V. Lending — Servicemembers Civil Relief Act

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Servicemembers C ivil Relief A ct of 2003

Introduction

The Servicemembers Civil Relief Act of 2003 (SCRA) was

signed into law on December 19, 2003, amending and

replacing the Soldiers’ and Sailors’ Civil Relief Act of 1940,

and is codified at 50 U.S.C. 3901 et seq.

It was further

amended December 10, 2004, by the Veterans Benefits

Improvement Act of 2004. The law protects members of the

Army, Navy, Air Force, M arine Corps and Coast Guard,

including members of the National Guard, as they enter

military service (active duty

), as well as commissioned

officers of the Public Health Service and the National Oceanic

and Atmospheric Administration engaged in active service.

Some of the benefits accorded servicemembers by the SCRA

also extend to servicemembers’ spouses, dependents, and other

persons subject to the obligations of servicemembers.

Periodically , various laws have extended the availability of

certain protections. M ajor relief provisions of the SCRA

include:

Maximum Rate of Interest on Loans, Including

Mortgages

Upon receiving a written notice and proof of military service

through (a) written notice and a copy of the servicemember's

military orders or any other appropriate indicator of military

service, including a certified letter from a commanding officer

or (b) independent verification by the creditor, creditors must,

for the duration of the servicemember’s military service,

reduce the interest

rate on debts

incurred by the

servicemember, or a servicemember and spouse jointly, before

entry into military service to no more than 6 percent per year.

(This applies to the individual servicemember’s debt or joint

debt with a spouse.)

The SCRA was previously codified and cited as 50 U.S.C. App. 501 et seq.

In the case of servicemembers who are members of the Army, Navy,

Marine Corps, or Coast Guard, active duty is defined as “ full-time duty in

the active military service of the United States. Such term includes full-

time training duty, annual training duty, and attendance, while in the active

military service, at a school designated as a service school by law or by the

Secretary of the military department concerned. Such term does not include

full-time National Guard duty.” 10 U.S.C. § 101(d). Note the term “ military

service” under the SCRA also includes National Guard members under a

call of duty authorized by the President or the Secretary of Defense for

more than 30 consecutive days and servicemembers who are commissioned

officers of the Public Health Service and the National Oceanic and

Atmospheric Administration engaged in “active service.” 50 U.S.C. §

3911(2).

Section 207 (b)(1) of SCRA was amended by the John S. McCain National

Defense Authorization Act for Fiscal Year 2019 signed into law on August

13, 2018, to expand the documentation options for proof of military service

status beyond just military orders.

Creditors shall not condition the granting of benefits upon the

use of a specific form or require that a written notice explicitly

request benefits. Creditors shall accept cop ies of borrowers'

military orders as written notice of eligibility for reduced

interest rates pursuant to the SCRA via email facsimile, mail,

or overnight delivery. Creditors shall also accept borrowers'

requests for any form of military deferment or forbearance as

written notice of eligibility for reduced interest rates pursuant

to the SCRA.

Upon receipt of notice, creditors must retroactively reduce the

interest rate on servicemember’s debts as of the date on which

the servicemember was called to military service, in the case

of a reservist or inductee, the day on which the servicemember

received his or her orders.

Creditors must maintain the

interest rate reduction for the duration of the servicemember’s

period of military service.

Additionally, in the case of a

mortgage, trust deed, or other security in the nature of a

mortgage, creditors must extend this interest rate reduction for

one year after the end of the servicemember’s military

service.

Creditors who reduce the interest rate on the obligations of a

servicemember must forgive interest in excess of 6 percent,

and recalculate the amortization of the remaining monthly

payments to reflect the interest rate change.

The reduced interest rate provision applies unless a court finds

the ability of the servicemember to p ay interest on the debt at a

higher interest rate is not materially affected by his or her

military service. In such cases, the court may grant a creditor

relief from the interest rate limitations of the Act.

Residential and Motor Vehicle Purchases and Leases

Contracts for the purchase of real or personal property, for

which the servicemember has p aid a deposit or made a

“ Interest” is defined in the SCRA to include service and renewal charges or

any other fees or charges, except for charges for bona fide insurance. 50

U.S.C. § 3937(d).

Section 207 of the SCRA, 50 U.S.C. § 3927, applies to “an obligation or

liability . . . incurred by the servicemember, or the servicemember and the

servicemember’s spouse jointly, before the service member enters military

service.”

