What are the SCRA expectations for lenders regarding the Servicemembers Civil Relief Act?
The interpretation of this longtime federal law has been that it is the responsibility of servicemembers to notify lenders when they believe they are due protections.
But a ruling by a Massachusetts court some years ago has changed the way that law has been enforced.
How Do SCRA Provisions Affect Lenders?
The SCRA offers servicemembers on active duty certain protections. Some of these include protection from foreclosure and repossession without a court order. The law’s intent is to relieve servicemembers of needless worry while they are deployed serving their country.
Further, the SCRA calls for an interest rate cap of 6 percent. This applies to all types of loans, including home and car loans, student loans, credit card loans and personal loans.
Although the protections sometimes extend for a period after the period of active duty concludes, if the servicemember takes out the loan after going on active duty, the SCRA protections do not apply.
The length of the extension period after active duty has changed over time. It can sometimes be as long as a full year, so it is important to stay current with these changes to avoid SCRA violations.
Expectations for Lenders in Massachusetts
The SCRA is country-wide, but, Massachusetts, for one, has added even more protections.
The court’s concern was that even when the servicemember sent proper notice to the bank, evidence showed that the financial institutions’ subsidiaries and servicers often claimed that they had not received notifications.
This argument formed part of the basis of allegations against BAC Home Loans Servicing LP and Saxon Mortgage Services, Inc., a subsidiary of Morgan Stanley and Bank of America. BAC settled with the Department of Justice for $22 million in 2011, after having foreclosed on servicemembers without court orders. Saxon paid $2.35 million for similar violations. The money went to the aggrieved servicemembers.
The Massachusetts statute shifts the burden from servicemembers to lenders. No longer do servicemembers have to inform lenders of their status; lenders must endeavor to get this information before taking legal action.
Thus, lenders must take additional due diligence during active duty verification and prior to execution of a military affidavit to determine whether the SCRA covers a particular individual.
Expectations for Lenders Across the U.S.
Although not all 50 states have similar laws on the books, case law has been on the side of servicemembers. Courts’ expectations for lenders are now clear: They must establish protocols for checking clients’ military status prior to taking legal action, or risk facing the DOJ’s wrath.
It’s important as a banker or financial services professional to understand SCRA expectations for lenders. Set up a process whereby your institution performs regular, thorough checks. Rely on the Servicemembers Civil Relief Act Centralized Verification Service to provide your military status verifications. We help you stay on the right side of the law.