BILL ANALYSIS Ó AB 713 Page 1 Date of Hearing: May 10, 2011 ASSEMBLY COMMITTEE ON JUDICIARY Mike Feuer, Chair AB 713 (Block) - As Amended: April 12, 2011 PROPOSED CONSENT SUBJECT : MILITARY SERVICE: LEGAL BENEFITS KEY ISSUE : SHOULD EXISTING LAW THAT ALLOWS CALIFORNIA NATIONAL GUARD AND RESERVE SERVICE MEMBERS TO PETITION A COURT FOR RELIEF FROM CERTAIN CIVIL LIABILITIES DURING ACTIVE MILITARY SERVICE BE CLARIFIED TO ENHANCE THE AVAILABILITY OF THESE PROTECTIONS TO SERVICE MEMBERS AND THEIR FAMILIES, PARTICULARLY IN LIGHT OF THE FINANCIAL STRAIN THAT MULTIPLE DEPLOYMENTS CAN CREATE FOR THESE FAMILIES? FISCAL EFFECT : As currently in print this bill is keyed non-fiscal. SYNOPSIS This noncontroversial bill seeks to revise two sections of the Military and Veterans' Code to enhance the availability of certain benefits and protections from liability currently afforded to National Guard and U.S. Military Reserve service members and their families during periods of active military service. First, the bill would clarify the time frame when a service member may exercise this ability to petition a court for specified relief from these financial obligations and liabilities, and would clarify when a service member's military service is deemed to have commenced for this purpose. In addition, the bill would ensure that the service member's dependents are also eligible for the reduction of interest rates to six percent on obligations and liabilities incurred prior to the service member's entry into service-a protection that is currently afforded only to the service member for no discernible public policy reason. This bill is supported by the California Military Department, several veterans' organizations, as well as bankers and credit unions, who all agree that minor changes to current law will rightfully allow service members to avail themselves of these protections without unnecessary obstacles. There is no known opposition, and this bill was previously approved by the Assembly Committee on Veterans Affairs by a AB 713 Page 2 unanimous vote. SUMMARY : Enhances the availability of certain benefits and protections from liability currently afforded to National Guard and U.S. Military Reserve service members and their families during periods of active military service. Specifically, this bill : 1)Clarifies that a service member may, at any time during his or her most current period of military service or within six months thereafter, petition for relief from any obligation or liability incurred prior to the effective date of the orders for his or her most current period of military service. 2)Clarifies that a service member may, at any time during his or her most current period of military service or within six months thereafter, petition for relief with respect to any tax or assessment whether falling due prior to or during his or her most current period of military service. 3)Extends to a service member's dependents the reduction of interest rates to six percent on obligations or liabilities that were incurred prior to the service member's military service, subject to judicial discretion as provided. EXISTING LAW : 1)Provides that a service member may, at any time during his or her period of military service or within six months thereafter, petition a court for relief in respect of any obligation or liability incurred by the service member prior to his or her period of military service, or in respect of any tax or assessment whether falling due prior to or during his or her period of military service. (Military and Veterans Code Section 409.3. All further references are to this code unless otherwise specified.) 2)Specifies a number of civil obligations and liabilities for which the service member may petition a court for relief, including, but not limited to, relief from: a) Eviction from the member's primary residence; b) Obligations under a lease for specified residential and nonresidential property; c) Obligations secured by a mortgage; AB 713 Page 3 d) Nonpayment of an installment under a contract for purchase of real or personal property; e) Taxes or assessments, whether general or special, other than taxes on income, as provided. (Sections 406 to 409.4.) 3)Provides that no obligation or liability incurred by a service member before that person's entry into service shall, during any part of the period of military service, bear interest at a rate in excess of 6 percent per year, unless a court finds that the ability of the service member to pay interest upon that obligation or liability at a rate in excess of 6 percent per year is not materially affected by reason of that military service. (Section 405.) 4)Entitles dependents of a service member to the benefits accorded to service members under Sections 406 to 409.4, upon application to a court, unless the court finds the ability of the dependents to comply with the terms of the obligation, contract, lease, or bailment has not been materially impaired by reason of the military service of the person upon whom the applicants are dependent. (Section 409.5.) COMMENTS : This noncontroversial bill seeks to revise two sections of the Military and Veterans Code (MVC) to enhance the availability of certain benefits and protections from liability currently afforded to National Guard and U.S. Military Reserve service members and their families during periods of active military service. First, the bill would clarify the time frame when a service member may exercise this ability to petition a court for specified relief from these financial obligations and liabilities, and would clarify when a service member's military service is deemed to have commenced for this purpose. In addition, the bill would ensure that the service member's dependents are also eligible for the reduction of interest rates to six percent on obligations and liabilities incurred prior to the service member's entry into service-a protection that is currently afforded only to the service member for no discernible public policy reason. Stated Need for the Bill: According to the author, an order to military service can materially impact the financial stability of California service members and their families, and recent statutes providing financial protections to alleviate this impact need to be clarified to ensure that these protections are AB 713 Page 4 made available to all service members whom they were intended to help. The author states: The members of the California National Guard and the Reserve Component are unique in the fact that they are both civilians and service members. Although these individuals attend monthly training and are eligible to be ordered to state and federal active service, they are also a part of the civilian work force and hold full time occupations in their communities. Often, a call to military service can adversely affect the service member and their family's financial stability, as the service member may make significantly less income while on military service. The absence of the service member may cause his or her family to change their living situation, such as spouses needing to take on additional employment or increasing the need for child care. It is these situations in which a service member has been materially impacted by their order to military service. This legislation is critical, as clarification and enhancement of Ýexisting law]will greatly improve the existing protections for our deployed service members and their families. These revisions will clarify the intent of the Legislature to provide financial protections to deployed service members, as well as extend the financial protections found in Section 405 (six percent cap on interest) to a service member's dependents. This bill clarifies applicability of existing financial protections to reflect the modern