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Servicemembers Civil Relief Act (SCRA)

Servicemembers Civil Relief Act (SCRA)

Overview

The Servicemembers Civil Relief Act (SCRA), 50 U.S.C; § 3901, et seq., was signed into law on December 19, 2003, replacing the Soldiers’ and Sailors’ Civil Relief Act of 1940. The SCRA was amended December 10, 2004, by the Veterans Benefits Improvement Act of 2004. The Housing and Economic Recovery Act of 2008 (HERA) also amended several sections of this law, extending the time period for certain protections. The Veterans Disability Protection Act of 2010 added provisions for the U.S. Attorney General to bring civil actions, including for monetary damages, against violators of the SCRA. It also established the premise that a person has a private right of action for violations.

The SCRA protects members of the United States Army, Navy, Air Force, Marine Corps, and Coast Guard, including members of the National Guard serving in the U.S. armed forces, as they enter military service. The SCRA also protects commissioned officers of the Public Health Service and the National Oceanic and Atmospheric Administration engaged in active service. Some of the benefits accorded to Servicemembers by the SCRA also extend to servicemembers’ spouses, dependents, and other persons subject to the financial obligations of Servicemembers.

Full text of SCRA can be found here.

Associated Risks

Compliance risk may increase when the credit union fails to comply with SCRA.

Reputation risk may increase when the credit union incurs fines and penalties or receives decreased member confidence as a result of failure to comply with SCRA.

Examination Objectives

  • Determine the credit union’s compliance with the provisions of the SCRA, as applicable, to the credit union’s product offering and operations, including management of other real estate owned where a servicemember or his/her dependents may be tenants.
  • Assess the adequacy of the credit union’s compliance risk management systems and its policies and procedures for implementing the provisions.
  • Determine the reliance that can be placed on the credit union’s internal controls and procedures for monitoring the credit union’s compliance with the provisions.
  • Determine corrective action when violations of law are identified or when the credit union’s policies or internal controls are deficient.

Examination Procedures

General

  1. Through discussions with management and review of available information, determine whether the credit union’s internal controls are adequate to ensure compliance with the SCRA. Consider:
  2. Policies and procedures
  3. Account documentation
  4. Checklists
  5. 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.
  6. 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;
    • 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,
    • Frequency of review/audit is appropriate.
  7. If any complaints based on the SCRA have been filed against the credit union, determine:
    • Why were they filed, and
    • How they were resolved.
  8. If the credit union has received any requests for relief under the SCRA, determine whether appropriately trained staff reviewed the requests, if the credit union adjusted the interest rate appropriately, and if appropriate records are maintained.

Adverse Action (§ 3919)

  1. Determine, in the case of an application from or receipt by a servicemember of a stay, postponement, or suspension of an obligation, that the credit union does not solely use such action as a basis of:
  2. Determining the servicemember is unable to pay the obligation or liability in accordance with its terms;
    • Denying or revoking credit; changing the terms of an existing credit; or refusal by the credit union to grant credit to the servicemember in substantially the same amount or terms requested; or
    • Adversely reporting credit to a credit bureau.
    • Noting in a servicemember's record that he or she is a member of the National Guard or a reserve component.

Interest Rate Reduction for Loans, Including Mortgages (§ 3937)

  1. Determine how the credit union 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.
  2. Determine how the credit union calculates the reduced interest rate. Does the credit union include all service and renewal charges, as well as other fees and charges, that are “with respect to the obligation” [1] with the exception of charges for bona fide insurance?
  3. Determine whether the credit union applies the interest rate reduction effective as of the date the servicemember was called to military service.
  4. Determine whether the credit union 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 credit union must continue to apply the interest rate reduction for a one-year period following the termination of military service.
  5. Determine whether the credit union applies the interest rate reduction, forgives interest, and reduces the periodic payment by the amount of interest forgiven, beginning on the date of the member's receipt of the order, for members in the military reserves and ordered to report for induction under the Military Selective Service Act.

