BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
AB 526 (Melendez)
As Amended June 14, 2013
Hearing Date: June 25, 2013
Fiscal: Yes
Urgency: No
TH
SUBJECT
Military Service: Benefits
DESCRIPTION
Existing law protects all federal military reservists,
California National Guard service members, and their spouses and
legal dependents from the adverse effects of military deployment
by providing them with statutory payment deferral options for
certain financial obligations. Obligations subject to deferral
must have been incurred prior to deployment, and include
mortgages, credit cards, retail installment contracts and
accounts, real property taxes and assessments, and automobile
loans and leases. Existing law provides enhanced financial
protections to military reservists and National Guard personnel
ordered to active duty as part of the conflicts in Iraq and
Afghanistan.
This bill would extend to a larger class of military reservists
the enhanced financial protections currently offered only to
service members ordered to active duty as part of the Iraq and
Afghanistan conflicts. It would also add utility bills to the
list of financial obligations subject to statutory deferment.
BACKGROUND
California law provides a variety of financial and
consumer-related protections for military service members, many
of which are intended to mitigate the potential adverse effects
of a deployment. Within this group of existing protections is
AB 1433 (Horton, Chapter 60, Statutes of 2002), which
incorporated into state law several provisions of the federal
(more)
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Soldiers' and Sailors' Relief Act of 1940 (SSCRA), and granted
certain benefits to deployed service members regarding court
proceedings, credit contract obligations, rental agreements,
taxes, health insurance, and eviction protection. Existing law
also provides additional protections for reserve and National
Guard service members regarding fees for recording a power of
attorney, termination of mobile telephone contracts, academic
tuition, state bar fees, vehicle leases, and residential utility
service.
State law currently permits military reservists and National
Guard members ordered to active federal or state military
service to defer certain loans and financial obligations under
two different provisions of the Military and Veterans Code.
Military and Veterans Code Section 400 et seq. (Section 400)
suspends the enforcement of specified civil liabilities,
including financial obligations such as mortgages, automobile
loans, and installment contracts, for service members during
periods of active military service. (Mil. & Vet. Code Sec.
409.3.) The relief afforded under this section is available
only upon application to a court. At the conclusion of a period
of suspension, the maturity date of a suspended financial
obligation is extended by the period of suspension (usually the
period of military service), and all unpaid principal and
accumulated interest is added to the principal balance of the
financial obligation. Consequently, a service member who defers
an obligation under this provision may have to pay interest on
deferred interest, potentially increasing the amount due on an
obligation after all deferred sums are rolled back into the
obligation's principal.
Military and Veterans Code Section 800 et seq. (Section 800), in
contrast, permits service members called to active duty
specifically as part of the conflicts in Iraq or Afghanistan to
defer payments on similar financial obligations for a period of
up to six months. Rather than petitioning a court, a service
member need only send a letter to their lender requesting
deferment of a financial obligation in order to receive benefits
under this Section. Unlike Section 400, Section 800 provides
that "[n]o interest shall be charged or accumulated on the
principal or interest on which the payment was delayed," meaning
that interest cannot accumulate on unpaid interest for an
obligation deferred under this Section. (Mil. & Vet. Code Sec.
804.)
Both Section 400 and Section 800 contain other additional
benefits that mostly overlap with each other. Each requires
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entities that were providing health care coverage prior to
deployment to "reinstate the health care coverage without
waiting periods or exclusion of coverage for preexisting
conditions," though the requirement in Section 400 is subject to
certain exceptions. (Mil. & Vet. Code Sec. 806(a); see also
Mil. & Vet. Code Sec. 409.4(b).) Both Sections extend their
respective class of benefits to spouses and legal dependents of
an eligible military reservist or National Guard service member
(see Mil. & Vet. Code Secs. 409.5, 811(a)), and prohibit the
assessment of penalties for the nonpayment of principal or
interest during a period of deferment (see Mil. & Vet. Code
Secs. 409.3(b), 804).
According to the California Military Department, approximately
one-third of deploying California National Guard members use
Section 800 to defer home mortgages and car loans. In contrast,
less than ten percent of National Guard members defer
obligations under Section 400. Staff at the Military Department
indicate that they are only aware of 50 members deferring
obligations under Section 400 in the past year.
