Transcript When Your Customer is a Soldier

When Your
Customer is a
Soldier
Highlighting Laws
Regulating Lending to
Servicemembers
Presented by:
Lawrence A. Young
HughesWattersAskanase
Houston, TX
Soldiers’ and Sailors’ Civil
Relief Act
Now
Servicemembers’ Civil Relief
Act
From “Soldiers and Sailors”
to “Servicemembers”
The Servicemembers’ Civil Relief Act (Act) traces its
origins to the Civil War.
After World War I, Congress enacted the Soldiers’
and Sailors’ Civil Relief Act of 1918.
Congress enacted the 1940 version of the Act and
further amended it from time to time as additional
conflicts occurred
Extensively amended by the Servicemembers’ Civil
Relief Act in 2003

The purpose was to clarify and update the provisions of the
prior statute
Purposes of the Act
(1) to provide for, strengthen, and expedite the national
defense through protection extended by this Act [said
sections] to servicemembers of the United States to
enable such persons to devote their entire energy to
the defense needs of the Nation; and
(2) to provide for the temporary suspension of judicial
and administrative proceedings and transactions
that may adversely affect the civil rights of
servicemembers during their military service
Applicability of the Act
Generally
The SCRA Covers:



all Active Duty Servicemembers
Reservists (while on active duty)
Members of the National Guard (while on active duty)
The Protection Begins: on the date of
entering active duty
The Protection Ends: generally within 30
to 90 days after the date of discharge from
active duty.
Who is Covered by the Act?
Army
Navy
Air Force
Marine Corps
Coast Guard
National Guard
Public Health Service (Commissioned Officers)
National Oceanic and Atmospheric Administration
(Commissioned Officers)
When Are Servicemembers
Protected by the Act?
Military Service Includes:


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

Active duty service
Full-time training
Annual training duty
Attendance at a designated school while on active duty
Any period during which a servicemember is absent from duty on
account of sickness, wounds, leave, or other lawful cause
Military Service Ends:

When the servicemember is released from such service or dies while in
such service.
Reservists and Inductees are Protected by the Act:

From the time they receive orders to appear until they report for active
duty or induction at which time the active duty provisions of the Act
begins.
A Note on “Active Duty”
Enlistment in a Delayed Entry/Enlistment
Program (DEP) may NOT constitute “active
duty”
See Donahou v. Presidential Limousine and
Auto Sales, Inc.*



Donahou enlisted in the military on Jan. 18, 2006
Was in a DEP and was not required to report until
August 14, 2006.
The Vehicle was purchased June 9, 2006
*Donahou v. Presidential Limousine & Auto Sales, Inc., 06 6070, 2007 WL 1229342 (W.D. Ark. Apr. 24, 2007)
A Note on “Active Duty” (cont.)
Enlists in DEP
January 18, 2006
Auto Loan
June 9, 2006
Reports for
Active Duty
August 14, 2006
The Lender argued that because he was enlisted when he made the loan, SCRA
did not apply
The Court found that because while in the DEP he:

Had a full-time civilian job

Had not been issued a military ID or uniforms

Was not otherwise prepared for any military duties
“[Donahou] only had the promise of service to his country and like many other
service members, the jobs and paychecks ceased upon entering active duty.”
Therefore the court GRANTED SUMMARY JUDGMENT for Donahou holding

DEP is NOT “active duty”

Repossession of the vehicle without a court order was in violation of the SCRA
National Guard
Full-time National Guard Duty:

training or other duty as a member of the National
Guard for which the member receives, or is entitled to
receive, pay from the United States.
This Includes:


when called to active duty
when called by the President or the Secretary of
Defense to active duty for more than thirty
consecutive days in connection with a national
emergency declared by the President.
Commissioned Officers of the
Public Health Service or the
National Oceanic and
Atmospheric Administration
Military Service Includes:


