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Friday, April 29, 2016

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Compliance Corner: Second Quarter 2003

Soldiers' and Sailors' Civil Relief Act of 1940

The Soldiers' and Sailors' Civil Relief Act of 1940 (SSCRA, or the Act) (50 USC 501) is a reenactment of a statute originally passed in 1918. The intent of the Act is to provide protection for individuals entering or called to active duty in the military service. The Act is designed to:

  • enable service members to fight a war without having to worry about problems that might arise at home, and
  • help service members honor pre-service debts, since military income tends to be less than pre-service income.

All members of the Army, Navy, Marine Corps, Air Force, and Coast Guard on active duty and all officers of the Public Health Services authorized for active duty with either the Army or Navy are covered under the act. The act also covers members of the Army and Air National Guard and U.S. military reserves called to active duty, as well as commissioned officers of the National Oceanic and Atmospheric Administration on active duty.

The SSCRA covers such issues as rental agreements, security deposits, prepaid rent, eviction, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosure, civil judicial proceedings, and income tax payments. The following summarizes the relief provisions that might affect financial institutions.

  • Interest Rates. Under the SSCRA, service members can cap the interest rates on all obligations that were entered into before beginning active duty at 6 percent. Obligations include credit cards, mortgages, and non-federally guaranteed student loans. In order to invoke the 6 percent cap, military members must write the lender requesting relief and provide a copy of current military orders. In addition, service members must demonstrate that active duty materially affects their ability to pay. The cap is lifted a short time after active duty ends and the rate reverts to the rate in effect prior to the cap.
  • Mortgages. A lender may not foreclose on a mortgage if the obligation originated prior to entry into active duty and the service member's ability to pay is materially affected by military service.
  • Installment Loans. A lender may not exercise any right or option under the contract to terminate an installment contract to purchase real or personal property or to assume possession of the property for nonpayment, if the obligation originated prior to entry into active duty and the service member's ability to pay is materially affected by military service.
  • Leases. A service member may terminate without penalty a lease for property occupied. The property must have been used for dwelling, professional, business, or agricultural purposes. The service member must have entered into the lease before he or she started active duty. To terminate the lease, the member must provide written notice to the landlord after called to active duty.

Contrary to what many people believe, there are no provisions for reemployment rights as part of the SSCRA. Reemployment rights are contained within separate legislation, The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA).

Additional information on the SSCRA External Link.

The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.