This author-sponsored bill would expand the benefits and
eligibility criteria for deferring financial obligations under
Military and Veterans Code Section 800. Specifically, it would
delete the requirement that a service member must have served in
the Iraq or Afghanistan conflicts in order to qualify for
deferment, and it would add utility payment obligations to the
list of financial obligations subject to deferment. This bill
would also require a service member to send his or her lender a
copy of the service member's activation or deployment orders as
part of an application for deferment under Section 800.
CHANGES TO EXISTING LAW
Existing law permits a member of the United States Military
Reserve or the National Guard who is called to active duty as
part of the Iraq or Afghanistan conflicts to defer payments on
specified financial obligations, including mortgages, credit
cards, retail installment contracts and accounts, property
taxes, special assessments, and automobile loans and leases, for
a period of up to 180 days. (Mil. & Vet. Code Secs. 800, 808.)
Existing law requires, in order for an obligation or liability
to be deferred under Military and Veterans Code Section 800, a
reservist or National Guard member to deliver to the lender a
letter signed by the member, under penalty of perjury,
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requesting deferment of the obligation. (Mil. & Vet. Code Sec.
800.)
Existing law prohibits the imposition of penalties or the
charging or accumulation of interest on the nonpayment of
principal or interest during a period of deferment under
Military and Veterans Code Section 800 et seq. (Mil. & Vet.
Code Sec. 804.)
Existing law permits any federal military reservist or National
Guard member who is called to active duty to, at any time during
his or her period of active duty service or within six months
thereafter, apply to a court for relief from an obligation or
liability incurred by the member prior to his or her period of
military service, or from any tax or assessment falling due
prior to or during the period of service. (Mil. & Vet. Code
Sec. 409.3(a).)
Existing law authorizes, in the case of an installment contract
for the purchase of real estate, or other instrument in the
nature of a mortgage upon real estate, a stay of the enforcement
of the obligation during the applicant's period of military
service, or, if application is made after the service, for a
period of time up to the length of the period of military
service. At the conclusion of the stay of enforcement, the
principal and accumulated interest due and unpaid shall be
repaid in equal installments during the remaining life of the
installment contract or other instrument, extended by a period
of time equal to the stay of enforcement, at the rate of
interest on the unpaid balance as prescribed in the contract, or
other instrument evidencing the obligation, for installments
paid when due, and subject to any other terms as may be just.
(Mil. & Vet. Code Sec. 409.3(d)(1).)
Existing law authorizes, in the case of any other obligation,
liability, tax, or assessment, a stay of the enforcement during
an applicant's period of military service, or, if application is
made after the service, for a period of time equal to the period
of military service of the applicant or any part of that period.
At the conclusion of the stay of enforcement, the balance of
principal and accumulated interest due and unpaid at the date of
termination of the period of military service or the date of
application, as the case may be, shall be repaid in equal
periodic installments during a period of time equal to the stay
of enforcement, at the rate of interest as may be prescribed for
the obligation, liability, tax, or assessment, if paid when due,
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and subject to any other terms as may be just. (Mil. & Vet.
Code Sec. 409.3(d)(2).)
Existing law permits a court to grant this specified relief
after appropriate notice and hearing, unless in its opinion the
ability of the service member to comply with the obligation or
pay the tax or assessment has not been materially affected by
reason of the member's military service. (Mil. & Vet. Code Sec.
409.3(d).)
This bill would expand the class of military reservists and
National Guard members eligible to receive benefits under
Military and Veterans Code Section 800 et seq., including
benefits related to the provision of health care coverage and
the deferment of financial obligations, to any reservist called
to active duty for a period of 30 or more consecutive days.
This bill would add utility payment obligations to the list of
financial obligations subject to deferment under Military and
Veterans Code Section 800.
This bill would also require, in addition to a letter signed by
the member under penalty of perjury requesting deferment of the
obligation, that a service member send the lender a copy of his
or her activation or deployment orders as part of an application
for deferment under Military and Veterans Code Section 800.
COMMENT
1. Stated need for the bill
According to the author:
Military reservists who are called to active duty to serve
in Iraq and Afghanistan receive the financial protection to
defer payments without interest, up to 180 days, on a
mortgage, credit card, retail installment contract, retail
installment account, two car loans, and property tax.
. . .
AB 526 will expand the financial protections currently
given to military reservists called to active duty to serve
in Iraq and Afghanistan to all military reservists called
to active duty. Also, utility payments will be added to
the list of able deferral obligations.
. . .
