BMW Under Investigation Over Car Leasing Practices to Military Members
The U.S. Justice Department requested information from BMW AG’s leasing unit last year, hoping to get a handle on how it deals with delinquent payments from military personnel. The Servicemembers Civil Relief Act is intended to provide a wide range of protections for individuals required to enter active duty by suspending certain civil obligations, including outstanding credit card debt and auto leases.
However, BMW’s Financial Services said it doesn’t know how many of its leases might be affected by the Servicemembers Civil Relief Act’s terms. That’s not a great position to be in when federal law explicitly bans any action or penalty against currently deployed military personnel.
According to documents obtained by Bloomberg, which are tied to a $1 billion bond transaction being marketed to investors this week, BMW doesn’t have the foggiest on which of its lessees are on active duty.
Car loans have come under growing scrutiny as the outstanding auto debt in the United States has surpassed the trillion dollar mark. Many auto loans are even being financed in a manner similar to the way subprime mortgages were grouped into securities right before the recession.
The Justice Department began taking an interest in auto lending practices in 2014. Early investigations focused on lending to borrowers with subprime credit and the unhealthy financially engineering of those loans. However, officials are now taking direct action against lenders over how they manage defaults.
“We shouldn’t wait until there is a crisis to pay attention,” the Justice Department’s former Acting Deputy Attorney General Sally Quillian Yates said in 2014. “We can and should use our experience investigating mortgage-backed securities to be on the lookout for, and head off, any potential threat, rather than waiting until after losses have been suffered.”
Although, in all fairness, BMW probably doesn’t keep tabs on every lessee on the off chance that they might go on active duty and the leasing industry is a vital component of any automotive company. BMW makes a lot of money from leased vehicles, as do most premium brands, and that is especially important for the automaker after posting its uncharacteristically weak earnings from last year. Still, the law is the law and the Civil Relief Act exists specifically to protect individuals from coming under financial hardships through no fault of their own.
BMW Financial has stated that it is cooperating with the Justice Department’s requests but would not elaborate further.
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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Useless and pointless foreign wars! Unenforceable debts. The primary goal should be to legalize weed.
A quick trip around Camp Pendleton or Lejeune is a wonderland of what late-teen and twenty-something men do with cars when they have some money and no real bills. The goofiest lifted pickups, the goofiest slammed pickups, superchargers sprouting from things like old Escorts, IROCs right out of a five-year old's dream, etcetera. I'm sure the financing for many of those items is just as silly and marginal - not just the leases on BMW's.