The Federal Deposit Insurance Corporation (FDIC) reminds financial institutions of requirements of the Soldiers' and Sailors' Civil Relief Act.
In light of the frequent call-up of U.S. military reserve personnel and substantial military enlistment activity, the Federal Deposit Insurance Corporation (FDIC) would like to remind financial institutions of requirements under the Soldiers' and Sailors' Civil Relief Act of 1940. The intent of the law is to allow service members to devote their full attention to defense of the nation, with a minimum of distraction from financial or other legal burdens.
The Act protects members of the military from enforcement of their legal obligations incurred prior to active duty that they are unable to meet due either to their absence from home or from the financial consequences of significantly lower military pay. The Act does not apply to any obligation entered into by a military borrower after his or her military service has commenced. Bankers can anticipate receiving inquiries about customers in active military service. Attached is a summary of the Act's key provisions. (The Act is also available on the Internet at http://www.access.gpo.gov/uscode/. Select "TITLE 50A" and "SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940.")
For more information, please contact Hugh E. Eagleton at (202) 898-6542 (e-mail: HEagleton@fdic.gov).
Distribution: FDIC-Supervised Banks (Commercial and Savings)
NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (800-276-6003 or (703) 562-2200).
Key provisions under the Soldiers' and Sailors' Civil Relief Act of 1940, 50 USC App. §501, et seq., include the following:
Obligations Covered - The Act is written broadly to cover virtually any civil obligation or other liability of the service member incurred prior to entry upon active duty (e.g., loans, credit card debt, leases), and any attempted civil court action against the member, such as foreclosure, attachment, divorce or bankruptcy proceedings (§510).
Persons Covered - All persons on active duty in the military service of the United States, including National Guard and Reserves called to active duty, as well as full-time members of the Army, Navy, Air Force, Marines, Coast Guard and Public Health Service personnel on active service with the military, are covered under the Act (§511). Also included are a member's dependents, such as a spouse or dependent children whose financial ability may be "materially affected" by the military service, as well as others who are "secondarily liable" for the obligations of a service member, such as co-signors or guarantors (§§ 513, 536).
Documentation of Active Military Service - Relief under the Act is triggered by an individual's entry into active military service, but no specific form of notice to creditors is required. Sufficient proof of the entry upon active duty may consist of a copy of the individual's duty orders, military enlistment documents, or a letter from his or her military unit verifying the date of entry on active duty. Financial institutions should retain copies of these documents in their files (§§510, 511).
Six Percent Interest Rate "Cap" - The Act limits to 6% per annum the amount of interest that can be charged on financial obligations incurred prior to active duty, unless a court finds that the borrower's ability to pay has not been "materially affected" by service. But the limitation does not apply to debt incurred after entry on active duty. The rate limitation is effective upon commencement of active duty, regardless of when the creditor is notified, and continues throughout the period of active service. Creditors must, therefore, be prepared to make adjustments to the customer's account retroactive to the first day of active duty. "Interest" under the Act also includes any fees charged, such as service or renewal charges (but not bona fide insurance costs), and such fees must be taken into account when calculating the 6% limit. As well, the interest charges in excess of the 6% limit are to be forgiven and may not be collected after release from active duty (§526).
Material Effect - The required interest rate reduction to 6% is automatically triggered by entry on active duty. The former higher rate of interest may potentially be reinstated, by court order, if the creditor can demonstrate that the debtor's military service does not have a "material effect" upon the ability to pay. However, the burden of proving no "material effect" is solely that of the creditor and any such court proceeding may be "stayed" under the Act because of the member's absence and inability to defend. Competent legal counsel should be consulted prior to initiating such action (§526).
Relief From Judicial Proceedings and Installment Contract Provisions - The Act provides for a judicial stay upon any attempted execution, attachment or other court proceeding against a service member during active duty and for 60 days thereafter (§521). Default judgments may not be entered without the filing of a sworn affidavit and the court may require posting of a substantial bond (§520). During active duty and for three months thereafter, creditors are prohibited from foreclosing or seizing real or personal property securing mortgage debt (§532) or from imposing fines or repossessing real or personal property securing installment loan contracts (§531) without a court order. Any applicable statute of limitations or statutory redemption period is automatically "tolled" during active duty and that time cannot be used to compute time limits (§525).
Termination of Leases/Rent - Leases for property occupied for dwelling, professional or business purposes may be terminated by service members, upon written notice, if entered into prior to active duty (§534). Landlords cannot evict dependents of service members from a leased dwelling during active service if the rent is less than $1,200 per month (§530).