7-Point SCRA Requirements for Lenders

Lenders can’t comply with the Servicemembers Civil Relief Act if they aren’t well-versed in its many sections. Lenders who don’t retain legal advice to help them meet the many and varied requirements would do well to appoint a staff member or a team to ensure their institution is up to speed. This SCRA Checklist for Lenders is an excellent place to begin.

Formerly known as the Sailors Civil Relief Act, the Servicemembers Civil Relief Act (SCRA) is a federal law that requires lenders to adhere to the rules of the act or risk lawsuits filed by the Department of Justice, the Consumer Finance Protection Bureau, state agencies, and even private citizens, all of which can result in bad publicity, fines, and more. We offer our 7-point SCRA checklist for lenders to understand the rules better.

1. Interest Rate

If a borrower is eligible for SCRA protection, lenders cannot charge rates above 6 percent for a mortgage, auto loan, personal loan, student loan, credit card balance, or any other type of loan. The special rate is good for the period the servicemember is on active duty. For mortgages, the period extends a year after the servicemember’s military service period ends.

Lenders must forgive, not defer, the difference between the 6 percent and the previous agreed-upon rate. For the purpose of the SCRA, interest includes service charges, renewal charges, fees, and any other charges except insurance.

However, to get the 6 percent rate, the service member must request protection and send in a copy of their orders. This is not the case with most protections, so don’t think the onus is always on the servicemember. This applies to all service member on active duty service, including Air Force, Marine Corps and the like.

Further, there has been a groundswell of opinion that the lender must take the initiative to see if a person is eligible for SCRA reductions. Recent settlement agreements between the government and some lenders have resulted in the lenders affirmatively reviewing their borrower roster, determining if any borrowers are SCRA-eligible, and then contacting those borrowers.

2. Repossessions

Lenders cannot repossess vehicles due to nonpayment of installments when a servicemember can’t pay due to their active-duty status. However, servicemembers must have made at least one payment to receive this protection before going on active duty.

Servicemembers do not have to request this protection—it is automatic. Therefore, lenders must check a borrower’s active duty status before beginning any repossession actions.

Moreover, reservists are entitled to this protection when they receive call-up orders, not when they begin active duty. It should be highlighted that this applies to service members even if they’re not in the continental United States.

3. Foreclosures

Servicemembers are protected against foreclosure proceedings during their active duty and a year after it ends. This counts not only for mortgages but for any obligation in which they use property as collateral. However, this coverage only applies if the servicemembers enter the obligation before they report for active duty.

Servicemembers do not have to request this protection, so again, lenders must check active-duty status before beginning foreclosures to avoid violating the SCRA. The SCRA Checklist is essential to ensure compliance.

4. Default Judgments

Lenders should not attempt to obtain default judgments against borrowers without a military status affidavit proving that the borrower is not active duty. Due to recent banking scandals, courts are now looking closely at such cases, so it’s critical to do due diligence.

For a default judgment to move forward against servicemembers on active duty, the court must appoint an attorney on their behalf. Attorneys may not enter into any agreements for servicemembers who cannot be reached. An interesting twist is that although the court may appoint an attorney, the SCRA has no funding for this. If the state law does not provide payment and no pro-bono attorney is available, it may be in the lender’s best interests to agree to pay for the attorney to move the case forward.

5. Judgments and Garnishments

Servicemembers are not automatically protected from judgments and garnishments; they must show that their service materially affects their ability to pay. If servicemembers can show this, which is not usually a high bar, courts may stay or vacate judgments against them.

Servicemembers and their dependents cannot be evicted while on active duty, but they would have to go to court to ask for those protections. Some high-rent properties are excluded; in those cases, courts may lower the rent obligation during active duty.

Lenders cannot retaliate against borrowers who inform them of their right to SCRA protections. They can also not refuse to extend credit, sell insurance, change the credit agreement terms, or unfairly mar servicemembers’ credit reports.

Credit reports are a somewhat gray area. Some courts allow accurate reporting, but if there is a discrepancy about what is correct and the courts rule against the lender, the courts may impose fines and restitution. The safest course of action for lenders is to not report at all on servicemembers on active duty. In fact, lenders cannot even report that a borrower has SCRA protections.

Lenders should also note that when determining the statute of limitations on specific actions, they should extend the period by the time the servicemember is on active duty.

6. Deferral of Payments

To defer payments to lenders, servicemembers must apply while on active duty or within 180 days after they leave active duty and show that their service materially affected their ability to pay.

7. SCRA Waivers

Lenders can obtain waivers, but the rules are particular, and lenders must follow them to the letter. Waivers must be:

• Signed during the servicemembers’ active service and not before they go into active service
• Signed after receipt of the notice to report (as opposed to the date the person reports for duty)
• Written in 12-point type or larger
• Separate from the contract (not attached)

These rules apply to leases, foreclosures, and repossessions. A separate article focusing on waivers is available.

Lenders dealing with borrowers in default need a quick, reliable method of determining the borrowers’ active-duty status. The best and easiest way to do this is to use the Servicemembers Civil Relief Act Centralized Verification Service. We can provide you with the documentation you need within 24 hours, including notarized affidavits and affidavits of due diligence, and we offer special rates for batch processing. Get all the answers you need overnight.

FAQs

What is the interest rate cap set by SCRA?

The SCRA interest rate cap is a maximum of 6% per annum. This interest rate reduction applies to the service member’s active duty military service period until a year after their active duty period.

What is the maximum interest rate for active duty service members?

Military members are entitled to a maximum interest rate of 6% annually if they’re on active duty military service.

What is the interest rate cap in PA SCRA?

The Servicemembers Civil Relief Act (SCRA) permits service members to receive a maximum annual interest rate reduction of 6%.

What is the SCRA for the military?

The SCRA is a federal law granting legal and financial protections to people who are on active duty military service.

What is the 6% interest rate cap for the military?

This is the interest rate reduction mandated by the SCRA. This covers different types of debt incurred, including mortgage loans and credit card debt.

What obligations qualify for SCRA interest rate relief?

SCRA interest rate relief benefit applies to various types of debt, including credit card debts, vehicle title loans, business obligations, some student loans, and other debts, as well as fees, service charges, and renewal fees.

What does not qualify for SCRA interest rate relief?

The SCRA does not cover new loans or debt incurred upon entering active duty military service, and this protection does not also apply to income taxes.