Servicemembers Civil Relief Act (SCRA)

The Servicemembers Civil Relief Act is a chapter of federal law, codified at 50 U.S.C. 3901 and following, that protects people in military service from civil consequences they cannot manage while serving. It is not one rule but a set of them, each in its own section, and the protections differ in who has to act, what triggers them, and how long they last. Some operate automatically, some require the servicemember to give notice, and several give a court discretion rather than granting a right outright.

The Act is frequently confused with the Military Lending Act, and the two do opposite jobs. The SCRA reaches back to debt a servicemember already had, caps its interest at 6 percent, and generally requires the servicemember to ask. The Military Lending Act, at 10 U.S.C. 987, reaches forward to consumer credit extended to a covered member or dependent, caps it at a 36 percent military annual percentage rate, and applies without anyone asking. A servicemember who needs both is dealing with two statutes, not one.

The 6 percent cap, in seven parts. Section 3937 is the Act's best-known provision and the one most often described loosely. Subsection (a)(1) caps at 6 percent an obligation bearing interest above that rate that was incurred by the servicemember, or by the servicemember and their spouse jointly, before entering military service, and it runs "during the period of military service and one year thereafter" for a mortgage, trust deed or other security in the nature of a mortgage, and "during the period of military service" for any other obligation. Subsection (a)(2) provides that interest above 6 percent that would otherwise be incurred "is forgiven," so the lender does not recover it later. Subsection (a)(3) requires the periodic payment to be reduced by the forgiven interest allocable to that period, which is what stops a lender from applying the cap and leaving the monthly payment unchanged. Subsection (b)(1)(A) requires written notice and a copy of the military orders, deliverable up to 180 days after termination or release from service. Subsection (b)(1)(B) lets a creditor rely instead on Defense Manpower Data Center information, with a stated safe harbor. Subsection (b)(2) makes the cap effective "as of the date on which the servicemember is called to military service," so a late notice still reaches back. Subsection (c) lets a court relieve the creditor where the ability to pay above 6 percent "is not materially affected by reason of the servicemember's military service." Two definitions do a lot of work. Under subsection (d)(1), "interest" here "includes service charges, renewal charges, fees, or any other charges (except bona fide insurance)," so a lender cannot preserve its yield by relabeling the charge. And under subsection (e), a knowing violation of the cap is a criminal offense punishable by fine or up to a year's imprisonment.

The court-process protections. Section 3931 governs default judgments in any civil action, including a child custody proceeding, in which the defendant does not appear: before entering judgment the court must require the plaintiff to file an affidavit stating whether the defendant is in military service, and where it appears the defendant is, the court may not enter judgment until it appoints an attorney to represent them. Section 3932 lets a servicemember who is a party and has notice of the proceeding obtain a stay of at least 90 days, on an application containing a letter stating how military duty materially affects their ability to appear and a letter from the commanding officer stating that duty prevents appearance and leave is not authorized; applying is not an appearance and waives no defense.

Housing and property. Section 3951 bars a landlord from evicting a servicemember or their dependents from a residence during military service without a court order, where the monthly rent does not exceed a statutory amount that is adjusted annually for housing price inflation and published in the Federal Register, and it lets the court stay the proceedings for 90 days or adjust the lease where ability to pay is materially affected. Section 3952 bars rescinding or terminating an installment purchase or lease contract, and bars repossession, without a court order, for a breach occurring before or during service, where a deposit or installment was paid before service. Section 3953 reaches an obligation secured by a mortgage that originated before service: in an action filed during service or within one year after it, the court may stay the proceedings or adjust the obligation, and a sale, foreclosure or seizure during that period is invalid without a court order or a qualifying agreement.