Rescinding or Terminating Installment Contracts (§ 3952)

  1. Determine, in the case of a credit union 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 credit union after the servicemember’s entry into 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.

Foreclosure and Repossession (§ 3953)

  1. Determine that the credit union obtains a court order to repossess property from a servicemember.
  2. Determine that the credit union does not sell, foreclose, or seize a property for a breach of an obligation made during, or within the maximum time allowed after, the period of the servicemember's military service except upon a court order granted before such sale, foreclosure, or seizure.

Residential and Motor Vehicle Leases (§ 3955)

  1. 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 credit union permits the servicemember to terminate the lease.
  2. Determine if the credit union 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 outside of the continental United States (this includes a PCS to Hawaii or Alaska), or deployment with a military unit for a period of 180 days or more.

Insurance Assigned as Security for a Loan (§ 3957)

  1. 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 credit union 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.
    •  

SERVICEMEMBERS CIVIL RELIEF ACT  (SCRA)
CHECKLIST

Exercise of Rights Under Act Not to Affect Certain Future Financial

Exercise of Rights Under Act Not to Affect Certain Future Financial
Item Description YES NO N/A
1 Does the credit union refrain from taking adverse action against a servicemember solely because the servicemember exercised or attempted to exercise rights under the SCRA? (§ 3919)      

Exercise of Rights Under Act Not to Affect Certain Future Financial

Exercise of Rights Under Act Not to Affect Certain Future Financial
Item Description YES NO N/A
2 Did the credit union reduce the interest rate on obligations of a servicemember, or of a servicemember jointly with the servicemember’s spouse, incurred prior to military service, to no more than 6 percent during the period of military service upon receipt of written notice and a copy of the servicemember’s military orders? (§ 3937(a)(1))      

Note: 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.

Exercise of Rights Under Act Not to Affect Certain Future Financial Continued
Item Description YES NO N/A
3 Did the credit union forgive interest in excess of 6 percent? (§ 3937(a)(2))      
4 Did the credit union reduce any periodic payment due by the servicemember by the amount of the interest forgiven? (§ 3937(a)(3))      
5 Upon receipt of the written notice from the servicemember and a copy of the military orders, did the credit union apply the interest rate reduction retroactively to the date on which the servicemember was called to military service? (§ 3937(b)(2))      
6 In the case of members of the military reserve, did the credit union reduce the interest rate to 6 percent on obligations, forgive interest, and reduce any periodic payments due by the servicemember by the amount of interest forgiven beginning on the date of the member's receipt of the order (which will always be earlier than the date called to service)? (§ 3937, § 3917(a))      
7 In the case of members ordered to report for induction under the Military Selective Service Act, did the credit union reduce the interest rate to 6 percent on obligations, forgive interest, and reduce any periodic payments due by the servicemember by the amount of interest forgiven beginning on the date of the member's receipt of the order (which will always be earlier than the date called to service)? (§ 3937, § 3917(b))      

Protection Under Installment Contracts for Purchase of Lease

Protection Under Installment Contracts for Purchase of Lease
Item Description YES NO N/A
8 Did the credit union 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 prior to entry into military service? Similarly, did the credit union obtain a court order before repossessing property due to breach of terms? (§ 3952(a))      

Mortgage and Trust Deeds

Mortgage and Trust Deeds
Item Description YES NO N/A
9 Did the credit union obtain a court order or a written agreement before selling, foreclosing, or seizing real or personal property from the servicemember that secures an obligation that originated before the period of the servicemember’s military service due to a breach of that obligation by a servicemember during the period of military service or within one-year thereafter? (§ 3953(c))      

Termination of Residential or Motor Vehicle Leases

Termination of Residential or Motor Vehicle Leases
Item Description YES NO N/A
10 Did the creditor terminate the lease within the stipulated time frame once the requirements for termination were met by the servicemember lessee? (§ 3955(d))      
11 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))      

Protection of Life Insurance Policies

Protection of Life Insurance Policies
Item Description YES NO N/A
12 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))      

 

[1] The definition of “interest” for SCRA purposes does not include fees or charges for voluntary, separate products or services.