The Servicemembers Civil Relief Act
A Primer for Credit Union Executives
Stephen A.J. Eisenberg
On December 19, 2003, the Soldiers' and Sailors' Civil
Relief Act of 1940 (SCRA) was replaced by a revised and
updated law, the Servicemembers Civil Relief Act (SCRA),
that has extended the civil law protections that members of
the armed forces have provided since 1918.
By its terms,
the law expressly sets forth its two objectives.
50 U.S.C. Appendix 502 articulates the proposition that:
The purposes of this Act are(1) to provide for , strengthen, and expedite the
national defense through protection extended by this
Act to servicemembers of the United States to enable
such persons to devote their entire energy to the
defense needs of the Nations; and
(2) to provide for the temporary suspension of
judicial
and
administrative
proceedings
and
transactions that may adversely affect the civil
rights
of
servivcemembers
during
their
military
service.
BACKGROUND AND SCOPE OF THIS MONOGRAPH
The intent of this monograph is to provide an overview of
the SCRA. Specifically, it is designed to orient and focus
credit union executives on the SCRA provisions likely to
directly impact their daily operations.
It is not the purpose of this memorandum to precisely
describe all the rights, entitlements, obligations and
duties created by the SCRA provisions discussed. Moreover,
there is no intent to describe the nuances, ambiguities, or
possible issues which may arise out of the application of
the law.
Instead, the simple purpose of this discourse is to draw
the attention of credit union officials to the existence of
the law, to spotlight its broad ranging effect, and to
trigger the discrete interest of such managers in the SCRA
and its relationship to organizational operations.
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OVERVIEW
The SCRA is divided into seven parts, each being
characterized as an "article." Each article deals with a
single, broad subject area. The elements are thereafter
subdivided into individual sections which address specific
concerns. This monograph will briefly describe the contents
of 17 sections that affect credit unions directly.
Importantly, it should be noted that Title IV of the SCRA
deals with issues pertaining to insurance. Although no
review of its sections has been undertaken, depending on
the activities of a particular credit union or a credit
union
service
organization,
the
coverage
of
these
provisions may be of equal importance to an institution.
This monograph should not be viewed as a substitute for
reading and studying the SCRA itself. In this connection,
it is critical to recognize that there are no regulations
promulgated by any governmental entity which explain or
amplify the SCRA.
SCRA ENVIRONMENTAL BACKGROUND
Why has the SCRA, a law which has been in effect for well
approaching a century, become even more important and
critical to understand? The answer lies in the change from
the even-keeled manner in which America's armed forces were
maintained and called upon since the conclusion of
involvement in Vietnam. During this period, the United
States relied on a volunteer force that periodically was
called to combat services.
Starting with military events of 1990 in Kuwait that
brought about the sudden deployment and mobilization of
tens of thousands of individuals, including members of the
reserve components, and continuing after September 11,
2001, the operational dynamic of America’s military
warriors has made their ability to deal with their civil
legal matters extraordinarily difficult.
It is this latter group of individuals, servicemembers with
an established lifestyle based on civilian income levels
that are subject to being sharply diminished by military
service, who are suddenly being brought within the law's
protections. And they are claiming it.
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Notably, the underlying rights which the SCRA protects have
been recognized by the federal government as far back as
the Civil War. In that era, jurisdictions on both sides of
the conflict passed legislation which absolutely prohibited
the institution of civil litigation against members of the
respective armed forces.
The precursor to the SCRA was enacted by Congress in 1918.
Thereafter, in 1940, the law was replaced with legislation,
which was substantially similar. That statute, with the
exception of minor modification, has remained a viable law
until 2003.
Whether an individual enters active duty with the armed
forces voluntarily or through conscription, the law seeks
to provide individuals with peace of mind in two respects.
First,
the
statute
neutralizes
the
significant
disadvantages a person is faced with in seeking to defend a
civil lawsuit during the period of such military service.
It recognizes that individuals serving in the armed forces
may be stationed anywhere in the world, as well as be
subject to the vicissitudes of a disciplined and altered
lifestyle, including limitations on when and where they can
travel.
Second, the legislation serves to place individuals in a
status quo position with respect to their liabilities or
obligations during service in the armed forces. In this
way, the statute prevents service members from being
adversely affected by the change from civilian to military
life.
The law's framers recognized that individuals may have
incurred debts in accordance with a degree of income
commensurate with civilian endeavors, and that their income
may have decreased as a function of military service. In
short, the legislation attempts to ensure that individuals
serving their nation will do so with the assurance that
such service will not be to their financial detriment. It
seeks to balance national interests with those of debtors
and creditors.
