Servicemembers Civil Relief Act (SCRA)

[DragonFlyer]

Despite the act's official title (SSCRA) dating it to 1940, its origins can be traced as far back as the Civil War when Congress passed a total moratorium on civil actions brought against Union soldiers and sailors. In basic terms, this meant that any legal action involving a civil matter was put on hold until after the soldier or sailor returned from the war. Examples of civil matters included breach of contract, bankruptcy, foreclosure or divorce proceedings.

 

On 19 December 2003, President Bush signed into law the “Servicemembers Civil Relief Act†(SCRA). This law is a complete revision of the Soldiers’ and Sailors’ Civil Relief Act (SSCRA). The SSCRA provided a number of significant protections to servicemembers. These include: staying court hearings if military service materially affects servicemembers’ ability to defend their interests; reducing interest to 6% on pre-service loans and obligations; requiring court action before a servicemember’s family can be evicted from rental property for nonpayment of rent if the monthly rent is $1,200 or less; termination of a pre-service residential lease; and allowing servicemembers to maintain their state of residence for tax purposes despite military relocations to other states.

 

The SSCRA was largely unchanged from its enactment in 1940. The SCRA was written to: clarify the language of the SSCRA: to incorporate many years of judicial interpretation of the SSCRA; and to update the SSCRA to reflect new developments in American life since 1940. The new law, SCRA:

 

(1) Extends the application of a servicemember’s right to stay court hearings to administrative hearings. It now requires a court or administrative hearing to grant at least a 90-day stay if requested by the servicemember. Additional stays can be granted at the discretion of the judge or hearing official.

 

(2) Clarifies the rules on the 6% interest rate cap on pre-service loans and obligations by specifying that interest in excess of 6% per year must be forgiven. The absence of such language in the SSCRA had allowed some lenders to argue that interest in excess of 6% is merely deferred. It also specifies that a servicemember must request this reduction in writing and include a copy of his/her orders.

 

(3) Modifies the eviction protection section by precluding evictions from premises occupied by servicemembers for which the monthly rent does not exceed $2,400 for the year 2003 (an increase from the current $1,200). The Act provides a formula to calculate the rent ceiling for subsequent years.

 

(4) Extends the right to terminate real property leases to active duty soldiers moving pursuant to permanent change of station (PCS) orders or deployment orders of at least 90 days. This eliminates the need to request a military termination clause in leases.

 

(5) Adds a new provision allowing the termination of automobile leases for use by servicemembers and their dependents. Pre-service automobile leases may be cancelled if the servicemember receives orders to active duty for a period of 180 days or more. Automobile leases entered into while the servicemember is on active duty may be terminated if the servicemember receives PCS orders to a location outside the continental United States or deployment orders for a period of 180 days or more.

 

(6) Adds a provision that would prevent states from increasing the tax bracket of a nonmilitary spouse who earned income in the state by adding in the service member’s military income for the limited purpose of determining the nonmilitary spouse’s tax bracket. This practice has had the effect of increasing the military family’s tax burden.

 

(7) Adds legal services as a professional service specifically named under the provision that provides for suspension and subsequent reinstatement of existing professional liability insurance coverage for designated professionals serving on active duty. While the SSCRA specifically names only health care services, legal services have been covered since 3 May 1999 by Secretary of Defense designations. The SSCRA permitted such a Secretarial designation, but this revision will clarify this area.

 

Historically, the SSCRA applied to members of the National Guard only if they were serving in a Title 10 status. Effective 6 December 2002, the SSCRA protections were extended to members of the National Guard called to active duty for 30 days or more pursuant to a contingency mission specified by the President or the Secretary of Defense. This continues in the SCRA.