50 U.S.C. §§ 3917 and 3937

Creditors cannot schedule these benefits to terminate automatically at any

point prior to the date on which the servicemember leaves the service, nor

can creditors require servicemembers to periodically reapply or recertify

their eligibility to maintain benefits.

The extension of the interest rate reduction for mortgages for an additional

one-year period after the end of military service was added by section

2203(b) of Housing and Economic Recovery Act of 2008 (HERA), which

was signed into law on July 30, 2008. Pub. L. 110-289.

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V. Lending — Servicemembers Civil Relief Act

payment before the servicemember enters military service,

may not be rescinded or terminated after the servicemember’s

entry into military service for a breach of the terms of the

contract occurring before or during their military service, or

the property repossessed because of the breach without a court

order.

Termination of certain residential or motor vehicle leases may

be made at the option of the lessee servicemember if the

servicemember provides to the lessor or the lessor’s agent

written notice of the request for termination along with a copy

of the military orders.

Automobiles leased for personal or business use by the

servicemember or his dependent may be terminated by the

servicemember, if after the lease is executed, the

servicemember enters military service for a period of 180 days

or more.

Additionally, an automobile lease entered into while the

servicemember is on active duty may be terminated by the

servicemember if he or she receives military orders for a

permanent change of station (PCS) outside the continental

United States (this would include a PCS to Hawaii or Alaska)

or deployment for a period of 180 days or more.

Termination of an automobile lease also includes the return of

the automobile to the lessor within 15 days after delivery of

the written notice of termination.

Termination is permitted of pre-service “residential,

professional, agricultural, or similar” leases occup ied or

intended to be occupied by a servicemember or a dependent as

well as those leases executed during military service where the

servicemember subsequently receives orders for a PCS or a

deployment for a period of 90 days or more.

Any sale or foreclosure made in violation of this provision shall be void.

See section 303(c) of the SCRA, 50 U.S.C. 3953(c). Originally, this

provision applied only to sales, foreclosures, or seizures of property which

occurred during or within 90 days after a servicemember’s period of

service. In 2008, this protection was temporarily extended from 90 days to

9 months pursuant to section 2203 of HERA. In 2012, this provision was

further amended to temporarily extend the protections from 9 months to

one year by the Honoring America’s Veterans and Caring for Camp

Lejeune Families Act of 2012. Pub. L. No. 112-154 (Aug. 12, 2012). In

2014, the temporary extension of these protections for one year was

renewed once more, pursuant to the Foreclosure Relief and Extension for

Servicemembers Act of 2014. Pub. L. No. 113-286 (Dec. 18, 2014). In

2015, this temporary extension was once again renewed, pursuant to the

Foreclosure Relief and Extension for Servicemembers Act of 2015. Pub L.

No. 114-142 (Mar. 31, 2016). In 2017, this temporary extension was

renewed by the National Defense Authorization Act for Fiscal Year 2018.

Pub. L. No. 115-91 (Dec. 12, 2017). In May of 2018, by passage of the

Economic Growth, Regulatory Reduction and Consumer Protection Act,

the one-year extension was made permanent and no longer subject to a

sunset provision.

Foreclosure, Eviction from Bank-Owned Property

Real or personal property owned by a servicemember before

the servicemember’s military service that secures a mortgage,

trust deed, or similar security interest cannot be sold,

foreclosed upon, or seized based on a breach of such a secured

obligation during the period of military service or one y ear

thereafter without a court order.

Additionally, in an action

filed during or within one year after a servicemember’s

military service, a court may, after a hearing on its own, or

shall, upon application by a servicemember, stay a proceeding

to enforce an obligation as described above or adjust the debt,

when the member’s ability to comply with the obligation is

materially affected by reason of the member’s military

service.

A landlord may not evict a servicemember or his or her

dependents from certain residences

occupied p rimarily as a

residence during a period of military service except by court

order.

A creditor must notify the homeowner by a statement or

notice, written in plain English by the Secretary of Housing

and Urban Development, in consultation with the Secretary of

Defense and the Secretary of Treasury, explaining the

mortgage and foreclosure rights of servicemembers, and the

dependents of such servicemembers, under the

Servicemembers Civil Relief Act (50 U.S.C. 3901 et seq.),

including the toll-free military one source number to call if

servicemembers, or the dependents of such servicemembers,

require further assistance.