With the Iraq and Afghanistan wars both winding down,
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military reservists are being called to active duty to
serve elsewhere in the world and within the United States.
Current California law provides financial protections for
reservists who are called to active duty to serve in Iraq
and Afghanistan but not if the reservists is called to
active duty elsewhere. When a military reservist is called
to active duty they have to leave their civilian job, for
the time being, and are put on military pay which is
usually substantially less than what they were making as a
civilian. With this dramatic shift in an individual's or
family's budget it can cause a lot of additional anxiety
and stress with budgetary shortfalls on top of the stress
of being called to fight for your country.
2. Support of California's armed forces
Courts across the United States have recognized the paramount
importance of protecting our service personnel from the
dislocating effects that military service can have on a
soldier's civil obligations. The Supreme Court has held that
the federal Servicemembers Civil Relief Act (50 U.S.C. 510 et
seq.), which parallels many of the same protections offered
under California law, "must be read with an eye friendly to
those who dropped their affairs to answer their country's call"
(Le Maistre v. Leffers (1948) 333 U.S. 1, 6), and is "to be
liberally construed to protect those who have been obliged to
drop their own affairs to take up the burdens of the nation"
(Boone v. Lightner (1943) 319 U.S. 561, 575). The public policy
underlying deferment statutes codified in Military and Veterans
Code Sections 400 and 800 "is to allow military personnel to
fulfill their duties unhampered by obligations incurred prior to
their call." (Omega Indus., Inc. v. Raffaele (D. Nev. 1995) 894
F. Supp. 1425, 1434 [citing Patrikes v. J.C.H. Service Stations,
Inc. (N.Y.City Ct.1943) 41 N.Y.S.2d 158, 165].) This policy
extents to protect military personnel in times of peace where no
national emergency exists (Conroy v. Aniskoff (1993) 113 S.Ct.
1562, 1564-66), is "always to be liberally construed" (Boone,
319 U.S. at 574), and is to be applied in a "broad spirit of
gratitude" towards service personnel (Patrikes, 41 N.Y.S.2d at
166).
AB 526 furthers this important public policy by removing the
requirement that a service member must have served in support of
a conflict in Afghanistan or Iraq in order to qualify for the
class of benefits available under Section 800. It recognizes
that when service members are deployed, regardless of where they
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are deployed to, it may be difficult or impossible for them to
manage their financial obligations remotely, and that the added
stress of worrying about finances back home could undermine
their effectiveness and safety. This bill ensures that all
recalled military reservists are afforded the same opportunity
to defer financial obligations, regardless of where they are
called to serve.
Absent amendments by the Legislature, Military and Veterans Code
Section 800 will become unusable in the near future, since its
provisions are only available to service members called to
active duty as part of the Iraq or Afghanistan conflicts. As
those conflicts come to a close, the enhanced financial
protections offered under Section 800 will no longer apply to
California's recalled military service personnel. However,
there is no indication that military reservists and National
Guard personnel won't continue to deploy as part of military
missions both in California and abroad. This bill ensures that
the protections currently offered under Section 800 to those who
serve in Iraq and Afghanistan will remain available to all
citizen-soldiers who answer the call to service.
3. Impact to contractual obligations
The demands placed upon our deployed military service personnel
must be balanced against the importance of honoring contractual
obligations made in the course of civic life. Public policy in
California weighs these competing interests, and allows service
members to defer certain financial obligations with the
understanding that they will be required to honor their
contractual commitments when they return home from service.
This bill maintains that balance by granting all military
reservists up to six months of interest-free deferments on
financial obligations without having to go to a court (as is
required to defer obligations under Military and Veterans Code
Section 409.3). It ensures that all recalled military
reservists are afforded the same opportunity to defer financial
obligations, regardless of where they are called to serve.
By expanding the class of reservists and dependents eligible to
claim benefits under Section 800, this bill could have a minor
impact on the earnings of lenders and other entities that would
otherwise collect interest on deferred obligations, based on the
number of California service members that would be eligible to
use this benefit. According to the California Military
Department, the California National Guard has deployed over
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39,000 soldiers and airmen since September 2001. Fourteen
hundred of these reservists are currently on deployment. Given
that California has an estimated population of approximately 38
million people, the enhanced protections offered by this bill
are expected have an extremely small impact on lenders and other
entities doing business in the state.
