A New Balancing Act: The DOJ Provides New Direction Regarding the SCRA's Interest Rate Benefit
The Banking Law JournalSasha Leonhardt, Jeffrey P. Naimon
When Congress reenacted the Servicemembers’ Civil Relief Act (“SCRA”) in 2003, Congress designed the SCRA to balance the interests of active duty servicemembers and their creditors, as it had done under the SCRA’s predecessor legislation. One of the benefits provided by the SCRA is a six-percent cap on interest for credit obligations a servicemember incurs prior to entering active duty military service. Drawing upon decades of real-world experience, and consistent with the intended balancing of interests, Congress placed the burden on servicemembers to provide documentation showing eligibility for the interest rate benefit. Specifically, Congress crafted the SCRA to require a servicemember to submit “written notice and a copy of the military orders calling the servicemember to military service.”
Since the SCRA became law in 2003, the prevailing interpretation of this requirement was that a servicemember was required (1) to request the SCRA’s interest rate benefit in writing; and (2) to provide a copy of the orders calling the servicemember to active duty (i.e., calling the servicemember from civilian life to military service). A recent settlement between the Department of Justice (“DOJ”) and Sallie Mae now signals that the DOJ interprets the SCRA’s requirements differently. Instead of a written request, mere written notice of military service appears sufficient. And instead of the military orders calling the borrower to active duty, the DOJ has taken the position that any document from a military or Department of Defense source that indicates active duty status is sufficient. The DOJ also appears to expect creditors to take greater steps to elicit qualifying documentation from servicemembers who have indicated military service in some way but have not provided qualifying documents. This is a substantial departure from the prevailing interpretation in the financial services industry and elsewhere. Creditors and servicers should read the Sallie Mae Complaint and Consent Order with caution.
Originally published in The Banking Law Journal; reprinted with permission.