January 22, 2004 — On December 19, 2003, the Soldiers’ and Sailors’ Civil Relief Act of 1940 was amended to expand the protections afforded by the act and to clarify some of its provisions. Notably, the short title of the act has changed to the "Service Members Civil Relief Act," presumably to reflect its coverage of all those engaged in the military service of the United States.

Interest Rate Limitations

The amended act also provides clarity with respect to the interest rate limitation contained in the original act. In order to invoke the limitation, the service member must provide written notice to the creditor of the intention to do so and must provide a copy of his or her military orders. Thereafter, an obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a service member, or the service member and his or her spouse jointly, before the service member enters military service, shall not bear interest at a rate in excess of 6 percent per year during the period of military service.

The interest rate limitation is effective as of the date on which the service member is called into military service and continues for the duration of military service.

The amended act specifically provides that any interest on the obligation above 6 percent is to be forgiven, and further provides for the adjustment of the monthly payment to reflect the lower interest rate. Once the period of military service concludes, the obligation may be enforced according to its original terms.

The act does provide a court with the discretion to grant a creditor relief from the rate limitation if the creditor can convince the court that the service member's ability to pay at a rate in excess of 6 percent is not materially affected by the service member's military service.

Installment Contract Protection

The amended act further provides protection for service members under installment contracts for the purchase or lease of real or personal property. The act specifically delineates that a contract by the service member for the purchase of real or personal property (including a motor vehicle); or the lease or bailment of such property may not be rescinded or terminated for a breach of the terms of the contract occurring before or during that person's military service. The property, which is the subject matter of the contract, cannot be repossessed without a court order.

Termination Right

One of the more significant changes to the act involves a service member's ability to terminate a motor vehicle lease agreement. The right applies in the following circumstance:

when the lease is executed by or on behalf of a person who thereafter (during the term of the lease) enters military service for a period of not less than 180 days; or when the lease is executed by a service member while in the military service and thereafter he or she receives military orders for a permanent change of stationoutside of the continental United States or is deployed with a military unit for a period of not less than 180 days.

The act contains a very specific directive as to how the service member terminates the lease agreement. The service member must deliver written notice of an intent to terminate to the creditor along with a copy of his or her orders. The notice may be delivered by:

- hand delivery,
- private business carrier or
- mail with return receipt requested.

After notice delivery, the service member terminates the motor vehicle lease by delivering the motor vehicle to the lessor (or lessor's agent) not later than 15 days after the date of the delivery of the written notice.

The effective date of termination is the date upon which all of the above-described requirements are met, including delivery of the vehicle to the lessor.

The act provides that any unpaid rent or lease payments for the period proceeding the effective date of the termination shall be paid on a prorated basis. The act prohibits early termination charges for leases terminated by a service member, but does allow charges for taxes, title and registration fees, as well as a charge for excess wear and tear and excess mileage. If rent or lease payments are paid in advance for a period after the effective date of the termination, those amounts must be refunded to the service member within 30 days of lease termination.

The amended act delineates criminal sanctions for violation of its provisions. The provisions referenced in this advisory are but a summary of the amendments, which took effect December 19, 2003.

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