Life Insurance Assigned as Security

If a life insurance policy on the life of a servicemember is

assigned before military service to secure the payment of an

obligation, the assignee of the policy (except the insurer in

Section 303(b) of the SCRA, 50 U.S.C. § 3953(b). As with section 303(c)

of the SCRA, discussed above, this provision originally only applied to

proceedings filed during or within 90 days after a servicemember’s period

of service. This period was extended repeatedly on a temporary basis to up

to one year after service, most recently by Pub. L. No. 115-91 (Dec. 12,

2017). However, in May of 2018, by passage of the Economic Growth,

Regulatory Reduction and Consumer Protection Act, the one-year

extension was made permanent and no longer subject to a sunset provision.

The law as originally passed by Congress applied to dwellings with

monthly rents of $2,400 or less. Accordingly, evictions involving

residences with monthly rents of $2,400 or less needed a court order. This

amount is adjusted yearly and is published in the Federal Register by the

Department of Defense. The rent ceiling is adjusted annually for inflation

and in 2020 the amount is $3,991.90 . This annual adjustment is generally

announced in February.

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V. Lending — Servicemembers Civil Relief Act

connection with a policy loan) may not exercise, during the

period of the servicemember’s military service or within one

year thereafter, any right or option obtained under the

assignment, absent compliance with a court order or other

specified requirement.

Adverse Action

The fact that a servicemember ap p lies for, or receives a stay,

postponement, or suspension of his or her obligations or

liabilities pursuant to the SCRA may not in itself provide the

basis for the following:

A determination by a lender or other person that the

servicemember is unable to pay the obligation or liability in

accordance with its terms;

A creditor’s denial or revocation of credit, change in terms of

an existing credit arrangement, or refusal to grant credit to the

servicemember in substantially the amount or on substantially

the terms requested;

An adverse report relating to the creditworthiness of the

servicemember by or to a consumer reporting agency;

A refusal by an insurer to insure the servicemember;

An annotation in a servicemember’s record by a creditor or a

person engaged in the practice of assembling or evaluating

consumer credit information identifying the servicemember as

a member of the National Guard or a reserve component; or

A change in the terms offered or conditions required for the

issuance of insurance.

Relief for Other Obligors

Whenever a court grants a stay, postponement, or suspension

to a servicemember on an obligation, it may similarly grant a

person primarily or secondarily liable such a stay,

postponement, or suspension.

Examination Objectives

1. Determine the institution’s compliance with the provisions

of the SCRA, as applicable, to the institution’s product

offering and operations, including management of other

real estate owned where a servicemember or his/her

dependents may be tenants.

These reflect the interagency examination procedures in their entirety, with

subsequent adjustments to reflect intervening statutory changes and

threshold adjustments. Additionally, some additions have been made to

provide additional clarity for FDIC examination staff. See, fo r e xamp le,

footnotes 9 through 11 and the Examination Checklist.

2. Assess the quality of the institution’s compliance risk

management systems and its policies and procedures for

implementing the provisions.

3. Determine the reliance that can be p laced on the

institution’s internal controls and procedures for

monitoring the institution’s compliance with the

provisions.

4. Determine corrective action when violations of law are

identified or when the institution’s policies or internal

controls are deficient.

Examination Procedures

General

1. Through discussions with management and review of

available information, determine whether the institution’s

internal controls are adequate to ensure compliance with

the SCRA. Consider:

• policies and procedures

• account documentation

• checklists

• computer program documentation, including any

computer program testing and validation.

2. Determine the extent and adequacy of the training

received by individuals whose responsibilities relate to

compliance with the regulation. Review any training

materials pertaining to the Act and determine if the

training is comprehensive and covers the various aspects

of the provisions that apply to the creditor’s offerings and

operations.

3. Review compliance reviews or audit materials, including

work papers and reports, to determine if:

• The scope of any audits address all provisions of the

SCRA, as applicable;

• Transaction testing includes samples covering relevant

product types and decision centers (for example,

mortgage and credit card processing centers);

• The work performed is accurate;

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V. Lending — Servicemembers Civil Relief Act

• Significant deficiencies and their causes are included in

reports to management or to the Board of Directors;

• Management has taken corrective actions to follow-up

on previously identified deficiencies; and,

• The frequency of review/audit is appropriate.

4. If any complaints based on the SCRA have been filed

against the institution, determine:

• Why were they filed, and

• How they were resolved.

