DOJ Says They Took Servicemembers’ Cars. Its Complaint Quotes a Manager: “We Do This All the Time.”

Three cases. At least $796,728.

S & K Towing agreed in July to pay $160,000 to resolve DOJ allegations that it auctioned or otherwise disposed of as many as 148 vehicles owned by SCRA-protected servicemembers without court orders. Many had been towed from Camp Pendleton. The company was shutting down, but if it reenters towing or storage during the agreement's four-year term, it must adopt the required SCRA policies and training.

CarMax agreed in February to pay at least $420,000 to servicemembers and a $79,380 civil penalty. DOJ alleged that CarMax repossessed at least 28 protected servicemembers' vehicles without court orders, including some after borrowers said they were serving. DOJ also alleged that CarMax failed to protect reservists who had received orders to report for military service.

Holmes Motors agreed in July to fund $77,348.60 in compensation and pay a $60,000 civil penalty. DOJ alleged that the dealership illegally repossessed three vehicles and mishandled refunds in five qualifying military lease terminations.

Together, the three agreements call for at least $796,728 in compensation and civil penalties.

The SCRA puts a judge between the company and the car

The Servicemembers Civil Relief Act does not erase an auto loan or every missed payment. For a covered vehicle installment contract, 50 U.S.C. § 3952 generally requires a court order before the creditor terminates the contract or takes the vehicle for a breach occurring before or during military service. The rule applies when the servicemember paid a deposit or at least one installment before entering military service, unless a valid SCRA waiver applies.

A court may order the creditor to repay the servicemember all or part of earlier installments or deposits as a condition of ending the contract and retaking the vehicle. It may stay the proceeding—and must do so on the servicemember's application when military service materially affects the ability to comply—or make another equitable disposition.

Federal law permits a waiver, but not one buried in the original contract. Under 50 U.S.C. § 3918, a waiver covering repossession or sale must be a separate written agreement executed during or after military service, identify the legal instrument it covers and use type no smaller than 12 points.

Reservists have another timing rule. Section 3917 extends covered protections beginning when a reserve-component member receives orders to report for military service—not only when the member arrives for duty. DOJ says CarMax's former policies did not account for that early-alert period.

Towing and storage companies face a separate rule. Under 50 U.S.C. § 3958, a lienholder generally cannot foreclose or enforce a storage, repair, cleaning or similar lien against a servicemember's property during military service and for 90 days afterward without a court order. That provision is at the center of the S & K case.

After proper notice and timely return of a covered vehicle, qualifying military service or orders can permit early lease termination. Section 3955 requires lease amounts paid in advance for the post-termination period to be refunded within 30 days. The Holmes agreement separately requires refunds of security deposits, less specified excess-mileage and vehicle-recovery charges, and attributable capitalized-cost-reduction payments.

CarMax agreed to check military status three times

The CarMax settlement requires the company to review military information supplied by borrowers and search the Defense Manpower Data Center no more than two business days before referring a vehicle for repossession, no more than two business days after obtaining possession and no more than two business days before sale or disposal. The checks apply to every account, including one classified as charged off.

If the information shows that a borrower or co-borrower is protected, CarMax cannot proceed without a court order or valid SCRA waiver. If it learns of the protection after taking the vehicle but before sale, the agreement requires an attempt to contact the borrower within one business day, a return process, reversal of repossession charges in specified circumstances and correction of related negative credit reporting.

The agreement adds military-status checks at three points: before referral, after possession and before sale or disposal. A right discovered after a sale is cleanup, not prevention.

Telling the company was not always enough

DOJ alleged that some borrowers told CarMax they were serving. A military lawyer told S & K what the law required. DOJ says protected vehicles were still taken or sold.

The court-order requirement inserts a neutral decision-maker before a private company makes the loss real. Once a car is gone, the borrower may have to find transportation, dispute related credit reporting, recover personal property and pursue a remedy while still serving.

A settlement payment years later can compensate part of that loss. It cannot turn the clock back.

If a repossession is threatened, move fast

Start with the contract and the dates. Identify when the vehicle agreement began, when the first deposit or installment was paid, when military service began and—if the borrower is in a reserve component—when the orders to report were received.

Tell the lender, lessor, towing company or storage company in writing that military service may trigger SCRA protection. Preserve notices, payment records, orders, messages and the names of everyone contacted. Confirm the company's official secure route before sending orders or sensitive identifiers. Do not sign an SCRA waiver before getting legal advice.

The Justice Department's SCRA guidance directs servicemembers and dependents who believe their rights were violated to the Armed Forces Legal Assistance Program. A lawyer can evaluate the exact orders, contract, timing and state-law protections before a vehicle is sold.

• Review the federal vehicle protections →
• Review storage and towing lien protections →