when on active service
when the servicemember is absent from duty
due to sickness, wounds, leave or other lawful
purposes.
Servicemebers Are Aware of
Their Rights
The Secretary of Defense is charged with
making sure servicemembers and their
dependents are aware of the provisions and
protections of the Act
The DoD has prepared a short informational
summary as well as brochures and training
materials.
HUD in consultation with the DoD has created a
military version of the Homeownership
Counseling Notice for servicememebers
Applicable Provisions of the
Act
The 6% Lending Rule
Termination of Leases
Evictions
Installment Contracts
Mortgage Foreclosures
Protection from Default Judgments
Stays on Litigation
Statutes of Limitations
The 6% Lending Rule
The SCRA limits to six percent the interest
that can be charged on any obligation
incurred prior to military service
A servicemember entering active duty has
the right to have interest on debts reduced
to six percent
Process:
The servicemember must notify the
creditor in writing
provide a copy of his or her orders
request the reduction during the period
of the military service or within 180
days thereafter
The “Materially Affects”
Exception
A servicemember is NOT required to show
that their active duty status affects their
ability to pay
A creditor MAY seek relief from the interest-rate
cap by showing a court the servicemember's
status does not materially affect his or her ability
to pay the contractual interest rate

For example, high school and college students who
join the military directly out of school and receive a
regular paycheck for the first time will often be unable
to prove that their military service materially affects
their ability to pay the contractual interest rate
Creditor’s Obligations
Upon receipt the creditor must:
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reduce the interest rate to six percent
forgive interest in excess of six percent
payments are reduced by the amount of interest forgiven
NOTE: these reductions apply from the date the servicemember ENTERED
ACTIVE DUTY (not the date the notice is received)
Interest includes:
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service charges
renewal charges
fees, or
any other charges (except bona fide insurance) with respect to an obligation or
liability
Simply extending the loan or deferring the interest will not comply
with the Act
The 2008 Housing and
Economic Recovery Act
Added provisions to the SCRA requiring the
Secretary of Defense to develop and implement
a program to advise servicemembers returning
from active duty of actions they may take to
prevent or stay foreclosures
Extended the 6% interest rate cap to include the
period of service PLUS ONE YEAR
Expanded the definition of “interest” to include:
service charges, renewal charges, fees, and any
other charges except those for bona fide
insurance
A Note on Creditor’s
Obligations
A creditor must lower the interest rate as required.
See Rodriguez v. American Express*
 In this case Rodriguez had pre-existing loans and he
notified his lenders of his transition to active military
duty
 The lender lowered the interest rate to 6% as of the
date it RECEIVED NOTICE of his active duty.
 The lender then wrote his wife and offered to
restructure the payments and make the interest
reduction retroactive to the date he entered military
service
 Wife did not respond but continued to make payments
at the same rate
*Rodriguez v. Am. Express, CV F 03-5949 AWI LJO, 2006 WL 908613 (E.D. Cal. Apr. 7, 2006)
A Note on Creditor’s
Obligations (cont.)
Lender never made interest rate reduction retroactive to
the date Rodriguez entered military service.
The court held: “Defendant presents no authority that the
obligation of Valley First to retroactively apply the credit
paid between February and March of 2002 is waived by
Plaintiff's non-response to Valley first's offer. Whether or
not Plaintiff's wife accepted Valley First's offer to
restructure the payments, Valley First should have
credited the account with the excess interest paid.”
Termination of Leases
Servicemembers may terminate a lease for property used for the following
purposes:

Residential

Professional
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Business

Agricultural
The Act applies when a servicemember:
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Enters active duty
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Is deployed for 90 days or more
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Receives permanent change of station (PCS) orders (i.e., is transferred to another post)
The termination request must be in writing and include a copy of the orders.
Termination is effective 30 days after the next rental payment is due

Note: there is NO requirement to show the service materially affects the servicemember’s
ability to pay
Automobile Leases
SCRA specifically allows a servicemember to
terminate an automobile lease
A lease can be terminated:

Upon entry onto active duty
(if that period of duty is 190 days or longer)