5. If the institution has received any actual requests for relief

under the SCRA, determine whether appropriately trained

staff reviewed the requests and if appropriate records are

maintained.

Interest Rate Reduction for Loans, Including

Mortgages

6. Determine how the institution handles requests for interest

rate reductions under the SCRA on an obligation incurred

by a servicemember or by a servicemember and spouse

jointly, before the servicemember entered military service.

Determine how the institution calculates the reduced

interest rate. Does the institution include all service and

renewal charges, as well as other fees and charges, with

the exception of charges for bona fide insurance?

8. Determine whether the institution applies the interest rate

reduction effective as of the date the servicemember was

called to military service.

9. Determine whether the institution applies the interest rate

reduction throughout the term of the servicemember’s

military service for all credit products. In the case of a

mortgage, the institution must continue to apply the

interest rate reduction for a one-year period following the

termination of military service.

10. Determine whether the institution adjusts the monthly

payments usingthe reduced interest rate over the

remaining term of the loan.

Dependents are defined in the SCRA as (a) the servicemember’s spouse,

(b) the servicemember’s child, or (c) an individual for whom the

servicemember provided more than one-half the individual’s support for

180 days preceding an application for relief under the SCRA.

Residential and Motor Vehicle Leases.

11. Determine, in the case of a residential lease entered into

before the servicemember entered into military service or

executed by the servicemember while in military service

but who subsequently receives orders for a permanent

change of station or for a deployment of at least 90 days,

that the institution permits the servicemember to terminate

the lease.

12. Determine if the institution permits the servicemember to

terminate a motor vehicle lease where:

• The motor vehicle lease is for personal or business use

by the servicemember or his/her dependent; and,

• The lease is executed by the servicemember before

he/she enters military service for a period of 180 days or

more, or

• The servicemember, while in military service, executes

the lease and subsequently receives military orders for a

PCS outsideof the continental United States (this

include a PCS to Hawaii or Alaska), or deployment with

a military unit for a period of 180 days or more.

Foreclosure, Eviction from Bank-Owned Property

13. Determine, in the case of an institution acting as a

landlord, that the institution does not evict a

servicemember or his/her dependents

from a residence

covered by the Act occupied primarily as a residence

during a period of military service except by court order.

14. Determine whether, in the case of real or personal

property owned by a servicemember before the

servicemember’s military service and is secured by a

mortgage, trust deed, or similar security interest, the

institution obtains a court order before initiating the sale,

foreclosure, or seizure based on a breach of such a secured

obligation during the period of military service or one y ear

thereafter.

Installment Contracts

15. Determine, in the case of an institution that finances or

purchases installment contracts for the purchase of real or

personal property, that where a servicemember has paid a

deposit or made a payment before entering military

service, that the contract was not rescinded or terminated

by the institution after the servicemember’s entry into

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V. Lending — Servicemembers Civil Relief Act

service, absent a court order for a breach of the terms of

the contract occurring before or during the military

service, or the property repossessed because of the breach.

Insurance Assigned as Security for a Loan

16. Determine, in the case of an insurance policy on the life of

a servicemember that is assigned before the

servicemember’s military service as security for an

obligation that the institution does not exercise, during a

period of military service or within one year thereafter,

any right or option obtained under the assignment, absent

a court order. This prohibition does not apply—

• if the assignee has written consent of the insured

servicemember, obtained during his/her military service;

• when the premiums on the policy are due and unpaid; or

• upon the death of the insured.

Adverse Action

17. Determine, in the case of an application from or receipt by

a servicemember of a stay, postponement, or suspension

of an obligation, that the institution does not use such

action as a basis of:

• a determination that the lender is unable to pay the

obligation or liability in accordance with its terms;

• denial or revocation of credit; change in terms of an

existing credit; or refusal by the creditor to grant credit

to the servicemember in substantially the same amount

or terms; or

• an adverse credit report or reference.

