Sometimes during a collection of an account, we become aware that the homeowner is in the military.  When this happens, there are certain procedures and precautions we must take before proceeding with collections.  This is due to the Servicemembers Civil Relief Act, which affords a number of significant protections to servicemen and servicewomen who are on active duty.

One important provision under the Act is that no interest above six (6%) percent per year can be charged on the account while the servicemember is on active duty. Interest under the Act includes service charges, fees, or any other charges with respect to the obligation or liability.  This applies to obligations that were incurred before the servicemember entered active duty and where the servicemember can show that the military service affects his or her ability to pay the debt at the regular interest rate.  In order for the creditor to be subject to the interest rate limitation, the servicemember is required to give written notice to the creditor along with a copy of the military orders.  Sallie Mae was just recently ordered by the government to pay $97 million for allegedly charging active-duty servicemembers interest rates and late fees that exceeded the 6% limitation.    

Another important protection afforded under the Act relates to litigation against an active-duty servicemember.  The Act allows the servicemember to request the postponement of civil court proceedings, for at least 90 days, if the servicemember is on active duty and it prevents him or her from attending a scheduled court appearance. In addition, if a court enters default judgment against an active-duty servicemember because he or she failed to appear in court to defend the action, the servicemember can request that the default judgment be set aside.

 The protections afforded under the Act generally take effect on the first day of active duty and some protections can even extend to the servicemember’s spouse and other dependents.  The provisions of the Act can be very complicated, so be sure to consult with your attorney should you have any questions.