The protections afforded by the SCRA, up until military
actions of 1990 in the Middle East, have minimally affected
creditors. The reason is simple.
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Two out of three classes of borrowers to whom the law
potentially applied had not triggered the application of
the SCRA's provisions in their favor to any significant
degree. For example, younger persons first coming into the
armed forces, regardless of whether they were enlisted
members or officers, did not have the extensive monetary
obligations of older individuals. Generally, they had a
limited number of obligations which are protected under the
SCRA.
On the other side of the spectrum were those servicemembers
who had been in military service for a period of time and
had acquired pecuniary obligations while in service. These
liabilities for the most part do not have the protection of
the SCRA.
The circumstances of the third group, reservists and
members of the national guard, squarely represent the most
critical population the SCRA aims to resolve.
Individuals
who fall into the latter category have established civilian
lifestyles and standards of living while at the same time
have maintained a military status.
Having been called to active duty, the lifestyle they have
created is compromised by an immediate and marked change in
income. Invariably, entering active military duty involves
a precipitous drop in earning capability which in turn
precludes the newly activated servicemember from meeting
previous obligations.
If a warrior's debts are not satisfied, reservists would be
exposed to legal action for failure to pay their debts.
Hence, the SCRA is designed to serve as the platform
enabling individuals to ‘freeze’ their legal status until
they return to the circumstance where they are able to meet
their pecuniary responsibilities once again.
A singular equitable principle runs throughout the SCRA. It
is the concept of whether individuals who seek protection
of the statute have had their rights or interests
"materially affected" as a result of military service.
Throughout the provisions of the law, judicial decisions
may be made only after an evaluation of this issue. Indeed,
this “fairness” standard is attendant to questions of both
whether a civil proceeding against a servicemember should
be stayed and if an individual in the armed forces should
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be entitled to limit the execution of any judgment on such
obligations or liabilities.
STATE LAW
Importantly, the Federal Credit Union Act (FCA) does not
preempt state laws related to servicemember protections.
Notwithstanding the implications of the SCRA, it is
critical that credit union managers consider whether there
is a complementary state law that also may afford
servicemembers civil legal protections.
Various states have legislated additional protections for
servicemember residents who have been called to active
duty. And these statutes provide rights and benefits that
may well be more extensive then those provided by the SCRA.
SCRA PROVISIONS
As indicated, the key purpose of this discourse is to
direct the attention of credit union officials to key SCRA
sections they are likely to be confronted with requiring
further detailed consideration. Described below are the
section(s) numbers from 50 United States Code Appendix, the
corresponding title of the section, and a brief synopsis of
the content of the provision.
Critically, the only authorities available for obtaining a
further understanding of the law's meaning are judicial
decisions and professional articles dealing with its
provisions. Accordingly, because of the limited number of
resources available for applying and interpreting the law,
as well as their professional nature, any questions which
arise should be referred to legal counsel for consideration
and advice.
511. Definitions. This provision establishes the basic
terminology which is used throughout the SCRA and the
meaning associated with terms used within the law. It is
very important as it provides, among other concepts, the
exact forms of national service which are considered to be
"military service." Thus, beyond traditionally accepted
notions, are also included service in the Coast Guard and,
in certain situations, service as an officer of the Public
Health Service.
The section provides that the law is only applicable to
individuals who are on active service or duty. One court
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has held that reservists not on active duty may not invoke
the protections of the law. The corollary to this is that
reservists called to active duty are entitled to the
protection of the law.
Finally,
the
term
"court"
is
broadly
defined.
specifically means any court, federal or state,
irrespective of the fact that it is one of record.
It
and
513. Protection of Persons Secondarily Liable. This section
permits courts to protect the interests of individuals who
may have liability on a debt to the same extent as one who
is entitled to the protection of the SCRA. In particular, a
court may stay or postpone a proceeding or vacate a
judgment for a surety just as it would for the principal
debtor in military service.
It should be noted that courts have used various tests to
determine whether to grant relief pursuant to this section
to
individuals
who
are
secondarily
liable
on
a
servicemember's debt. Additionally, it is appropriate to
observe that there exists no requirement for a judge to
act, but the law defers to judicial discretion.
514. Extension of Protections to Citizens Serving With
Allied Forces. Persons who serve with allies of the United
States in the "prosecution of a war or military action" in
which the United States is involved and are citizens of the
United States are entitled to the protections of the SCRA.
