What is the Servicemembers Civil Relief Act (SCRA)?

The SCRA is a federal law that provides financial and legal protections to active-duty military members, including interest rate caps and protections against foreclosure and repossession.

How does the SCRA impact auto finance debt collection?

Lenders must adjust their collection practices for active-duty servicemembers, such as capping interest rates at 6% and avoiding certain legal actions without a court order.

What are the penalties for non-compliance with the SCRA?

Non-compliance can result in legal penalties, including fines and damages, and can harm the institution's reputation.

How can lenders verify a borrower's military status?

Lenders can use the Department of Defense's Defense Manpower Data Center (DMDC) to verify active-duty status of borrowers.

What best practices should lenders follow to comply with the SCRA?

Implement automated systems to flag active-duty accounts, provide staff training on SCRA requirements, and regularly audit collection practices for compliance.

Servicemembers Civil Relief Act (SCRA)

May 3, 2025
Automotive

Auto finance debt collection regulations are complex, but understanding them is essential for any lender or collections professional. With over $1 trillion in auto loan debt and nearly 90% of retail car sales financed through loans or leases, staying compliant not only protects your business but also builds trust with your customers. In this guide, we’ll break down key debt collection regulations—including TCPA, FDCPA, and SCRA—and offer practical tips for navigating state-specific rules.

What You Need to Know About Federal Debt Collection Regulations

Telephone Consumer Protection Act (TCPA)

The TCPA sets strict limits on how debt collectors can contact consumers. It governs the use of auto-dialers, prerecorded messages, and even when you can call.

Impact on Your Business: You must secure express consent before using automated systems, especially for wireless numbers. Failure to do so can result in steep fines.
Tip for Compliance: Use consent management tools and consider a mix of automated and manual outreach to ensure every call complies with TCPA guidelines.

The TCPA forces us to be intentional about every interaction with our customers—it’s about making sure our outreach is both respectful and lawful. — Becky Burr, Compliance Specialist

Fair Debt Collection Practices Act (FDCPA)

The FDCPA outlines what constitutes fair and respectful debt collection practices. Although it primarily applies to third-party collectors, many of its provisions are relevant for in-house collections teams.

What It Means for You: Avoid aggressive tactics, ensure accurate debt validation, and always communicate clearly.
Tip for Compliance: Regular training for your team on FDCPA standards is a must. Implement monitoring systems to review interactions for quality and compliance.

Adhering to FDCPA standards isn’t just about legal compliance—it’s about building lasting relationships with your customers. — John Carter, Debt Collection Consultant

Servicemembers Civil Relief Act (SCRA)

The SCRA protects military members from certain financial burdens while on active duty.

Impact on Your Operations: If a borrower is an active-duty service member, you must modify your collection practices to comply with SCRA provisions, such as capping interest rates.
Tip for Compliance: Integrate SCRA checks into your account management systems so alerts are triggered when a borrower is identified as military personnel.

Understanding the SCRA is critical—it ensures our practices are fair and respectful to those serving our country. — Dana Reyes, Legal Advisor

Navigating State-Specific Rules

Federal laws provide the backbone, but state-specific regulations add another layer of complexity. For instance:

Call Timing Restrictions: Some states limit when you can call consumers—typically no calls before 8 AM or after 9 PM.
Content Requirements: States like New York have detailed guidelines on the language and disclosures needed in your collection communications.
Additional Consumer Protections: Some states impose stricter requirements for validating and documenting debt.

Tip for Compliance:
Stay updated on local laws and consider working with legal counsel who understands state-specific regulations. Regularly update your policies and training materials to reflect these changes.

State-level nuances mean that one size doesn’t fit all. Tailoring your approach based on local laws is key to avoiding costly compliance issues. — Todd Bryant, Regulatory Compliance Expert

Common Compliance Challenges

Multi-Jurisdictional Management: Handling collections across different states can be challenging as each region may have unique requirements.
Keeping Up with Changes: The regulatory landscape is always evolving. Staying current on updates is essential.
Balancing Efficiency and Compliance: Advanced technology can streamline collections, but it must always operate within the legal framework.

Practical Tips to Stay Compliant with Auto Finance Debt Collection Regulations

Invest in Advanced Technology: Tools like Fusion CX’s AI QMS and predictive analytics platform, Arya, can monitor your interactions in real-time and flag potential compliance issues.
Regular Training and Audits: Hold frequent training sessions to review both federal and state regulations. Internal audits help catch and correct compliance gaps early.
Clear Consent Protocols: Ensure that you document consumer consent meticulously—this is crucial for TCPA compliance.
Consult with Experts: Work with attorneys and compliance experts who specialize in debt collection laws to navigate complex regulatory environments.
Tailor Your Communication: Adjust your outreach strategies to reflect both federal and state requirements. Personalized, respectful communication not only aids compliance but also improves recovery outcomes.