SCRA protections apply only to service members who meet certain
eligibility requirements, such as those who obtained loans prior
to entering active duty service or service members whose military
service materially affects their ability to pay their loans.
Major Protections under SCRA
Here is a rundown of the major protections under SCRA:
Maximum Rate of Interest—Section 527
The first protection ensures an active-duty service member’s
interest rate is capped at six percent. Under this provision, interest
rate relief must be requested by the service member in writing
and only applies to debts incurred prior to the start of active
duty. It does not apply to debts incurred while a service member
is serving on active duty.
The six percent interest rate cap applies to outstanding secured
loans, such as mortgage, car, and boat loans, and unsecured loans
and lines of credit, such as credit card debt.
For instance, a customer purchases a vehicle at a 7. 5 percent
interest rate and enters active duty six months later. Once on active duty, the service member requests that the lender reduce the
interest rate on the vehicle to six percent. The bank may request
that the service member provide a copy of his or her orders
demonstrating that they are being placed on active duty service.
A service member can request this protection any time but no
later than 180 days after the end of active duty.
Although the terms of the original obligation remain the same,
the lender must reduce the service member’s interest rate to six
percent. The six percent interest rate must be extended for one
year following the end of active-duty. Interest above six percent
is to be forgiven by the bank, cannot be accrued or added to the
principal, and may require the bank to recompute payments so
interest fees and service charges stay within the six percent limit.
The term “interest” as defined by SCRA includes all service charges,
renewal charges, fees, and any other charges. Lenders seeking to
charge higher rates must get a court order to do so.
Evictions—Section 531:
Unless a court orders otherwise, a landlord or person that holds
title may not evict a service member or his or her dependents
from a rented home such as an apartment, manufactured, or
residential home while he or she is serving on active military
duty. In cases where the landlord seeks a court order for the
eviction of a service member or his or her dependents, the court
is obligated to postpone the proceedings for up to three months
at the service member’s request.
Protection Under Installment Contracts—Section 532:
Except by court order, no one who has collected a deposit as
partial payment for property, where the remainder of the price
is to be paid in installments, can repossess the property or cancel
the sale, lease, or bailment of the property because of the failure
to meet the terms of the contract. This is the case if the buyer
enters active duty military service after paying the deposit and
subsequently breaches the terms of the contract.
Foreclosure on Mortgages—Section 533:
This section protects service members who, prior to a period of
active military service, entered into a property transaction subject
to a mortgage, a trust deed, or some other kind of security loan.
If the service member is unable to make payments on the
loan due to military service, this provision prevents the vendor
from exercising any right or option under the contract to rescind
or terminate the contract, resume possession of the property for
nonpayment of any installment due, or to breach the terms, except
by action in a court of competent jurisdiction, until three months
after the term of active duty terminates or unless a written agreement in which the service member agrees to waive certain rights.
A sale, foreclosure, or seizure of property during a service
member’s period of military service is prohibited unless under
a court order issued prior to foreclosure on the property. It is
extremely important to recognize that unlike the six percent
interest rate, the protections against foreclosures do not require
the service member to do anything. It is the responsibility of the
bank to identify whether a delinquent borrower is on active duty.
If the borrower defaults in payment, the bank may continue
to accrue interest on unpaid amounts. For loans secured by the
service member’s primary residence, the bank may not take any
action to foreclose for nine months following military service.
This extended protection for foreclosures on mortgages is in
effect until at least December 31, 2012.
Rental or Motor Vehicle Leases—Section 535:
Military members who live in rental property can terminate leases
they entered into prior to a period of active service. Termination
of certain residential or motor vehicle leases may be made at the
option of the service member if he or she provides to the lessor
or the lessor’s agent written notice of the request for termination
along with a copy of military orders.
With regards to a motor vehicle lease, the service member
must return the motor vehicle to the lessor or its agent no later
than 15 days after the date of delivery of the written notice. For
motor vehicle leases, the cancellation is considered effective when
the vehicle is returned to the lessor. The lessor cannot impose
early termination fees, but the service member is still responsible