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Upon receipt of PCS orders from a post in the
continental United States to a post outside of the
continental United States and vice versa
When Deploying individually or with a unit “in support
of a military operation”
(if the deployment is for 180 days or more)
Evictions
A landlord must obtain a court order for eviction
If the servicemember or a dependent:
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Requests a stay,
Shows that the ability to pay the rent has been materially
affected by military service, and
The rent is less than $2,400/month
The court MUST grant a stay
The length of the stay is at the discretion of the court
The court also has the power to adjust the obligation
under the lease to “preserve the interests of all parties”
Installment Contracts
SCRA provides protections for installment
contracts to purchase any real or personal
property, IF:
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The Installment contracts were entered into
BEFORE entering military service, and
The Servicemember’s service MATERIALLY
AFFECTS their ability to make the payments
Rescission, termination or repossession
for breach is NOT allowed absent a court
order
Repossession Cases
Chas. H. Jenkins & Co. v. Lewis, 259 N.C. 86, 130 S.E.2d 49 (1963) (holding the SSCRA
did not apply to a defendant who purchased an automobile and executed a conditional
sales contract as security for payment of part of the purchase price thereon while he was in
the military service)
Twitchell v. Home Owners' Loan Corp., 59 Ariz. 22, 27, 122 P.2d 210 (1942) (interpreting a
similar provision in the mortgage and trust section of the SSCRA, the court held that the
Act “was meant to protect the interests of those who were called to the defense of their
country and who, for that reason, were unable to keep up the payments upon obligations
which they had incurred previous to their being called into service.”)
In Waldron v. Commercial Credit Corp., 5 Va. Cir. 450 (Va.Cir.Ct.1974), the court
interpreted a provision similar to § 532 in the SSCRA's section on waiving rights pursuant
to a written agreement. In that case, the plaintiff purchased a car from a car dealer and
agreed to make a down payment and pay the balance in monthly installments. Id. The car
dealer later assigned the contract and lien to a commercial credit corporation. Id. After the
plaintiff joined the military, the corporation agreed to modify the payment terms. Id. The
plaintiff subsequently defaulted, and the Virginia Circuit Court held that the plaintiff was not
protected by the SSCRA because the “Act expressly provides that the other provisions of
the Act (including §§ 520 and 531 ...) shall not apply to the modification of a contract or to
the repossession and sale of property which is security for an obligation pursuant to a
written agreement of the parties, or their assigns, executed during or after the period of
military service.” Id. at 452.
Whigham v. Chase Auto Fin. Corp., 2:11CV256, 2011 WL 4748178 (E.D. Va. Oct. 5, 2011)
Mortgage Foreclosures
Special protection specific to foreclosures of mortgages and other security
interests
The Act applies to relief sought on any obligation secured by mortgage, deed
of trust or other security device
IF:
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The obligation was entered into and the property was owned by the servicemember or a
dependent prior to military service
and a servicemember's ability to defend has been materially affected by their service
THEN:

any foreclosure action filed during or within 90 days after military service is covered.
Possible relief includes:
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A stay
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An adjustment of the obligations (extending the maturity date, etc.)

Granting foreclosure and extending the period of redemption.
Protection from Default
Judgments
If an individual defendant does not appear in a civil proceeding, the
plaintiff must file an affidavit:
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Stating the military status of the defendant
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The facts supporting that conclusion, or
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That the plaintiff is unable to determine the military status of the defendant
If it appears the defendant is in military service, the court may NOT
enter a final judgment until it appoints an attorney to represent the
defendant
Proceedings are stayed for a minimum of ninety days on the motion of
defendant’s counsel or the court’s own motion if the court determines
that:
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There may be a defense which cannot be presented without the defendant’s
presence or
if counsel has been unable to contact the defendant or otherwise determine if a
meritorious defense exists
Stays on Litigation
A servicemember may file a request to stay civil proceedings of
which he or she has received notice
The court SHALL stay the proceedings for at least 90 days
upon such application if it is received at any stage before final
judgment
The application must contain:

The facts that prevent the appearance of the servicemember (must be
material)

A statement from her or his commanding officer that current military
duty prevents the appearance and that leave is not authorized
Note: the court MUST grant an INITIAL stay of at least 90 days
but:
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
The court has the discretion to grant additional stays
If the court refuses requests for additional stays, an attorney must be
appointed to represent the unrepresented service member.
Effect on Statutes of
Limitations
The SCRA tolls any limitation period for filing suit during a servicemember's military
service
The tolling provision does not include a spouse or dependents