Contracts a servicemember can walk away from. Section 3955 allows termination of a residential or motor vehicle lease on entering service, or on orders for a permanent change of station or a deployment of at least 90 days, or on a qualifying stop movement order; termination also releases a dependent obligated on the lease, and separate provisions allow a spouse or dependent to terminate after the lessee's death in service or a catastrophic injury or illness. Section 3956 allows termination of certain consumer contracts, such as telephone, internet and multichannel video service, on orders to relocate for at least 90 days to a place the contract does not support.

State income tax and residence. Section 4001 provides that a servicemember "shall neither lose nor acquire a residence or domicile for purposes of taxation" by being absent from or present in a jurisdiction solely in compliance with military orders, and gives the spouse the same protection where the spouse is present solely to be with the servicemember. Subsection (a)(3) lets the couple elect, for any taxable year of the marriage, to use the servicemember's residence or domicile, the spouse's, or the servicemember's permanent duty station.

Why the SCRA and the Military Lending Act keep getting mixed up, and how to keep them apart. They cover the same population and both cap a rate, so the numbers get swapped. The SCRA's 6 percent attaches to debt that already existed when service began, forgives the excess, and requires the servicemember to give notice. The Military Lending Act's 36 percent cap, at 10 U.S.C. 987(b), attaches to consumer credit extended to a covered member or dependent, is measured as a military annual percentage rate that sweeps in charges a Regulation Z annual percentage rate would not, requires oral and written disclosures before the credit is issued, and applies without a request. The mechanics of that cap, and the products it reaches hardest, belong to the pages on the military annual percentage rate, usury, payday lending and title lending rather than to this one.

For the interest-rate cap the sequence is: identify obligations that existed before service and bear a rate above 6 percent; send each creditor written notice with a copy of the orders, at any point up to 180 days after leaving service; the creditor applies the cap effective from the date of the call to service, forgives the excess interest, and reduces the periodic payment by the forgiven amount allocable to that period. The creditor may go to court to argue the ability to pay is not materially affected by the service, and a court may relieve it.

A hypothetical example. Corporal Ramos took out a $24,000 car loan at 11 percent a year before being called to active duty, and gives his lender written notice with his orders four months into the deployment. On a $20,000 remaining balance, interest for a year at 11 percent is $2,200; at 6 percent it is $1,200. The $1,000 difference is forgiven rather than accrued for later collection. Because the cap takes effect from the date he was called to service rather than from the date the lender received the notice, the four months that had already run are recalculated as well: four twelfths of $1,000 is about $333, and that portion is forgiven too rather than left on the balance. His scheduled payment must also be reduced by the forgiven interest allocable to each period, so the relief shows up in his monthly cash flow rather than only in the payoff figure. Figures are illustrative and use simple annual interest; a real amortizing loan recalculates on the outstanding balance.

What the Act does well

• The 6 percent excess is forgiven, not deferred, so relief during service does not become a larger bill afterwards.
• Because the payment must be reduced by the forgiven interest, the relief reaches the servicemember's monthly cash flow rather than only the payoff balance.
• Notice can be given up to 180 days after leaving service and is applied retroactively to the date of the call to service, so a servicemember who did not know about the cap is not simply out of luck.
• Several protections require a court order rather than the servicemember's intervention, which puts the burden on the party seeking eviction, repossession or foreclosure.
• A knowing violation of the interest cap is a criminal offense, not merely a civil one.

Limits worth knowing before relying on it

• The interest cap does not reach debt incurred during service, which is where the Military Lending Act rather than this Act applies.
• The cap is not self-executing. Without written notice and orders, or the creditor's own check against Defense Manpower Data Center records, nothing happens.
• The extra year after service applies only to a mortgage or similar security. Every other obligation reverts to its contract rate on the day service ends.
• A creditor can ask a court for relief from the cap on the ground that ability to pay is not materially affected by the service.
• Protections are section by section, with different triggers and different durations, so "the SCRA protects you" is not a usable statement without naming which section is being relied on.
• The eviction protection is bounded by a rent ceiling that changes each year, so it does not reach every tenancy.