Security National Automotive Acceptance Co. will pay $3.28 million in refunds and fines as a result of a settlement with the Consumer Financial Protection Bureau related to alleged illegal debt collection tactics against thousands of service members. 

The CFPB sued Security National in June and charged that the company made threats and exaggerated the repercussions of defaulting on student loans.

The settlement reached Wednesday will require Security National to refund a portion of the delinquent payments made by some 2,200 affected service members, with total refunds amounting to $2.28 million, or an average of $1,036 per customer. The company also must pay a $1 million penalty to the CFPB's Civil Penalty Fund, stop the allegedly abusive practices and identify each of the service members who paid under coercive circumstances and provide refunds.

According to the CFPB complaint, Security National since July 2011 collected millions of dollars from thousands of service members who defaulted on their loans by using aggressive collection tactics that took advantage of borrowers’ special obligations to remain current on debts. 

The CFPB said that while Security National engaged in some of the same abusive debt collection practices of many collection companies -- such as claiming that legal action was imminent or that the collection agent could or would seize a portion of the worker's wages -- this company also took advantage of the unique laws and rules affecting members of the military. 

For example, Security National coerced service men and women into paying debts by threatening that their failure to pay could result in action under the Uniform Code of Military Justice and in demotion, discharge and a loss of security clearance. Although military law does have provisions addressing fraud, larceny and writing bad checks, the CFPB said the chance that a service member would face such severe punishment for falling behind on a loan is highly unlikely.

Security National allegedly buried a provision within the fine print of contracts stating that it could contact commanding officers about service members’ debts. Federal debt collection statutes generally bar creditors from discussing a consumer's debt with anyone other than the consumer, his or her spouse, or attorney.

Security National, which neither admitted nor denied the allegations, said in a statement that it disagreed with the CFBP's complaint, but the cost and distraction of continuing to fight the agency wasn't in the best interest of the company or its customers. 

"It's time to move on," company spokesman Craig Stevens said in a prepared statement. "We're proud of the work that we've done for our customers over the past 25 years, many of whom would not have had access to the credit they and their families need."

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