frequency of recurring deployments among service members. According to the author, existing law does not take into account the modern frequency of recurring deployments and activations, and their potential for cumulative financial impacts upon the service member and his or her family. Section 409.3 currently allows a service member to petition a court for relief from certain financial obligations and liabilities "at any time during his or her period of military service or within six months thereafter . . . in respect of any obligation or liability incurred by the service member prior to his or her period of military service." The author contends that this provision, which assumes a single "period of military service," does not take into account the AB 713 Page 5 modern reality that service members are now routinely ordered to active service multiple times and for multiple purposes, and that in this tough economy, a service member's financial situation can easily take a turn for the worse in the period of time between orders to active military service. According to the author, because the statute fails to specify which order (out of potentially several orders) allows a service member to petition for relief, service members who have previously been ordered to military service may be unfairly deprived of the benefits of the statute, even if they can prove their current order materially affects their ability to pay or otherwise comply with the obligation or liability. The following example illustrates this point. In 2006, a service member is ordered to full-time active service to attend military school for two months, and during that time takes out an auto loan. The service member completes the schooling and returns to her normal civilian occupation. In 2010, the service member is again ordered to full-time military service, but this time for a year-long overseas deployment. The deployment has a material effect (the standard for relief under the law) on the service member's ability to comply with the loan payment terms, and she seeks to petition the court for a deferment of the loan under Section 409.3. Unfortunately, the current law can be interpreted to exclude the service member from seeking relief due to the fact that she took out the loan while on her first set of orders several years prior, regardless of whether the loan currently has a material effect on the service member because of her current period of military service. To address this problem, the bill seeks to make two clarifying changes to Section 409.3. First, the time frame during which a service member may seek relief from certain financial obligations or liabilities under current law would be clarified to establish that a petition for relief must be brought during the most current period of military service or within 6 months thereafter. Second, in order to provide a date certain for commencement of military service, the bill would clarify that the obligation or liability must have been incurred or become due before the effective date of the orders for the service member's most current period of military service, except for taxes or assessments, which are eligible for relief whether falling due prior to or during the most current period of military service. This bill would simply allow service members in these situations to exercise the right to seek relief from AB 713 Page 6 obligations that they feel they cannot comply with because of the impact of their most current military service. This revision is not intended to change the intent or purpose of the statute to provide avenues of relief to service members, but merely to ensure that deserving members of the California National Guard or Reserve Component who have served multiple deployments are not excluded from accessing the courts because of their previous orders to service. Should this bill become law, a court must still evaluate the impact of the current period of military service before relief will be granted from an obligation. This bill extends the interest rate cap protection to the service member's dependents . This bill would make the dependents of service members eligible for the reduction of interest rates to six percent on obligations and liabilities incurred prior to the service member's entry into service. According to the author, "This amendment is critical as more and more Californians are ordered to active service and their families suffer financial hardship due to a deployment. When a service member is deployed and the household income decreases due to the service member making less with military pay versus their civilian pay, many families are unable to meet all of their financial obligations, regardless of whether the obligation is in the name of the service member or the spouse or legal dependent." Section 405 of the Military and Veterans Code was enacted in 2002 (AB 1433, Ch. 60, Stats. 2002) to prohibit any obligation or liability incurred by a service member prior to entry into military service from bearing an interest rate in excess of six percent for the duration of the period of service. AB 1433 was intended to specifically extend to members of the California National Guard and Reserve Components those benefits provided under the federal Servicemembers Civil Relief Act (SCRA), 50 U.S.C. App. §§501-596. AB 1433 also enacted Section 409.5, which extends to the dependents of California service members most of the financial protections afforded to the service members themselves. For example, provisions for eviction protection, repossession protection, foreclosure protection, the right to defer installment payments and loans, and the ability to terminate leases early are all extended to service members' dependents pursuant to Section 409.5. AB 713 Page 7 While the SCRA does not grant interest rate relief to dependents of service members, the legislative history of AB 1433 does not reveal any discernible policy reason, except perhaps to parallel the federal SCRA, to not include the six percent cap on interest in the set of protections extended to service members' dependents pursuant to Section 409.5. The author contends that the failure to extend the interest cap benefit of Section 405 may be the result of simple drafting oversight, but in any case is inconsistent with the intent of AB 1433 and other legislative action to extend avenues of relief to both service members and their dependents. (See, for example, AB 2455 (Nava), Ch. 124, Stats. 2010, extending the benefits of MVC Sections 800 through 811 to spouses and legal dependents of service members.) PRIOR LEGISLATION : AB 1433 (Horton), Ch. 60, Stats. 2002, allows service members to petition a court for specified relief with respect to credit contract obligations, rental agreements, taxes (except income taxes), and health insurance, as well as eviction protection for the service members' families. AB 306 (Baca), Ch. 291, Stats. 2005, authorizes service members who are called to active duty as a result of the Iraq or Afghanistan conflicts to defer payments on specified obligations for the period of active duty, plus 60 calendar days, or 180 days, whichever is less. AB 2455 (Nava), Ch. 124, Stats. 2010, extends protections with respect to deferment of vehicle loans to spouses and dependents of service members, as provided. REGISTERED SUPPORT / OPPOSITION : Support AMVETS-Department of California California Association of County Veterans Service Officers California Bankers Association California Credit Union League California Military Department, Office of the Adjutant General California State Commanders Veterans Council National Guard Association of California Vietnam Veterans of America-California State Council Opposition AB 713 Page 8 None on file Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334