 

Above Information Courtesy Of HQ, Department of the Army

Edited August 25, 2009 by DragonFlyer

[DragonFlyer]

Notes from the Staff Judge Advocate's office in Camp Lejeune, NC:

 

 

Rev March 2009

 

 

 

Servicemember Civil Relief Act: Interest Rate Reductions

 

 

 

Would you like to reduce that 22% credit card interest rate to a mere 6%? What about those high interest furniture, automobile or, better yet, the payday loans? How about that high interest mortgage? You may qualify for such interest rate reduction under the Service Member Civil Relief Act (SCRA)

 

 

 

Congress has long been concerned that service members may suffer economic and legal disadvantage because military duties interfere with their ability to take care of civil obligations. . The SCRA (50 US Code appendix, 501-596) is designed to prevent such harm. It provides service members with protection in several areas. The three most important and commonly used protections concern the delay of civil suits, limitations on interest rates, and termination of residential and vehicle leases. This article examines SCRA section 527, interest rate protections.

 

 

 

Let's say that you purchased a car and took out a 14% loan to finance it. You then deployed to Iraq. Can you use the SCRA to decrease the interest rate? It depends. The requirements for interest rate limits are as follows:

 

 

 

Pre-Service Obligation In order to qualify for interest rate reduction, the financial obligation must have been incurred prior to military service. Thus, as a practical matter, the SCRA rate cap provision most commonly applies to new enlistees and reservists. For reservists, military service is considered commenced upon receipt of orders. Reservists may request interest rate reduction for obligations entered while in the reserve component, as long as the obligation was not incurred while on active duty.

 

 

 

Military Service Generally, only members on active duty may claim interest rate reduction. It does not matter whether the claimant's military service was voluntary or involuntary, whether served in the United States or abroad. Active duty members may also claim interest rate reductions for joint obligations with their spouse; as when husband and wife both sign the contract as borrowers.

 

 

 

Material Effect The rate cap applies only where the member's military service "materially affects" ability to pay pre-service financial obligations. For example, material affect of military service on ability to pay is clear when the civilian heart surgeon earning $500,000 annually is called to active duty and becomes a Navy Commander earning a small fraction of that amount. However, it is important to note that it is the burden of the lender; e.g., GMAC, MasterCard, etc., to prove that military service does NOT affect ability to pay. The service member is not required to prove such material affect. Thus, upon request of the member, the rate must be reduced to 6% until the lender convinces a court that military service has no material affect on ability to pay.

 

 

 

What happens to the extra interest? Let's say that the lender reduces that 14% interest to 6%.What happens to the 8% difference? During the Gulf War, some lenders attempted to have the interest accrue; that is, make the service member pay some kind of penalty or otherwise attempt to have the member pay those extra charges after release from active duty. However, the intent of the statute is to completely forgive this excess interest; the member need not pay it at all. The Defense Department advanced this position during Desert Storm and was, in fact, able to persuade major lenders to voluntarily comply. In 2003, the law was changed to make this requirement explicit, the excess interest is forgiven.

 

 

 

Effective date. The SCRA provides that the interest rate reduction is made effective as of the date that the applicant entered military service, even if the written request for reduction occurred much later. The interest rate reduction continues through military service and, in the case of a mortgage, for one year after military service.

 

 

 

2008 Amendment. The 2008 amendment to the SCRA extended the rate reduction protection for one year after military service. Further, the amendment made the knowing violation of the rate reduction provision a criminal violation punishable by a fine and up to one year imprisonment.

 

 

 

Student Loans A Department of Education memorandum (20 USC 1078d) provides that no federal or state law limiting interest rates on loans shall have any effect on federally guaranteed student loans. Consequently, the SCRA may have no effect in this area. However, the Department of Education may reduce the interest on such loans in its discretion as a matter of internal policy.

 

 

 

The full text of the Act, as well as a sample letter to creditor requesting interest rate reduction can be found at the Camp Lejeune legal assistance web site.

Edited August 27, 2009 by DragonFlyer

[squall206]

As an active duty servicemember, there is something about the SCRA that has always bugged me. It's called Section 206.

 

(a) TOLLING OF STATUTES OF LIMITATION DURING MILITARY SERVICE- The period of a servicemember's military service may not be included in computing any period limited by law, regulation, or order for the bringing of any action or proceeding in a court, or in any board, bureau, commission, department, or other agency of a State (or political subdivision of a State) or the United States by or against the servicemember or the servicemember's heirs, executors, administrators, or assigns.