Example: A soldier injured in an automobile collision while on active duty will have two years
after leaving active duty to file suit but if his wife is also injured in the collision, she must file
suit for her own injuries within two years of the collision.
The SCRA's tolling provision applies not only to actions by a servicemember,
but also to causes of action against a servicemember
The SCRA tolling provisions do not require any showing that military service
would or did prejudice a servicemember's ability to prosecute or defend a case

Theoretically a servicemember could bring a 25 year old cause of action

Note: the equitable defense of laches is likely still available
Note: REDEMPTION OF REAL PROPERTY:

A period of military service may not be included in computing any period provided by law for
the redemption of real property sold or forfeited to enforce an obligation, tax, or assessment.
Applicability of SCRA to
Business Entities
At least one court, applying the SSCRA
(predecessor to the SCRA) found the interest
rate protection may also apply to business
loans
In Cathey v. First Republic Bank, 2001 WL
1471747 (WD La 2001), a case involving an
officer who had personally guaranteed a
business loan for an S corporation, a federal
court held that the bank should not have
refused to lower the interest rate to six
percent
Restrictions on Predatory
Lending: The Talent
Amendment
Military Lending Act
Based on concerns of “predatory lending”
DoD issued a report revealing
servicemembers are more likely to be the
targets of what it considered “predatory
lending”

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Because of their age and financial status military personnel are
particularly susceptible to predatory lending
Payday lenders disproportionately locate near military bases
Congress began regulating these loans
and after initial industry backlash, focused
the regulation on the three most
problematic types of loans
The Talent Amendment
The law covers three credit products that the DoD determined pose the
highest risk of predatory lending:
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Payday Loans: closed-end credit with a term of 91 days or less in which the
amount financed does not exceed $2,000 and the covered borrower receives
funds from and incurs interest and/or is charged a fee by a creditor.
Contemporaneously with the loan, the borrower either provides a check or other
payment instrument to the creditor who agrees with the covered borrower not to
deposit or present the check or payment instrument for more than one day, or
authorizes the creditor to initiate a debit or debits to the covered borrower's
deposit account (by electronic fund transfer or remotely created check)
Vehicle Title Loans: closed-end credit with a term of 181 days or less that is
secured by the title to a motor vehicle owned by a covered borrower, other than a
purchase money transaction
Tax Refund Anticipation Loans: closed-end credit in which the covered borrower
expressly grants the creditor the right to receive all or part of the borrower's
income tax refund or agrees to repay the loan with the proceeds of the
borrower's refund
Unless a creditor's product falls within one of these three specific definitions,
the Talent Amendment does not apply
The Final Regulation
Only applies to the three types of defined
loans
Applied to any institution making the defined
loans, including banks
Has a unique definition of Annual Percentage
Rate called the Military Annual Percentage
Rate (MAPR) of 36% which includes fees that
would not normally be considered interest
Has additional disclosure requirements
Also covers dependents of servicemembers
The Final Regulation:
MAPR
MAPR = 36%
Calculated just like closed end APR, but includes fees not
normally calculated in APR including:
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Interest, fees, credit service charges, credit renewal charges
Credit insurance premiums including charges for single premium credit
insurance, and fees for debt cancellation or debt suspension
agreements
Fees for credit related ancillary products sold in connection with and
either at or before consummation of the credit transaction.
MAPR does not include fees or charges for:
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unanticipated late payments, default, delinquency, or for taxes or fees
taxes or fees prescribed by law and paid to a public official for
determining the existence of, or for perfecting releasing or satisfying a
security interest
any tax or fee for recording the instrument securing the debt
tax return preparation fees associated with a tax refund anticipation loan
whether or not the fees are deducted from the loan proceeds.
The Final Regulation: Additional
Disclosure Requirements
Two types of borrower disclosures:
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covered borrower identification statement
mandatory loan disclosure
The borrower identification statement must be signed by each
borrower indicating whether he or she is a covered borrower
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Provides “safe harbor” to a lender
Note: if the lender has other information (like a pay stub) indicating they are dealing
with a covered borrower the safe harbor is not applicable
The mandatory loan disclosure includes:
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
the MAPR
a description of the payment obligation of the loan
a statement discussing the rights of, and services available to, covered military
persons.
Note: The mandatory loan disclosure must be given in writing to be
retained by the borrower, AND ORALLY

