Four months after federal regulators filed a lawsuit against an Ohio-based auto loan company over allegations it violated consumer protection laws – including those protecting servicemembers – in order to collect debts, Security National Automotive Acceptance Company (SNAAC) will pay $3.28 million in refunds and fines to resolve the case. 

The Consumer Financial Protection Bureau announced Wednesday that it had filed an administrative order against SNAAC– which specializes in lending money to active-duty and former military to buy used motor vehicles in more than two dozen states – for allegedly using lies and threats in attempts to coerce consumers in to paying their debts.

According to the CFPB complaint [PDF], since July 2011 SNAAC collected millions of dollars from thousands of servicemembers who defaulted on their loans by using aggressive collection tactics that took advantage of borrowers’ special obligations to remain current on debts.

Among other tactics, the Bureau claims that in order to collect on debts, SNAAC routinely threatened to contact servicemembers’ superiors and exaggerated the potential impacts on their careers if they remained delinquent on their loan obligations, often telling borrowers they could face demotion, loss of promotion, discharge, denial of re-enlistment, loss of security clearance, or reassignment

SNAAC reportedly buried a provision within the fine print of contracts saying that it could contact commanding officers about servicemembers’ debts.

When customers were unable to pay their debts, the company suggested that the servicemembers were in violation of military law and other regulations and threatened to notify their commanding officers about the purported violations.

In other instances, the company allegedly told customers that their failure to pay could result in action under the Uniform Code of Military Justice, as well as a number of other adverse career consequences, including demotion, loss of promotion, discharge, denial of re-enlistment, loss of security clearance, or reassignment. In reality, these consequences were extremely unlikely.

In order to recoup some of the loans it issued, SNAAC also threatened to garnish servicemembers’ wages.

According to the CFPB, the company implied to borrowers that it could immediately commence an involuntary allotment or wage garnishment. But because of the military pay system, the Bureau, says these threats were empty and garnishments would not have occurred.

Under the CFPB’s order [PDF], SNAAC must pay $2.28 million to thousands of harmed servicemembers and other consumers.

The amount that each borrower receives will correspond to the amount of debt they were allegedly unlawfully pressured into paying. A written compensation plan must be submitted to the CFPB for approval.

Additionally, the company must pay $1 million to the CFPB’s Civil Penalty Fund and is also banned from using threats and misstatements.

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