 

If I'm reading this correctly, military service tolls the statute of limitations. So let's look at a little scenario (which just so happens to be mine):

 

Vehicle is repo'd prior to military service.

Outstanding deficiency exists.

Interest continues to build on outstanding balance.

Person enters military service a few years later. Interest is still building.

Person serves for set amount of time. Time in service tolls SOL. Interest is still building.

Do you see where I'm going with this?

 

Unless I'm mistaken, the SCRA might reduce the interest for the time of active duty service, but at the same time it stops the clock as far as SOL is concerned. So in theory, a person could default on a loan prior to entering service, serve twenty years, get out... and be on the hook for over TWENTY YEARS OF INTEREST due to tolling of SOL.

 

Please tell me I overlooked something. I hope I did.

[DragonFlyer]

As an active duty servicemember, there is something about the SCRA that has always bugged me. It's called Section 206.

 

(a) TOLLING OF STATUTES OF LIMITATION DURING MILITARY SERVICE- The period of a servicemember's military service may not be included in computing any period limited by law, regulation, or order for the bringing of any action or proceeding in a court, or in any board, bureau, commission, department, or other agency of a State (or political subdivision of a State) or the United States by or against the servicemember or the servicemember's heirs, executors, administrators, or assigns.

 

If I'm reading this correctly, military service tolls the statute of limitations. So let's look at a little scenario (which just so happens to be mine):

 

Vehicle is repo'd prior to military service.

Outstanding deficiency exists.

Interest continues to build on outstanding balance.

Person enters military service a few years later. Interest is still building.

Person serves for set amount of time. Time in service tolls SOL. Interest is still building.

Do you see where I'm going with this?

 

Unless I'm mistaken, the SCRA might reduce the interest for the time of active duty service, but at the same time it stops the clock as far as SOL is concerned. So in theory, a person could default on a loan prior to entering service, serve twenty years, get out... and be on the hook for over TWENTY YEARS OF INTEREST due to tolling of SOL.

 

Please tell me I overlooked something. I hope I did.

 

Why not assert your rights for a cap on the interest while on active duty? How long has the repo been? I will have to verify the specifics of your case to give a full response, but you aren't "off" in your thinking...I just think it goes both ways.

[squall206]

This is my particular case:

 

http://creditboards.com/forums/index.php?showtopic=282869

 

Actually, I just recently updated it in response to a query you made some time ago. Sorry for the delay.

 

True, you could cap the interest... but even years and years of "capped" interest can add up to a terrifying number. That's my beef with the law as it exists. It gives creditors the ability to milk interest out of military personnel in a way that would never fly in the civilian world.

[DragonFlyer]

I answered in your original thread. I hope to keep this topic open for SCRA questions and allow members to post their situation in their own thread...it keeps it organized. But..let me just say this...the lender would have to assert the right to tolling of the debt...and you would then assert your right for them to redo the entire balance with the interest cap. LOL And if you think about it, most debts are 3-4 year SOL's (on average)...about the same amount of time of an active duty enlistment.

[squall206]

Fair enough. My main point was that I wish the law more specifically protected against such a nightmare scenario. If a lender were to assert the right to toll, and the capped interest was refigured... well, the damage could be catastrophic.

 

I'm sure it's a highly unlikely scenario, and I'm creating theoretical problems in a world of real ones. It's just something that has always bugged me.

[DragonFlyer]

Fair enough. My main point was that I wish the law more specifically protected against such a nightmare scenario. If a lender were to assert the right to toll, and the capped interest was refigured... well, the damage could be catastrophic.

 

I'm sure it's a highly unlikely scenario, and I'm creating theoretical problems in a world of real ones. It's just something that has always bugged me.

 

Well, I did ask you to give me details so you didn't do anything you were not supposed to do. LOL I was just explaining why I answered there and not here.

 

You bring up a VERY valid point, and this certainly bears more discussion...which I encourage everyone to feel free to do.

 

It goes to show that nothing is "one-size-fits-all" and nothing is ever simple. LOL

 

Most lenders have no clue about the tolling of debts. Chances are, it would be a rare day that they would make an issue of it. And if they did, you can give them such a headache making them redo the entire account to recalculate interest.