For an Internet or mail transaction the oral requirement is satisfied by providing
borrower with a 1-800 number which gives the oral disclosure when called
Disclosures under Regulation Z will likely be different, and must also
be given if necessary
State Laws / State Action
Only 8 States have not Extended Any
SCRA Protection to State
Servicemembers
Delaware
Massachusetts
Mississippi
Missouri
Nebraska
Nevada
South Carolina
Tennessee
States Applying All or Nearly all SCRA
Protection to State Servicemembers
Alabama

(after 30 days of active duty)
Arkansas

(when called to active duty by the governor)
Arizona

(when called to active duty, including training, camp or field duty, emergency mobilization, or volunteer duty during peacetime)
Connecticut

(when called to active state duty by the governor)
Idaho

(after 30 days of active duty)
Kansas

(adopted SCRA in its entirety)
Indiana

(after 30 days of active duty)
Kentucky

(after 30 days of active duty)
Maryland

(after 14 days of active duty)
Minnesota

(when ordered to active service)
New Hampshire

(after 30 days of active duty)
New Mexico
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(after 30 consecutive state duty days, or any federally funded or homeland security duty)
North Dakota

(after 30 days of active duty)
Ohio

(when performing training or duty)
Oklahoma
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(when ordered to state active duty or full-time national guard duty)
Rhode Island

(after 90 days of state active duty)
South Dakota

(when called to state active duty by governor or president)
Texas

(when called to active duty by the governor)
Virginia

(after 30 days of active duty)
West Virginia

(after 30 days of active duty)
Wyoming

(after 30 days of active duty)
State Laws/ State Action
All other states have enacted variations on, or parts of, the SCRA as it applies to
State Servicemembers
Some of the more interesting state modifications include:
Extension of the Interest Rate Reduction to Spouses/ Dependents
(SCRA only protects dependents and spouses when the servicemember is a co-obligor)

Arkansas
Illinois
Iowa
Louisiana
Wisconsin

Extension of the Default Judgment Protections to Spouses/ Dependents
Arkansas
Washington
Wisconsin

Prohibition on discriminatory Lending Practices to Servicemembers
Arkansas
Hawaii
New York
Utah
Wisconsin
State Laws/ State Action
Some States have enacted additional protections not
contemplated by the SCRA
 Restrictions on Service of Process
Arkansas
Hawaii
Iowa
Minnesota
Mississippi
Nebraska
New Mexico
Pennsylvania
Tennessee

Service as a Grounds for Continuance
Georgia
South Carolina
Virginia
California has Extensively Modified
the Statute in Regards to State
Servicememembers
California provided more extensive relief to its National Guard members
called to active duty in Iraq and Afghanistan by allowing in particular:

Deferment of payments due on mortgages, credit cards, and certain other
obligations defined in the legislation
Deferred mortgage payments are not due until sale of the property or maturity of the indebtedness, or
further encumbrance of the collateral property
Tax and insurance escrow payments must be maintained
The deferral period is the lesser of 180 days or the extent of active duty plus sixty calendar days. The
maturity of the obligation is extended by the number of months payment is deferred




Penalties, interest on the deferred principal and interest, and foreclosure actions
are stayed during the deferral period.
To obtain this relief, the reservist must request the deferment in writing
The creditor can require proof that the reservist's employer does not provide
continuing income during the period of active military duty, that, when added to
military pay, amounts to more than ninety percent of the income earned prior to
active duty
The reservist or the reservist's dependent can request this letter from the
employer which is required to produce it within five working days of the request
Additional Discrimination Protection:

California also has additional prohibitions against a lender using status as a
servicemember as a basis for discrimination in lending (approval, interest rates,
etc.)
Questions?