Summary of the Servicemembers Civil Relief Act
February 13, 2017
Being that it has been a slow week for compliance news and that the NCUA highlighted in Letter to Credit Unions 17-CU-01 that they will be looking at consumer compliance with the MLA and SCRA, this week we will provide a summary of the SCRA requirements that can be found in InfoSight.
The Servicemembers Civil Relief Act (SCRA or Act) restates, clarifies, and revises the Soldiers’ and Sailors’ Civil Relief Act of 1940 in an effort to help ease the economic and legal burdens on military personnel called to active duty status.
The Act provides protection to individuals who are on full-time active military service of the United States. Active duty personnel includes individuals appointed, enlisted, or inducted into regular branches of the U.S. military service, that is the Army, Air Force, Navy, Marines, and Coast Guard, as well as personnel mobilized in National Guard and Reserve Units and certain public health officers. Active duty also includes full-time training such as boot camp.
Coverage under the SCRA begins when the service member receives his or her orders to report for active duty. Generally, it ends with the date of termination from active duty or upon death while in active service. It also includes any time-period during which a person in military service is absent from duty because of sickness, wounds, leave, or other lawful cause. Some of the protections of the Act continue beyond the period of active duty for a short time.
Under the SCRA (as was the case under the SSCRA), while a service member is on active duty, a credit union may charge no more than six percent (6%) simple interest on loan balances incurred prior to active duty status. The SCRA clarifies this requirement by extending that limitation to the service member and his or her spouse jointly. As many credit unions learned during the Desert Shield/Desert Storm call-up of reservists in 1990/91, this protection causes an immediate compliance responsibility of uncertain duration. The SCRA also clarifies that any interest in excess of 6% that otherwise would have been incurred (while on active duty) is forgiven. The SCRA also extends protections to co-debtors who may also be obligated on loans with the active duty servicemember.
The SCRA severely restricts the ability of credit unions to obtain default judgments against service members whose ability to defend themselves in court has been prejudiced by active duty status.
In addition, the SCRA further clarifies language to:
- Provide service members with automatic 90-day stays in civil proceedings;
- Allow the possibility of service members reopening default judgments rendered against them when the failure to appear was caused by military service;
- Allow service members deploying to new duty stations to terminate automobile leases without having to pay any early termination penalties (the 1940 law covered leases on premises and “all other leases” which courts would interpret to include auto leases, so this is a clarification of language rather than a new requirement);
- Provide a service member who receives permanent change of station orders, or who is deployed to a new location for 90 days or more, the right to terminate a housing lease; and
- Prevent personal property (such as automobiles) from being repossessed without a specific court order in order to take into account a service member’s military duty status.
The Act does not relieve the obligations of an active duty service member to repay his or her debts. After the individual leaves the military, the obligation is once again fully enforceable according to its original terms.
National Credit Union Administration (NCUA)
The NCUA published an advanced notice of proposed rulemaking regarding Alternative Capital. Comments are due on or before May 9, 2017.
Consumer Financial Protection Bureau (CFPB)
The CFPB released its monthly complaint snapshot. The current issue highlights mortgage complaints, a national compliant overview, and complaints from consumers in Tennessee.
The CFPB and New York Attorney General announced a lawsuit against RD Legal for allegedly scamming individuals waiting for monetary payouts from settlements due to illness and/or injury
Federal Reserve Board (FRB)
The FRB released its January 2017 Senior Loan Officer Opinion Survey.
The FRB released the December 2016 Consumer Credit G-19 Report.
The FRB announced updates to its FRB/US model packages. The updates include re-estimated equations and error corrections.
Federal Trade Commission (FTC)
The FTC delivered an annual summary of its enforcement activities regarding the Equal Credit Opportunity Act (ECOA).
NACHA issued the results of a recent survey detailing the success of the Same Day ACH implementation.
Federal Deposit Insurance Corporation (FDIC)
The FDIC announced the release of the economic scenarios that will be used by certain financial institutions for stress tests required under the Dodd-Frank Act. The economic scenarios are classified as baseline, adverse, and severely adverse and include key variables such as unemployment, exchange rates, prices, income, and interest rates.
Office of Foreign Assets Control (OFAC)
OFAC has updated the SDN list as of February 3, 2017. The last update prior to this was January 17, 2017.
OFAC issued an FAQ that addresses the requirements for the blocking of property of certain persons engaging in significant malicious cyber-enabled activities.
Compliance Question of the Week
Under the Servicemember’s Civil Relief Act (SRCA), after reducing the interest rate to 6 percent, does the credit union have to lower the amount of the payments or can it just lower the number of payments?
The credit union must lower the amount of the payments. The law states that the amount of any periodic payment due from a servicemember under the terms of the instrument that created an obligation for liability must be reduced by the amount of interest forgiven that is allocable to the period for which the payment is made. The reasoning for this is because if the credit union only reduced the number of payments and not the payment amount, the servicemember would not receive the benefit of the 6% during active duty. Therefore, a credit union will not be in compliance with the Act if it reduces the number of payments rather than reducing the payment amount.