BILL ANALYSIS Ó AB 2476 Page 1 Date of Hearing: May 8, 2012 ASSEMBLY COMMITTEE ON JUDICIARY Mike Feuer, Chair AB 2476 (Veterans Affairs) - As Introduced: February 24, 2012 PROPOSED CONSENT SUBJECT : SERVICEMEMBER OBLIGATIONS: INTEREST RATES KEY ISSUE : IN ORDER TO BETTER PROTECT DEPLOYED SERVICEMEMBERS FROM FINANCIAL HARM, SHOULD CALIFORNIA TRACK FEDERAL LAW LIMITING THE MORTGAGE INTEREST RATES THAT MAY BE CHARGED TO A RETURNING VETERAN? FISCAL EFFECT : As currently in print this bill is keyed non-fiscal. SYNOPSIS The federal Servicemembers Civil Relief Act (SCRA) provides civil protections for servicemembers, including a limitation on interest rates they may be charged while they are in the military. The federal Housing and Economic Recovery Act in 2008 made a number of changes to the SCRA. One of the changes was that servicemembers are protected from interest rates in excess of 6 percent on mortgages during the period of service and also for one year after their service is completed. California law had tracked this provision of the SCRA prior to its latest amendment. This bill amends California law to once again track federal law by giving servicemembers an extra year, upon the end of their service, at which interest rates on their homes will remain low. This bill is supported by veteran groups and the financial services industry. There is no known opposition to the bill. SUMMARY : Extends the period during which mortgage interest rates are capped for servicemembers. Specifically, this bill prohibits, except as provided, an obligation or liability incurred by a servicemember before that person's entry into service from bearing interest in excess of six percent per year: 1)During the period of military service and one year after, in the case of an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage; or AB 2476 Page 2 2)During the period of military service, in the case of any other obligation. EXISTING LAW : 1)Provides that no obligation or liability bearing interest at a rate in excess of six percent per year incurred by a servicemember 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 six percent per year unless, in the opinion of the court, upon application by the obligee, the ability of the servicemember to pay interest at a rate in excess of six percent per year is not materially affected by reason of that service, in which case the court may make that order as in its opinion may be just. Provides damages and attorney's fees for violation of these provisions. (Military and Veterans Code Section 405.) 2)Provides, under the SCRA, that an obligation or liability bearing interest at a rate in excess of six 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 six percent: (a) During the period of military service and one year thereafter, in the case of an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage; or (b) during the period of military service, in the case of any other obligation or liability. Allows a court to grant a creditor relief from these provisions. (50 U.S.C. Appx Section 527.) COMMENTS : The SCRA provides civil protections for servicemembers who are deployed. These protections include limiting the interest rate that can be charged to servicemembers during their period of service. The passage of the federal Housing and Economic Recovery Act in 2008 made a number of changes to the SCRA. One of those changes was that servicemembers are protected from interest rates in excess of six percent on mortgages not only during the period of service, but also for one year after their service is completed. California law had tracked this provision of the SCRA prior to its latest amendment. This bill amends California law to once again track federal law by giving servicemembers an extra year, upon their return from deployment, at which interest rates on their homes will remain low. AB 2476 Page 3 Both existing law and this bill still permit the obligee owed the debt to petition for a rate greater than six percent. To do so, the obligee must show that the servicemember's ability to pay a higher interest rate is not materially affected by his or her service. In that case, the court is allowed to make an order that, in the opinion of the court, is just. Veterans groups support of the measure because it will "help service members with financial matters during their transition to civilian life." REGISTERED SUPPORT / OPPOSITION : Support AMVETS--Department of California American Legion--Department of California California Association of County Veterans Service Officers California Bankers Association California Mortgage Bankers Association California State Commanders Veterans Council Vietnam Veterans of America--California State Council Opposition None on file Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334