SCRA in the News: Banks Should be Aware of Soldiers' Relief Provisions

Service members and their spouses often experience financial hardships when called to active duty, and there is a law that protects them from those hardships. But court records and recent media accounts reveal some banks and creditors are not aware how the law, the Servicemembers Civil Relief Act (SCRA), protects military personnel and their families.

The act was signed into law in December 2003 as a rewrite of the former Soldiers' and Sailors' Civil Relief Act, which had been in effect since World War II. The new law provides a broad spectrum of protections to members of the armed forces, including active duty Coast Guard members and members of the National Guard called to federal service for more than 30 days.

One of the most commonly invoked provisions of the act is a 6 percent interest rate cap on debts. Creditors must reduce rates on debts incurred before active duty if a person has been "materially affected" by serving in the military. The interest not paid must be forgiven and the cap does not apply to debts incurred while someone is on active duty. Another provision allows certain leases, including automobile leases, to be terminated without penalty when a service member is relocated for 90 days or more. A third provision specifies that if a default judgment is entered against someone while they are on active duty (and for 60 days afterward), that service member can get the judgment set aside until he or she can apply to the court for relief (which must be done within 90 days after release from the service ).

The military and various banking organizations have tried to get the word out on what the act entails. However, recent accounts reveal that not only banks, but the court system itself, do not fully understand the protections.

For example:

In Fayetteville, NC, an Army reservist was about to board a plane to Iraq when his wife called to tell him their mortgage company was foreclosing on their loan. Even though the couple knew they were protected by the law, it took repeated warnings from military personnel to get the lender to drop the foreclosure. The dispute remained on the couple's credit history, damaging the reservist's ability to revive a business when he returned home on disability. He is now suing the mortgage company.

In northern Ohio, a bank served a young Army couple with foreclosure papers even though the wife repeatedly tried to negotiate new repayment terms with the bank. A military lawyer intervened and the foreclosure was stopped.

A soldier's wife in Fort Hood, TX was sued for a debt owed by her and her husband while her husband was in Baghdad. A local judge ruled against her, even though the law protects not only military personnel, but their families.

Copyright © 2005 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 15, No. 3, 4/05