Examination Conclusions

18. Conclude the examination after taking the following

actions:

• Fully address identified deficiencies and violations, if

any

• Attach appropriate supporting workpaper documentation

• Discuss findings with management and board of

directors

• Write comments, as applicable, in the Report of

Examination

• Include appropriate violation write-ups

• Discuss proposed enforcement action, if needed

References:

Servicemember Civil Relief Act, Pub. L. 108-189 (codified at

50 U.S.C. 3901 et seq.)

Veterans Benefits Improvement Act of 2004, Pub. L. 108-454

Housing Benefits Improvement Act of 2004, Pub. L. 110-289

Helping Heroes Keep their Homes Act of 2010, Pub. L. 111–

346

Honoring America’s Veterans and Caring for Camp Lejeune

Families Act of 2012, Pub. L. No. 112-154

Foreclosure Relief and Extension for Servicemembers Act of

2014, Pub. L. 113-286

Foreclosure Relief and Extension for Servicemembers Act of

2015, Pub. L. 114-142

Regulations implementing 20 U.S.C. § 1078(d), Federal

payments to reduce student interest costs

National Defense Authorization Act for Fiscal Year 2018.

Pub. L. No. 115-91

National Defense Authorization Act for Fiscal Year 2019

Pub. L. No. 115-232

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V. Lending — Servicemembers Civil Relief Act

Examination Check list – Servicemembers Civil Relief Act

Ye s

S ection 3919 Exercise of Rights Under Act Not to Affect Certain Future Financial Transactions

1. Does the creditor refrain from taking adverse action against a servicemember solely because the

servicemember exercised rights under the Act? (50 U.S.C. § 3919)

S ection 3937 Maximum Rate of Interest in Debts Incurred Before Military S ervice

1. Did the creditor reduce the interest rate on obligations of a servicemember or of a servicemember jointly with

the servicemember’s spouse, incurred before military service, to no more than 6 percent during the period of

military service upon receipt of proof of military service? (3937(a)(1)) Note that in the case of a mortgage,

the 6 percent cap extends to one year following the end of military service. Interest under the SCRA includes

all service, renewal, or other charges and fees with the exception of bona fide insurance charges.

2. Did the creditor forgive interest in excess of 6 percent (including fees)? (3937(a)(2))

3. Did the creditor reduce any periodic payment due by the servicemember by the amount of the interest

forgiven? (3937(a)(3)) Note that there are two methods of payment amortization that have been commonly

adopted by the industry appropriate to ensure there is no acceleration of principal.

• Standard Amortization Method and Payments - This method is based upon a recalculated amortization

schedule with interest at the rate of 6% and the actual remaining term of the mortgage loan.

• Interest Subsidy Amortization M ethod and Payments - This method is based on the amortization

schedule (or schedules, in the case of an ARM ) that would have applied if the servicemember had

remained a civilian. This method preserves the original amortized loan’s monthly principal reduction.

Each new payment is calculated as the sum of the next monthly principal installment called for by the

original amortization schedule plus monthly interest at the rate of 6% based on the prior period's

scheduled ending unpaid principal balance (UPB) (i.e., the principal balance scheduled to be outstanding

immediately p rior to the ap p licable due date or UPB x .06 / period = monthly interest + original

amortization scheduled principal payment for the month).

4. Did the creditor accept military orders, or any other appropriate indicator of military service, including a

certified letter from a commanding officer; or conduct an independent verification as proof of military

service? (3937(b)(2))

5. Upon receipt of the written notice from the servicemember and proof of military service, did the creditor

apply the interest rate reduction retroactively to the date on which the servicemember is called to military

service? (3937(b)(2))

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V. Lending — Servicemembers Civil Relief Act

S ection 3952 Protection under Installment Contracts for Purchase or Lease

Ye s

1. Did the creditor obtain a court order before rescinding or terminating contracts by a servicemember for the

purchase, lease, or bailment of real or personal property (including a motor vehicle) for any breach of terms

occurring before or during military service, provided a deposit or installment had been paid before entry into

military service? Similarly, did the creditor obtain a court order before repossessingproperty due to breach of

terms? (3952(a))

S ection 3953 Mortgages and Trust Deeds

1. Did the creditor obtain a court order before selling, foreclosing, or seizing real or personal property due to a

breach of an obligation by a servicemember during the period of military service or within one year after

without a court order? (3953(c))

S ection 3955 Termination of Residential or Motor Vehicle Le ase

1. Did the creditor terminate the lease within the stipulated time once the requirements for termination were met

by the servicemember lessee? (3955(d))

2. Did the creditor refund the lease amounts paid in advance for a period after the effective date of termination

within 30 days of the effective date of the termination of the lease? (3955(f))

S ection 3957 Protection of Life Insurance Policy

1. Did the creditor obtain a court order before exercising any right or option obtained under an assignment of

the servicemember’s life insurance policy made before the servicemember’s military service during the

period of military service or within one year thereafter? (3957(a))

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