Capital One Bank has agreed to pay about $12 million to resolve a lawsuit by the Department of Justice alleging that the company violated the Servicemembers Civil Relief Act (SCRA), a federal law that provides financial protections to members of the military.
The agreement, which is subject to court approval, was filed in federal court in Alexandria, Va. The lawsuit was referred to the department by the Office of the Staff Judge Advocate at Davis-Monthan Air Force Base in Arizona.
The referral involved a claim of a service member's failure to receive an interest rate reduction on his Capital One credit card account. The settlement comes after a two-year investigation of Capital One by the Department of Justice.
The settlement was filed in conjunction with the department's complaint, which alleges that Capital One violated the SCRA from at least July 15, 2006 to Nov. 21, 2011.
The settlement covers a range of conduct that violated the protections guaranteed service members by the SCRA, including wrongful foreclosures, improper repossessions of motor vehicles, wrongful court judgments, improper denials of the 6 percent interest rate the SCRA guarantees to service members on some credit card and car loans and insufficient 6 percent benefits granted on credit cards, car loans and other types of accounts.
This is the first time the Justice Department has obtained this type of enterprise-wide rate reduction relief from a lender under the SCRA. The settlement also requires Capital One to adopt policies and practices to prevent violations of the SCRA in the future.
The agreement requires Capital One to pay about $7 million in damages to service members for SCRA violations, including at least $125,000 and compensation for any lost equity with interest to each service member whose home was unlawfully foreclosed upon, and at least $10,000 in compensation plus compensation for any lost equity with interest to each service member whose motor vehicle was unlawfully repossessed.
In addition, the agreement requires Capital One to provide a $5 million fund to compensate service members who did not receive the appropriate amount of SCRA benefits on their credit card accounts, motor vehicle finance loans and consumer loans. Any portion of the $5 million that remains after payments to service members are made will be donated by Capital One to one or more charitable organizations that assist service members.
Service members will be identified and compensated, with no action required on their part, on accounts dating back to July 15, 2006. Capital One has agreed to treat a service member's request for a 6 percent rate relief in one area of its lending, such as credit cards, as a request for a 6 percent rate relief for any loan the service member may have with Capital One or its affiliates.