On September 19, California governor Jerry Brown signed AB 3212 which provides benefits and protections to servicemembers under the state’s Military and Veterans Code. It is the state’s version of the federal Servicemembers Civil Relief Act (SCRA), 50 U.S.C. § 3952. AB 3212 extends the length of time that servicemembers in California are protected against foreclosure, eviction, repossession, and default judgments. It also broadens the number of servicemembers, their family members, and the veterans to whom the protections apply.

The bill updates current law to “close loopholes that have been used to take advantage of servicemembers and extends the protections of California law to cover all servicemembers in California” according to the State’s Attorney General Xavier Becerra, who applauded Governor Brown for signing the bill into law. The bill was authored by Assemblywoman Jacqui Irwin, who posted this on her Facebook page following the bill signing: “Our soldiers deserve to return home to a thankful community, not a foreclosure notice or a debt collector at their door.”

The amendments come at the heels of federal action in the state. In March 2018 the Department of Justice (DOJ) filed suit in the Central District of California against a sub-prime auto lender for allegedly repossessing servicemembers’ vehicles without a court order in violation of the SCRA. Similarly, in October 2017 the DOJ announced a settlement with Westlake Services LLC and its subsidiary, Wilshire Consumer Capital LLC, for $760,788 to resolve similar allegations relating to approximately 70 vehicle repossessions.

Expansions to the state law via AB 3212 include:

• Extension of the right to terminate leases after entry into military service to include vehicle leases.
• Prohibition of a creditor or consumer reporting agency from making an annotation in the servicemember’s record that the person is on active duty status. A violation of this provision is a misdemeanor, punishable by imprisonment of not more than one year or a fine not to exceed one thousand dollars or both.
• Extension of the ban on enforcing storage liens during the period of military service and for 120 days thereafter. AB 3212 extends most protections to 120 days after military service ends (prior provision extended protections for 60-90 days after the end of military service).
• Express prohibition of a debt collector from contacting the servicemember’s military unit or chain of command in connection with the collection of any obligation unless the debt collector obtains written consent from the servicemember after the obligation becomes due and payable. A violation of this new provision is a misdemeanor, punishable by imprisonment of not more than one year or a fine not to exceed one thousand dollars or both.
• Clarification that penalties may not be imposed on the nonpayment of principal or interest during the period in which payments are deferred on an obligation pursuant to a court order.

This expansion effort is just one of many recent examples of aggressive state action in the wake of waning federal consumer finance regulation. As federal agencies roll back consumer protection efforts, state regulators, particularly the Attorneys General in states, seem poised to act in this space. California’s new law also signals changes to come in other states that will inevitably use it as a model for their own expansion efforts.

Auto finance companies doing business in California need to be keenly aware of these changes. SCRA compliance is no longer enough. Further, there is evidence of an increasing willingness of federal and state regulators to invoke criminal penalties along with civil penalties for non-compliance.

Additional reporting by Virginia Bell Flynn, an associate at Troutman Sanders LLP (newly elected to Partner, 1/1/19) and Anna Jane Zarndt, a staff attorney at Troutman Sanders LLP.