 in cash, receiving a $500 manufacturer contribution, and trading in a 2013 Ford Focus for $4,500 of credit. His contract credited $4,000 of CCR to cash and $2,819.71 to the trade-in. Ordered in February 2019 to a 400-day deployment to Kuwait, he returned the car on May 6, 2019 with his payments current. A June 4, 2019 letter told him only the cash portion could be refunded. He got a pro-rated refund that included the trade-in portion on or about July 2, 2019, after complaining and asking several times.

AHFC put its disagreement into the consent order itself, contending that CCR is a down payment kept by the dealer rather than a lease amount paid in advance, and that its cash refunds, in place since 2016, went beyond what the SCRA required. The United States disputed those contentions. The court entered the order on October 6, 2021 for a three-year term, with AHFC neither admitting nor denying the allegations.

The law behind this: 50 U.S.C. § 3955

Termination of residential or motor vehicle leases: read the statute , or read § 3955 in plain English, with its enforcement record .

Servicemembers selflessly heed the call to duty, and their sacrifice should not subject them to unlawful economic harm.

Who was covered

Servicemembers who terminated an AHFC lease under Section 3955 from July 1, 2014 onward and did not get back the trade-in share of their capitalized cost reduction. DOJ counted 714. Non-servicemember co-lessees share equally in the refund itself, while the additional damages go only to the servicemember.

What the settlement paid

• A pro rata CCR refund under paragraph 22: the refundable CCR, after subtracting rebates, dealer payoffs of negative equity, refundable protection products, the acquisition fee, and tax, title and license, multiplied by the time left on the lease and divided by the full term, less any unpaid payments, unpaid excess wear and mileage charges, and any CCR already refunded.
• That refund plus interest under 28 U.S.C. § 1961, and on top of it indirect damages of $500 or three times the refund, whichever is larger (paragraph 23). AHFC is not required to pay lessees whose refund calculates to less than $25.
• Total payments to servicemembers may not exceed $1,585,803.89 (paragraph 30). DOJ's release describes the figure as up to $1,585,803.89 for 714 servicemembers.
• $64,715 to the United States Treasury, requests to all three credit bureaus to remove related negative entries, and new policies covering both lease refunds and the 6 percent interest rate benefit, including a review of every loan a servicemember holds within 60 days of written notice of military status.

Why this case matters

A trade-in is money. That is the point to take from this case. If you rolled a car's value into a lease and later terminated on orders, the United States says the unused share of that trade-in credit is a lease amount paid in advance, refundable within 30 days like cash. AHFC changed its cash refunds around a 2015 class settlement and changed its trade-in refunds only after a federal investigation, so check both lines of your lease contract, not just the cash one.