Servicemembers Civil Relief Act (SCRA) compliance has been making headlines lately.
One report claims JP Morgan Chase overcharged military families on mortgages or foreclosed on their homes, in violation of SCRA.
And the Consumer Financial Protection Bureau recently named Holly Petraeus to head its Office of Servicemember Affairs. Petraeus urged the largest banks to “take steps to educate all their employees about the financial protections in the Servicemembers Civil Relief Act.” The message is clear: Understand the SCRA provisions, educate your staff, and comply.
SCRA, amended in 2008, replaces the former Soldiers and Sailors Civil Relief Act of 1940. Its primary goal is to protect military members from the impact of obligations entered into before starting active duty.
The protections cover:
- Individuals appointed, enlisted, or inducted into the regular branches of the U.S. military service—such as Army, Air Force, Navy, Marines, and Coast Guard;
- Personnel mobilized in National Guard and Reserve Units; and
- Commissioned officers of the Public Health Service or the National Oceanic and Atmospheric Administration.
To effectively educate credit union staff on SCRA provisions, develop and implement written policies and procedures. Policies should address these points of the law:
- Reducing the interest rate on a servicemember’s debts incurred prior to military service to no more than 6% per year, upon receiving a written request for relief and a copy of the military orders;
- Prohibiting rescinding or terminating contracts for purchases of real or personal property, for which the servicemember paid a deposit or made a payment before entering military service;
- Allowing a servicemember to terminate certain residential and automobile leases after providing the lessor written notice of the termination request along with a copy of the military orders; and
- Prohibiting sale, foreclosure, or seizure of real or personal property owned by a servicemember before military service, which secures a mortgage, trust deed, or similar security interest, during the military service or for nine months (this reverts back to 90 days on Jan. 1, 2013) thereafter, without a court order.
Develop detailed procedures to assist staff in handling SCRA questions and requests. Make sure your collection procedures also address SCRA provisions. Once all of the policies and procedures are complete, it’s time to train staff to follow them. All staff who deal with your members on a day-to-day basis must be aware of the law’s requirements so incorporate training into staff meetings. Members’ requests to change their address to an APO/FPO could trigger SCRA discussions. Make this an opportunity to raise awareness on the subject and serve as an example in your community.
Finally, make sure you’re complying with SCRA. Policies and procedures alone don’t ensure compliance. Management must test and retest data processing systems.
Verify that when you adjust rates to 6% that you’re actually reducing the amount of the payment, not the term of the loan. And, verify whether you’re properly accounting for fees in calculating the 6% and that your data processing system forgives the interest and doesn’t accrue for it. Audit loan files to confirm you’ve received all appropriate paperwork, properly adjusted rates, and created an adequate audit trail to prove to regulators that you’re in compliance. Use resources such as the AIRES examination questionnaire for SCRA to assist in your reviews.
Our servicemembers and their families make great sacrifices each day. So take the time to understand, educate, and comply with SCRA to show your appreciation.