District Circular Letters

October 26, 2001

BANKING SUPERVISION AND REGULATION:
SOLDERS' AND SAILORS' CIVIL RELIEF ACT
OF 1940

To State Member Banks, Bank
Holding Companies, U.S. Branches
and Agencies of Foreign Banks,
and Others Concerned,
in the Twelfth Federal Reserve District

Provisions of the Soldiers' and Sailors' Civil Relief Act (SSCRA) of 1940 that May Affect Financial Institutions (AD 01-29 [GEN])

Following the tragic events of September 11, President Bush authorized a national call-up of members of the U.S. military Reserve and National Guard. The SSCRA provides certain legal protections to persons entering or called to active duty in the U.S. Armed Forces. This letter serves as a reminder about provisions of the SSCRA that could most likely affect financial institutions.

Overview

The SSCRA is a federal statue passed by Congress in 1940, allowing members of the military to postpone or suspend some civil obligations. Its intent is twofold. The first is to enable service members to fight a war without having to worry about problems that might arise at home. Second, there are provisions to help service members honor their pre-service debts, since their military income tends to be less than their pre-service income.

All members of the Army, Navy, Marine Corps, Air Force and Coast Guard on active duty and all officers of the Public Health Services authorized for active duty with either the Army or Navy are covered under the Act. The Act also covers members of the Army and Air National Guard and U.S. military reserves called to active duty, as well as commissioned officers of the National Oceanic and Atmospheric Administration on active duty.

SSCRA Provisions

The following are relief provisions that could most likely affect financial institutions:

Interest Rates: Under the SSCRA, service members can cap the interest rates at 6 percent on all obligations that were entered into before beginning active duty. Obligations include credit cards, mortgages, and non-federally guaranteed student loans. In order to invoke the 6 percent cap, military members must write the lender requesting relief and provide a copy of current military orders. In addition, service members must demonstrate that active duty materially affects their ability to pay. The cap is lifted a short time after active duty ends and the rate reverts to the rate in effect prior to the cap.

Mortgages: A lender may not foreclose on a mortgage if the obligation originated prior to entry into active duty and the service member's ability to pay is materially affected by military service.

Installment Loans: A lender may not exercise any right or option under the contract to terminate an installment contract to purchase real or personal property or to resume possession of the property for nonpayment, if the obligation originated prior to entry into active duty and the service member's ability to pay is materially affected by military service.

Leases: A service member may terminate without penalty a lease for property occupied. The property must have been used for dwelling, professional, business, or agricultural purposes. The service member must have entered into the lease before he/she started active duty. To terminate the lease, the member must provide written notice to the landlord after being called to active duty.

Eviction: A landlord may not evict an active duty service member or his/her dependents, if the rent does not exceed $1,200 a month, except with the approval of a court. The court may suspend the eviction proceeding for up to three months, unless the court finds that military service does not materially affect his/her ability to pay the rent.

Additional Information

Additional information on the SSCRA may be found on the Internet at http://usmilitary.about.com/cs/sscra/ and http://www.defenselink.mil/specials/Relief_Act_Revision/

All circulars and documents are available on the Internet through the Federal Reserve Bank of San Francisco's Internet site, at http://www.frbsf.org/banking/letters. Paper copies of the Board's notice (AD 01-29[GEN]) are available from our Corporate Services Department. To request copies to be sent by mail, please call (415) 974-2060.

Questions concerning the SSCRA should be directed to Jinai Holmes at (202) 452-2834, Jessica Martin at (202) 452-2086, or William Spaniel at (202) 452-3469.

FEDERAL RESERVE BANK OF SAN FRANCISCO