Some regulatory compliance matters maintain a veil of mystery – either because we don’t hear as much about them from regulators and others, or, they don’t cross our path as often as others. The Servicemembers Civil Relief Act (SCRA) is one of them.
Q: What is the SCRA?
A: The Servicemembers Civil Relief Act (SCRA) is a United States federal law that protects servicemembers from being sued while on active military service for their country and for a period after active duty. The Soldiers’ and Sailors’ Civil Relief Act was officially signed into law in 1940, but its practices can be traced as far back as the U.S. Civil War. On December 19, 2003, the President of the United States signed into law the Servicemembers Civil Relief Act (SCRA). The SCRA offers all military members important rights when they enter active duty.
Q: What does the SCRA cover?
A: The protections cover many financial agreements including installment contracts, credit card interest rates (on balances incurred prior to active duty), mortgage interest rates, mortgage foreclosure and civil court proceedings.
Q: Who is protected by the SCRA?
A: Servicemembers and some non-servicemembers are covered. Under the SCRA, a ‘servicemember’ is a person serving in active duty military service (Army, Navy, Marine Corps, Coast Guard and National Guard in federal service for 30 days or more); commissioned officers of the Public Health Service on active duty; and commissioned officers of the National Oceanic and Atmospheric Administration on active duty.
The SCRA also authorizes courts to extend some of the protections of the SCRA to non-servicemembers primarily liable (joint borrower) and secondarily liable (guarantor) for loans to protected members. For example, if a court stays (i.e., delays) enforcement of a debt against a servicemember, the court may also stay enforcement of the debt against a guarantor.
Covered individuals under certain sections of the SCRA include a servicemember’s family members (such as a spouse or a child). In addition, if a servicemember has provided over half of a person’s support for the 180 days immediately preceding an application for relief under the Act, that person is also considered a dependent.
Q: What types of coverage are extended under the SCRA?
A: Interest Rate Reduction Requirement – The SCRA six percent rate rule limits the interest rate on certain debts to no more than six percent per year. It applies to debt incurred before active duty by a servicemember or jointly by a servicemember and spouse. It is important to note that in many situations, the SCRA protections are not automatic, but require some action to invoke the Act. For example, to obtain a reduction of the rate on a mortgage or other loan obtained before entering active duty, protected members must provide the lender with a written request and a copy of the mobilization orders. The six percent interest rate rule is important to understand because it is one of the most widely known benefits under the SCRA. This provision reduces the pre-service interest rate on consumer loans and mortgages to six percent under certain circumstances.
Mortgages and Trust Deeds – The SCRA also contains special rules regarding debts secured by a mortgage, trust deed, or similar security interest in real or personal property owned by a servicemember. Generally, the act prohibits the sale, foreclosure, or seizure of property, based on a breach of such a secured obligation, during the period of military service or within 90 days* thereafter. The prohibition applies only to obligations that originated prior to the servicemember’s military service, and for which the servicemember is still obligated.
*From July 30, 2008 through December 31, 2012, the 90-day period was extended to 9 months. Effective February 2, 2013, this time period is extended through December 31, 2014. On January 1, 2015, it reverted to 90 days.
Q: What are the best SCRA compliance resources for mortgage lenders and servicers?
A: Numerous resources are available about coverage of the SCRA, and we are pleased that many of those are designed to assist servicemembers better understand their protections. Mortgage lenders and servicers, however, need SCRA information that is more geared to compliance with the law, and technical and operational requirements. The links listed here are some that we have found useful:
- Federal Reserve System Outlook Live audio conference/slide presentation on ‘Servicemember Financial Protection’ and follow-up Q&A to the presentation
- S. Department of Housing and Urban Development Office of Housing – ‘Servicemembers Civil Relief Act Notice Disclosure’
- Federal Interagency SCRA Examination Procedures – OCC, Federal Reserve, FDIC,
- ‘Interagency Guidance on Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders’
- CFPB Supervision and Examination Manual (no SCRA-dedicated section; however, SCRA requirements have been addressed within each functional area within the manual, for instance, servicing, rate changes, etc.)
- S. Justice Department ‘Servicemembers Civil Relief Act (SCRA) Questions and Answers for Servicemembers’ (designed for servicemembers and their families, but provides good, plain language information about the SCRA and its coverage)
Around the Industry:
CFPB takes action and $85k civil money penalty against a former Wells Fargo employee for an illegal mortgage fee-shifting scheme.
FDIC assesses a $250,000 penalty on a Utah bank for RESPA and HMDA (significant home mortgage data accuracy errors in both 2012 and 2013) exceptions.
On the Horizon:
NCUA requests comments on exams and supervision.
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