In this regard, it should be noted that there is one key
phrase which requires close scrutiny before the section is
applicable.
It is "in the prosecution of any war or
military action."
516. Extension of Rights and Protections to Reserves
Ordered to Report for Military Service and to Persons
Ordered to Report for Induction. This section extends the
protection of the SCRA to individuals who are “ordered to
report for induction under the Military Selective Service
Act”, i.e. drafted--not a factor under the present military
service environment of the United States--or to "a member
of a reserve component who is ordered to report for
military service...."
Hence, a person may seek the law's
protection in a limited set of circumstances of the law
prior to actually coming on active duty.
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517. Waiver of Rights Pursuant to Written Agreement. By
this section, Congress expressly establishes the basis for
individuals who have the protection of the SCRA to enter
into the modification or termination of agreements thereby
waiving their rights. Further, the provision permits
debtors in military service to authorize foreclosure,
repossession or sale of property.
For any transaction undertaken pursuant to this section to
be effective, various critical elements of the law must be
fulfilled.
Thus, any such agreement must be in writing;
the action has to be taken during or after the "period of
military service"; and, there must be a prominent display
of the contractual rights waiver “in at least 12 point
type.”
518. Exercise of Rights Under Act not to Affect Certain
Future Financial Transactions. The law clearly prohibits a
creditor from taking an adverse action against a debtor who
applies under the terms of the SCRA for a stay,
postponement or suspension in the payment of any obligation
or liability by itself and without regard to any other
consideration. In short, this is an anti-retaliation
protection.
The section specifically identifies a number of potential
actions which are deemed to be improper. These include:
determining that the person cannot pay his or her debts;
with respect to a transaction, a denial or revocation of
credit, changing the terms of an existing relationship, or
refusing to grant credit on substantially the same grounds
or in the amounts requested by the applicant; and issuing
an adverse credit report.
521.
Protection
of
Servicemembers
Against
Default
Judgments. Before taking a default judgment against an
individual, the SCRA requires that an affidavit be filed
reciting specific facts "stating whether or not the
defendant is in military service and showing necessary
facts to support the affidavit...." A simple statement is
insufficient. It is therefore important to be able to
provide counsel with information to support an individual's
status.
This provision of the law additionally authorizes courts to
appoint counsel for defendants to protect their interests.
It also creates a basis by which a servicemember with a
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meritorious or legal defense may have the court reopen the
judgment which was ordered.
522. Stay Of Proceedings When Servicemember Has Notice.
During the course of an action in which a servicemember is
either a plaintiff or a defendant, a stay in the
proceedings may be granted by the presiding judge. It is
interesting to note that the nature of the underlying
obligation can be one which was incurred before entering
the service or during the period of service.
Before authorizing a stay, it is essential for the judge to
find that the person's “current military duty requirements
materially affect the servicemember's ability to appear”
and thus prosecute or defend the action. One further
observation is appropriate. The stay may be considered on
the motion of the court itself or by, or on behalf of, the
person in military service.
523. Fines and Penalties Under Contracts. The ability of a
creditor to assess fines and penalties pursuant to an
agreement is limited by this section in two ways.
First, if an action for compliance with a contract has been
stayed by a court, no fine or penalty may be imposed.
Second, if an individual's military service materially
affected that person's capability to meet his or her legal
obligations, a court may relieve the servicemember of the
sanction.
This section would clearly implicate the imposition of late
charges. Moreover, it should be considered that the term
"penalty" is not defined and may well be broadly construed
to perhaps include calling a loan fully due and payable.
524.
Stay
or
Vacation
of
Execution
of
Judgments,
Attachments,
and
Garnishments.
Although
this
section
permits the imposition of a stay, the judicial action
contemplated by the provision is not related to the conduct
of a previous judicial proceeding itself but relates to the
result of it, i.e., the judgment or order of the court. As
with other sections of the SCRA, a judicial order is based
on a finding that "the ability of the defendant to comply
with the judgment or order entered or sought is not
materially affected by reason of his military service."
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527. Maximum Rate of Interest on Debts Incurred Before
Military Service. An individual who is in military service
and has undertaken obligations before entering such service
is relieved from paying interest at a rate greater than 6
percent per year. The relief extends only during the period
while the person is on active duty in the military service.
The term "interest" is defined to "include service charges,
renewal charges, fees, or any other charges...with respect
to an obligation or liability."
