Servicemembers Civil Relief Act Reminder
The Servicemembers Civil Relief Act (SCRA) is a federal law that protects individuals in military service. Its purpose is laudable- reduce certain financial distractions so that members of the armed forces can focus their full attention on their military responsibilities without worrying about consequences for themselves or their families. The SCRA touches almost all of a servicemember's civil obligations and legal rights, including consumer financing. The protections that present the greatest challenges to buy-here-pay-here auto industry professionals are:
What does the SCRA protect that may affect car dealers?
The SCRA protects military service members during periods of military service and sometimes, for a period of time after military service. For example, for dealers that may have a repair lien against a motor vehicle owned by a military member, the law protects that servicemember during his military service and for 90 days after termination of military service. There are also certain circumstances under the SCRA where dependents including spouses and children of military personnel are protected.
What are the SCRA's basic rules, as applied to car dealers? First, there is a 6% interest rate cap on loans. Second, lien holders must get a court order before they can repossess a vehicle from someone who is covered by the SCRA. We receive several calls to TIADA's Compliance Consultation Service from members with questions about the SCRA. Here are a few of the most frequently asked questions:
The SCRA protects members of the armed forces who are on active duty status. It also protects National Guard members who receive activation orders of 30 days or longer. As long as a covered service member signed the retail installment contract and/or financing agreement for a vehicle, then the SCRA's protections apply.
What rights does a creditor have to repossess for a breach of a retail installment sale contract?
If a servicemember signs an installment contract to finance purchase of a motor vehicle and pays a deposit or installment before the servicemember enters military service, a dealer may not rescind, terminate or repossess that property without a court order for any breach of the contract when the debtor is in the service. The objective of the SCRA is to protect those individuals who may have signed a motor vehicle finance agreement making a certain salary before entry into the military but whose military salaries decreased, making the installment payments no longer affordable.
The SCRA does not protect a servicemember who signs an installment contract for a motor vehicle after the servicemember entered military service. Courts have ruled that the language of the statute protecting against repossession based on breach of a retail installment contract is clear. It protects only those military servicemembers who signed, and made at least one installment payment, prior to entering military service.
How do I know that my customer was really called to active duty?
You can verify a customer's military orders on the Department of Defense's Military Lending Act Website, https://mla.dmdc.osd.mil. If you confirm that (1) your customer is on active military duty; (2) your customer was not on active military duty when you entered into the retail installment contract, then the SCRA applies.
Do I have to draw up an entirely new contract that shows that the interest rate is 6%?
No. You can draft an Amendment to Vehicle Retail Installment Contract, and say that the finance rate is 6% from the date of the customer's orders until the date that the customer is no longer on active duty.