BayPort Credit Union SCRA Case: A 6% Rate Cut That Raised the Payment

What happened

The United States sued BayPort Credit Union in the Eastern District of Virginia, in a complaint file-stamped March 10, 2022, and a consent order was entered by the court on March 18, 2022. The complaint describes BayPort as a National Credit Union Administration-insured credit union headquartered in Newport News, Virginia, with branches throughout the Tidewater area. It charged a pattern or practice of violating Section 3937 and, as a second count, repossessions without court orders under Section 3952 (complaint paragraphs 8, 26 to 38).

The lead example is a soldier who, before entering service, bought a used 2013 Hyundai Accent in Hampton, Virginia on December 2, 2015 under a 9.99 percent dealer contract that was assigned to BayPort. She entered active duty in the Army on September 18, 2017, asked in writing for the 6 percent rate on December 20, 2017 with her orders enclosed, and followed up in March and April 2018. On April 3, 2018 a BayPort collections supervisor told her that reducing the rate would increase her monthly payment. On April 19 BayPort lowered the rate to 6 percent for one year but raised the payment from $319.80 to $330.93 and did not apply the cut back to September 18, 2017. After she spoke with a second supervisor, BayPort credited retroactive interest on or about April 27, miscalculated it by the complaint's account, and set the payment back at the contract's $319.80. Her BayPort credit card was cut to 6 percent in or around May 2018, again without the retroactive credit (complaint paragraphs 9 to 15).

The U.S. Attorney's Office for the Eastern District of Virginia opened its investigation with a June 1, 2018 notice. The policies BayPort produced said a servicemember had to be deployed to a combat zone to qualify for the rate cap, a requirement the complaint says the SCRA does not contain, and gave no guidance on handling a request. Its account records, the complaint says, showed at least twenty more servicemembers since October 28, 2013 whose rate-cap rights BayPort violated: four refused because they were not in a combat zone and sixteen whose reductions were applied incorrectly. The complaint says the records did not show even a single eligible account handled correctly before the investigation opened (paragraphs 16 to 18).

One of the sixteen had financed a 2015 Chevrolet Sonic on July 8, 2015 and made payments before entering the Army on May 10, 2016. He asked for the lower rate on October 28, 2016 and BayPort applied it on March 9, 2017. In the almost five months between, he struggled to make and missed payments, and BayPort's collections office wrote to him at Fort Polk, Louisiana and called him about repossessing the car, knowing he was on active duty. On or about August 25, 2017 BayPort repossessed the car from Fort Polk without a court order, with some personal items inside, and later sold it at auction. A second notice, dated October 29, 2018, widened the investigation to repossessions and turned up at least two more since February 11, 2016. BayPort's policy called for a check of the Defense Department's database before a repossession but, the complaint says, said nothing about what to do if it showed the borrower was serving (paragraphs 19 to 25).

The law behind this: 50 U.S.C. § 3937

Maximum rate of interest on debts incurred before military service: read the statute , or read § 3937 in plain English, with its enforcement record .

We will continue to vigorously enforce the protections to which servicemembers are entitled under federal law, including their right to a 6% interest rate cap on loans and a right not to have their car repossessed without a court order.

Entering military service can create financial hardships for our servicemembers who make incredible sacrifices for our nation’s security.

Who was covered

The 21 servicemembers the United States identified whose rate-cap benefits BayPort unlawfully rejected or incorrectly implemented since October 28, 2013, and the borrowers on three repossessions since February 11, 2016 (consent order paragraphs 14 and 18). By the complaint's account, the soldier repossessed at Fort Polk is counted in both groups. The order covered every retail installment contract loan BayPort serviced or owned from October 28, 2013 to the date of the complaint, and every repossession from February 11, 2016 through that date (paragraphs 8 and 9).

What the settlement paid

• $69,443.10, which BayPort had to place in an interest-bearing escrow account it held, to fund both kinds of payment, with BayPort to deposit more if the payments came to more (consent order paragraph 25). DOJ's case page describes $69,443.10 to 24 servicemembers, and its release nearly $70,000; the order counts 21 servicemembers on the rate cap and three repossessions.
• Rate cap: a refund of every dollar of interest and fees the servicemember paid above 6 percent, divided equally among co-borrowers, plus the larger of $500 or three times the refund, paid to the servicemember alone, all due within 30 days of entry, with the United States to adjust the amount for any remedy BayPort had already provided. Each check had to come with a letter explaining that cashing it released the Section 3937 claims (paragraphs 15 to 17).
• Repossessions: $10,000 for the servicemember named on the note, and on top of it any lost equity, worked out from the vehicle's retail price in the NADA Guide when it was taken, with interest running from the sale date, split in equal shares among the owners on the title, again adjusted for any remedy BayPort had already provided. BayPort owed each payment within 15 days of receiving the signed paperwork, and those identified had three and a half years after being notified to send it in (paragraphs 19 to 24).
• A $40,000 civil penalty within ten days (paragraph 35). BayPort also had to ask the credit bureaus it reported to to remove negative entries caused by the overcharges and to delete the repossession trade lines, could not pursue the deficiencies, and had to give back anything already paid toward one (paragraphs 32 and 33). Compensation not distributed within four years was to go to the Treasury, and the order ran four years from entry (paragraphs 30 and 58).

Why this case matters

The 6 percent cap is supposed to lower the payment. Section 3937(a)(3) reduces each periodic payment by the interest forgiven for that period, and the soldier at the center of this case was told the opposite and then billed $330.93 in place of $319.80. By the complaint's account, BayPort's written policy also demanded deployment to a combat zone, a condition the statute does not set. The order answered both. It barred BayPort from improperly reamortizing a loan when applying the cap (consent order paragraph 13(b)), and the policies it required had BayPort decide eligibility on every retail installment loan a borrower held within two billing cycles of a request, apply the rate from the first day of eligibility including any early alert period, and stop requiring orders that show an end date (paragraph 37).