BMW Financial Services North America has agreed to pay more than $2 million to resolve allegations that the captive violated the Servicemembers Civil Relief Act, the Justice Department said Thursday.

BMW's captive finance arm neglected to refund an upfront lease payment to nearly 500 service members who ended their leases early, a Justice Department statement said.

The Civil Relief Act allows service members to terminate their leases early without being penalized after entering military service or receiving qualifying military orders for a permanent change of station or deployment. When service members end their leases before their term is up, the act requires the leasing company to refund all lease amounts that were paid in advance.

The agreement, which resolves a lawsuit filed Thursday by the U.S. in the District Court for the District of New Jersey, covers all leases terminated by service members since Aug. 24, 2011.

In an email to Automotive News, BMW Financial Services spokesman Kenn Sparks wrote, "BMW Financial Services and the Department of Justice worked closely to reach the settlement agreement announced today, which will result in a better understanding of this unusual legal issue.

"The agreement settles and closes the complaint, and we are pleased the Department worked with us to establish a clear process for service members who terminated their lease agreement under the Servicemembers Civil Relief Act (SCRA) to receive refunds when appropriate."

Refunds, damages

The agreement requires that BMW Financial Services refund each service member portions of their prepayment amounts based on the time remaining on their lease. BMW Financial must also pay damages to each service member, totaling to three times the refund amount or $500, whichever is larger, the statement said. BMW Financial also must also pay the U.S. Treasury $60,788.

The captive must also revise its policies and procedures to ensure that service members who terminate their leases before their term expires receive a full refund of eligible prepaid amounts.

BMW Financial Services, in Woodcliff Lake, N.J., provides leases to BMW, Mini and Rolls-Royce customers. When customers sign for a lease, they often make upfront payments, such as a cash payment, credit for a trade-in vehicle, rebates or other credit, the statement said. Part of the upfront amount can apply to the first month of the lease or licensing and registration fees. The remaining amount reduces the monthly payment for the duration of the lease.

After the Justice Department received complaints from two service members who said BMW Financial refused to issue them a refund on their lease, the department's civil rights division and the U.S. attorney's office for the district of New Jersey launched an investigation. The investigation found that BMW's captive failed to refund any portion of prepaid lease amounts to 492 service members who qualified.

‘When duty calls'

"Our men and women in uniform should be able to devote their entire energy to their service and defense of our nation, and the Justice Department is committed to protecting these rights when their obligations to the American people force them to change their plans," John Gore, acting assistant attorney general of the civil rights division, said in a statement.

U.S. Attorney Craig Carpenito added: "We must honor their sacrifice by ensuring that their rights are protected when duty calls for their relocation or deployment overseas. Through this agreement, we are pleased that hundreds of service members will be compensated for the damages they suffered when they were not refunded pre-paid car lease payments after they were deployed."