We have a customer with loans in collection who is on active duty military service according to the Servicemembers Civil Relief Act (SCRA) website. The customer has an unsecured loan and an auto loan. At the time the loans were made the customer was a sergeant working on an air force base, but she was not on active duty. When the loans came due for collection, we ran an SCRA search and determined that the customer was on active duty status. Were we required by law to cease collection? Can I request the customer’s active duty orders to document her status for our files?

No, the law does not require that a creditor cease collection efforts when a debtor is on active duty military service if the loan was made before the servicemember went on active duty. However, it may be a prudent business decision for a bank to cease collection efforts when a debtor is on active duty service, since the SCRA provides many protections to active-duty servicemembers that may render collection costlier and more time-consuming for the creditor.

Regarding those protections, when a debt is secured by personal property (such as an auto loan), and the loan was made to the borrower before they were on active-duty service, a creditor must obtain a court order before it can seize or repossess the property. If the servicemember’s ability to comply with the terms of the loan was affected by their military service, the servicemember may request that the court stay the proceedings for a period of time “as justice and equity require” or “adjust the obligation to preserve the interests of all parties.” The court also may enter such relief upon its own motion, even when the servicemember does not request it.

In a civil action in which a servicemember does not file an appearance, the court may not enter a judgment until after an attorney is appointed to represent the servicemember. The court also has the discretion to stay the proceedings for a minimum period of ninety days if it determines that the servicemember may have a defense that cannot be presented without their presence or counsel has been unable to contact the servicemember to determine if a valid defense exists. Further, if the court determines that a servicemember’s ability to comply with a judgment or order is affected by their service, the court may – on it’s on motion or upon the servicemember’s request – stay the execution of any judgment or order entered against the servicemember or vacate any attachment or garnishment of money or property in the servicemember’s possession.

In addition to the SCRA, the Illinois Service Members Civil Relief Act also provides relief from default judgments and orders entered against servicemembers and stays of civil court proceedings. Thus, while a creditor may pursue a servicemember for the collection of a debt, a great deal of uncertainty exists as to whether and for how long the action may be stayed, when judgment will be entered, and whether the court will stay or vacate the judgment.

Also, note that the SCRA and Illinois Service Member Civil Relief Act limit interest rates charged to active military personnel on obligations entered into “prior to a service member’s period of military service” to 6%. Your bank should reduce the interest rates charged on the consumer and auto loans if they exceed this amount.

Finally, we are not aware of any prohibition against asking a borrower to provide the bank with a copy of her active duty orders, but the Department of Defense does allow you to rely on its database to determine whether your customer is on active duty status, provided that you document the results at the time of your search.

For resources related to our guidance, please see:

SCRA, 50 USC 3911(2) (“The term ‘military service’ means . . . . in the case of a servicemember who is a member of the Army, Navy, Air Force, Marine Corps, or Coast Guard . . . . active duty, as defined in section 101(d)(1) of title 10 . . . .”)

Armed Forces Code, 10 USC 101(d)(1) (“The term ‘active duty’ means full-time duty in the active military service of the United States. Such term includes full-time training duty, annual training duty, and attendance, while in the active military service, at a school designated as a service school by law or by the Secretary of the military department concerned. Such term does not include full-time National Guard duty.”)

SCRA, 50 USC 3953(a) (“This section applies only to an obligation on real or personal property owned by a servicemember that — (1) originated before the period of the servicemember’s military service and for which the servicemember is still obligated; and (2) is secured by a mortgage, trust deed, or other security in the nature of a mortgage.”)

SCRA, 50 USC 3953(c) (“A sale, foreclosure, or seizure of property for a breach of an obligation described in subsection (a) shall not be valid if made during, or within one year after, the period of the servicemember's military service except— (1) upon a court order granted before such sale, foreclosure, or seizure with a return made and approved by the court; or (2) if made pursuant to an agreement as provided in section 3918 of this title.”)

SCRA, 50 USC 3953(b) (“In an action filed during, or within one year after, a servicemember's period of military service to enforce an obligation described in subsection (a), the court may after a hearing and on its own motion and shall upon application by a servicemember when the servicemember's ability to comply with the obligation is materially affected by military service— (1) stay the proceedings for a period of time as justice and equity require, or (2) adjust the obligation to preserve the interests of all parties.”)

SCRA, 50 USC 3931(a) (“This section applies to any civil action or proceeding, including any child custody proceeding, in which the defendant does not make an appearance.”)

SCRA, 50 USC 3931(b)(2) (“If in an action covered by this section it appears that the defendant is in military service, the court may not enter a judgment until after the court appoints an attorney to represent the defendant. If an attorney appointed under this section to represent a servicemember cannot locate the servicemember, actions by the attorney in the case shall not waive any defense of the servicemember or otherwise bind the servicemember.”)

SCRA, 50 USC 3931(d) (“In an action covered by this section in which the defendant is in military service, the court shall grant a stay of proceedings for a minimum period of 90 days under this subsection upon application of counsel, or on the court’s own motion, if the court determines that— (1) there may be a defense to the action and a defense cannot be presented without the presence of the defendant; or (2) after due diligence, counsel has been unable to contact the defendant or otherwise determine if a meritorious defense exists.”)

SCRA, 50 USC 3934(a) (“If a servicemember, in the opinion of the court, is materially affected by reason of military service in complying with a court judgment or order, the court may on its own motion and shall on application by the servicemember– (1) stay the execution of any judgment or order entered against the servicemember; and (2) vacate or stay an attachment or garnishment of property, money, or debts in the possession of the servicemember or a third party, whether before or after judgment.”)

Illinois Service Members Civil Relief Act, 330 ILCS 63/60 (“Relief from a final order or judgment entered by default against a service member who has entered military service is subject to Section 2-1401.1 of the Code of Civil Procedure.”)

Illinois Service Members Civil Relief Act, 330 ILCS 63/75 (“Stay of prosecution; civil matters. The stay, postponement, or suspension of the enforcement of any civil obligation or liability, the prosecution of any civil suit or proceeding, or the entry or enforcement of any civil order, writ, judgment, or decree involving a service member who has entered military service shall be subject to Section 30.25 of the Military Code of Illinois.”)

Servicemembers Civil Relief Act, 50 USC 3937(a)(1) (“An obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember, or the servicemember and the servicemember’s spouse jointly, before the servicemember enters military service shall not bear interest at a rate in excess of 6 percent . . .”)

Servicemembers Civil Relief Act, 50 USC 3937(d)(1) (“The term ‘interest’ includes service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability.”)

Illinois Service Member Civil Relief Act, 330 ILCS 63/40 (“Interest or finance charges collected or charged to a service member who has entered military service, or the spouse of that service member, in connection with an obligation entered into on or after the date of August 22, 2005, but prior to the date that the service member entered military service, shall be subject to Section 4.05 of the Interest Act.”)

Illinois Interest Act, 815 ILCS 205/4.05 (“Notwithstanding any contrary provision of State law, but subject to the federal Servicemembers Civil Relief Act, no creditor in connection with an obligation entered into on or after the effective date of this amendatory Act of the 94th General Assembly, but prior to a service member's period of military service, shall charge or collect from a service member who has entered military service, or the spouse of that service member, interest or finance charges exceeding 6% per annum during the period of military service.”)

Department of Defense Regulations, 32 CFR 232.5 (Creates a safe harbor for creditors who make military status determinations using the Department of Defense database or consumer reports from nationwide consumer reporting agencies, provided the creditor timely creates and maintains a record of the information so obtained.)