Servicemembers Civil Relief Act
On December 19, 2003, President Bush signed into law the
Servicemembers Civil Relief Act ("SCRA"). The SCRA provides a number of
benefits to members of the armed services. The following provisions of the
SCRA affect auto dealers:
Interest Limitation. The SCRA limits the amount of
interest that may be collected on loans to persons in military service to 6%
per year during the period of military service. Interest can not accrue
above 6% while on active duty, nor can that excess interest become due once
the servicemember leaves active duty. The portion above 6% must be
permanently forgiven. In addition, the monthly payment must be reduced by
the amount of interest saved during the covered period.
In order for an obligation of a servicemember to be subject
to the interest rate limitation, the servicemember must have entered into
the obligation prior to active duty, and must provide to the lender a
written request for the 6% interest rate, along with a copy of the military
orders calling the servicemember to military service. The lender must either
comply with the request or apply for court relief. The SCRA puts the burden
on the lender to show that military service has not "materially affected" a
servicemember’s ability to repay the debt. If the lender can prove the
servicemember’s ability to pay has not been materially affected, then the
court will grant relief requested by the lender.
Lease Termination. A lease for a motor vehicle may be
terminated by a servicemember any time after the servicemember enters into
military service, or the date of the servicemember’s military orders. This
applies to a lease by a servicemember or their dependents for personal or
business use. The termination of the lease is accomplished by delivery by
the servicemember of a written notice of termination and a copy of the
servicemember’s military orders to the lessor, and return of the motor
vehicle by the servicemember to the lessor within 15 days after the delivery
of the written notice of termination.
Repossessions. The SCRA also protects a servicemember
in the event of a default on note payments. If a servicemember’s ability to
meet his or her obligations is "materially affected" by military service,
the court may stop the legal action filed against the servicemember, a
co-maker or guarantor, or adjust the note. A repossession of a motor vehicle
is not valid unless made during the period of a servicemember’s military
service unless a court orders the repossession. The court may order that the
amount of the servicemember’s equity in the property be paid to the
servicemember as a condition of repossession or termination of the contract.
The SCRA applies to members of the armed services, the
Reserves and the National Guard who are activated to active duty.