Critically, the protection is not automatically extended. A
servicemember must take action to obtain its coverage.
Specifically, the individual must provide the creditor with
written notice and a copy of the military orders calling
her/him to military service.
Similarly, the limitation of a section may also be invoked
by those who are secondarily liable on a debt under the
provisions of the SCRA, 513.
The section does afford a creditor an avenue for relief. A
lender may apply for a judicial order to raise the
statutory interest ceiling based on the fact that the
obligor's military service is not materially affect his or
her ability to meet terms of the contract.
532. Protection Under Installment Contracts for Purchase or
Lease. By its immediate terms, this provision deals with
the situation where an individual makes a deposit or
installment payment on a contract for the purchase of real
or personal property before coming into service and then,
after entering service, does not make a payment or breaches
the relationship in some other way.
The SCRA prevents the person to whom the obligation is due
from affecting the rights of the servicemember, even under
the terms of the contract, except through court action.
Observe that the section also applies to a "lease or
bailment” of such property.
Thus, it could apply in the
case of an auto that contains a purchase option at the
conclusion of the term.
A vendor is only permitted to act after seeking the action
of a court “of competent jurisdiction.”
The law provides
courts acting pursuant to this provision with broad
authority to deal with the issues presented to them. One
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facet of the court's analysis is the question of whether
the military service has impeded the serviceperson's
ability to meet the obligation.
The law also has two additional legal components.
The
first is that there is a criminal penalty associated with
it. That is, a creditor found to have violated the law can
been found guilty of a misdemeanor and sentenced to up to
one year in prison.
Second, the military member has the right to bring a civil
action against the creditor who violates the provision and
seek money damages or other civil relief.
533. Mortgages and Trust Deeds. This provision specifically
deals with the question of nonpayment of mortgage debts and
actions to foreclose on property securing the debts. It is
applicable to situations where the following criteria are
met:
- The mortgage obligation is on property owned by a
servicemember before he or she enters active duty;
- The liability arose before entrance into military
service; and,
- The property is owned by the servicemember at the
time the section is invoked.
No action is permitted to be taken unless accomplished
under a court order. The law directs judges to consider the
ability of the individual to meet his or her obligations in
light of military service and grants broad authority for
judges to fashion relief in such circumstances.
534. Settlement of Stayed Cases Relating to Personal
Property. In situations where a court has ordered a stay in
proceedings to foreclose on property, repossess personal
property, or terminate a purchase agreement, the court may
decide in reviewing the interests of the parties concerned
that it is appropriate to allow the obligee to take the
action it desires.
This being the case, the court is authorized to appoint
three disinterested parties to appraise the property. If
appropriate, upon a monetary payment to the military member
or his or her dependent, the court then may allow the
10
obligee to continue on with the course of action it wishes
to follow.
538. Extension of Benefits to Dependents. Article III of
the SCRA may be applied to benefit the "dependents" of
military members by order of a court. This hinges on a
finding that the individuals seeking relief have been
materially affected in meeting the obligations under
consideration as a result of the military service of the
person upon whom they are dependent.
It should be noted that there is no definition to the term
"dependent." Thus, it does not necessarily mean that there
must be a legal relationship to the party in military
service.
By illustration, an elderly father driving a leased car
with an option to purchase who is "dependent" on a "person
in military service" and who cannot meet payments may come
within the protection of this section.
581. Inappropriate Use of Act. Some individuals may attempt
to avail themselves of the extraordinary protections
afforded by the SCRA by transferring interests or property
to persons who are protected by the law or will be
protected by it. This section enables a court to consider
this situation and preclude a person who would not
otherwise have had a right to the protection of the law
from obtaining protection under it.
591. Anticipatory Relief. This SCRA provision permits a
servicemember to seek the protection of a court before any
action is taken by the obligee or, in fact, before the
servicemember has breached any obligation. Subject to a
finding that the servicemember has not been materially
affected by military service, the court is invested with
extensive powers, including the authority to order stays of
enforcement of the obligations as well as to establish
repayment plans.
597a. Critically, this SCRA section provides a civil right
of action to anyone who charges that another violated the
SCRA, which affected the person.
The section offers both
an equitable remedy and a broadly stated right to
“...recover
all
other
appropriate
relief,
including
monetary damages”, which could include both compensatory
and punitive damages for violating the law.
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Stephen A.J. Eisenberg is EVP/general counsel for
billion Pentagon Federal Credit Union, Alexandria, Va.
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$15