The Servicemembers Civil Relief Act (SCRA) is a federal law which provides protection from financial obligation and liability to both military personnel and their families. This protection can even extend to liability for debt they incurred before they or their family member(s) entered service. When it comes to collecting from these individuals, here are a few things to keep in mind.
Who is Covered, and When?
The protection of the SCRA extends to all active duty service members in all five of the military’s branches. It also often covers their spouses and dependents. Contracted personnel like dining facility employees who are working outside the US are also generally covered. Coverage is also extended to National Guard members called to active duty for more than 30 days, but not just when they are doing weekend drills. Service members will often provide proof of service to their creditors, but it’s also possible for the lender to check through the Department of Defense. Some collectors check all of their accounts to affirm if they are in the military or not.
One key element of the SCRA is that service members are entitled to a 6% interest cap on all loans they incurred prior to enlisting. That 6% must also include finance charges and service fees. However, this cap doesn’t happen automatically: the individual must request that it be applied and provide a copy of their military orders. It’s important for creditors to know that this cap doesn’t apply to debt the service member or their family obtains after they enter active duty.
The SCRA also shields its protected parties from default judgments. An attorney must be appointed by the court and make every effort to contact the service member before the default judgment can be awarded. In many cases, even awarded default judgments can be later overturned because the judgment is not seen as fair to the SCRA-protected person.
Protection from Negatives
The SCRA essentially puts a pause on any statute of limitations related to the service member’s financial obligations. Once the service member is discharged, the statute begins again. The SCRA can also protect service members and their families from some aspects of negative credit reporting. If a collector has complied with all the SCRA’s mandates and a service member is still late sending in payments, then the lender has the right to report that to the credit bureaus. However, it is prohibited to report to the credit bureaus if the purpose is to invoke the service member’s rights under SCRA.
The best rule of thumb for those in the collections industry is to stop and take a step back when someone claims SCRA protection. This law does not mean that collectors can’t get what they are owed, but it does mean that action must be taken through different channels and documented carefully. If you take an action which conflicts with SCRA, the costs for corrective action and refunds will come back later. If you have questions about the SCRA, you should contact the Department of Justice or consult with your company’s legal counsel. Or if you don’t want to deal with the headache at all, you can always connect with an expert collections firm like HCM to take care of these concerns for you.