Similarly, AB 526 is not likely to significantly impact the
finances of public or private utilities by adding utility bills
to the list of obligations subject to deferment under Section
800. Federal reservists and members of the National Guard who
are called to full-time active military service already receive
utility shutoff protection under the California Military
Families Financial Relief Act of 2005 (Mil. & Vet. Code Sec. 820
et seq.). Further, staff notes that utility bills likely fall
within the scope of obligations eligible for deferment under
existing provisions in Military and Veterans Code Section 409.3.
As noted above, the expected impact from permitting deferrals
of obligations owed to utility companies is likely to be small,
given the disparity between the size of a utility's consumer
base and the number of service members and dependents eligible
to defer obligations under Section 800.
4. Compatibility with SB 720
This Committee has already heard a parallel bill (SB 720,
Correa) this legislative session which would expand the benefits
available to military reservists seeking to defer financial
obligations under Military and Veterans Code Section 400 et seq.
SB 720 was passed out of Committee on April 30th by a vote of
7-0 and has been referred to the Assembly Committees on Veterans
Affairs and the Judiciary. That bill, sponsored by the
California Military Department, would amend Military and
Veterans Code Section 409.3 to prohibit certain financial
obligations, including installment contracts for real estate
purchases and mortgages secured by real estate, as well as any
other obligation, liability, tax, or assessment, from incurring
interest on deferred interest during a period of deferment. It
would, in essence, extend the enhanced six-month deferment
option codified in Military and Veterans Code Section 800 that
is currently available only to reservists deployed to Iraq or
Afghanistan, to the full duration of a military deployment for
all deployed reservists who obtain the requisite court order.
This bill does not conflict with the amendments proposed in SB
720. Similar to that bill, AB 526 borrows some elements of
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existing law (specifically, from Military and Veterans Code
Section 400 et seq.) and incorporates them into an existing
financial obligation deferment statute (Section 800 et seq.).
This bill would remove the requirement that a service member
must have served in the Iraq or Afghanistan conflicts in order
to qualify for a deferment under Section 800, and would expand
the class of deferment eligible obligations to include
obligations owed to a utility company, both of which are
presently provided for in Section 400. This bill would also
require a service member to send a lender a copy of his or her
activation or deployment orders as part of an application for
deferment, which a court entertaining a service member's request
for deferment under Section 400 would also likely require.
Support : American Legion - Department of California; AMVETS -
Department of California; California Association of County
Veterans Service Officers; California State Commanders Veterans
Council; Vietnam Veterans of America - California State Council
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : SB 720 (Correa) would expand the
benefits available to military reservists seeking to defer
financial obligations under Military and Veterans Code Section
409.3. Specifically, this bill would extend certain enhanced
protections currently offered only to military reservists and
National Guard personnel ordered to active duty as part of the
conflicts taking place in Iraq and Afghanistan, including
protection from having to pay interest on deferred interest at
the end of a deferment, to all federal military reservists and
California National Guard service members ordered to active
duty. This bill is in the Assembly Committee on Veterans
Affairs.
Prior Legislation :
AB 713 (Block, Chapter 105, Statutes of 2011) clarified that
recall to active military service gives a service member the
ability to apply to a court for relief from certain financial
obligations. This bill also extended to the dependents of those
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service members an existing provision of law that protects
service members from the assessment of interest at a rate
greater than six percent.
AB 2455 (Nava, Chapter 124, Statutes of 2010) extended to
spouses and dependents of service members certain financial
protections with respect to the deferment of vehicle loans.
AB 2365 (Lieu, Chapter 385, Statutes of 2010) enabled a service
member to recover actual damages, reasonable attorney fees, and
litigation costs from any person who violates specified rights
and protections codified in the Military and Veterans Code,
including financial protections for active duty personnel. This
bill granted service members an expedited review of certain
petitions for relief from financial obligations, and provided
that a court shall not charge a filing fee or court costs for
specified actions.
AB 306 (Baca, Chapter 291, Statutes of 2005) authorized service
members who are called to active duty as part 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 1433 (Horton, Chapter 60, Statutes of 2002) enabled 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 for eviction
protection for the service member's families.
SB 1284 (Battin, 2002) would have extended certain financial
protections to military reservists called to serve on active
duty for national emergencies caused by the terrorist attacks on
New York City and the Pentagon. This bill would have extended
certain existing misdemeanor provisions relating to rent relief
to a larger class of military reservists. This bill died in the
Senate Committee on the Judiciary.
Prior Vote :
Assembly Veterans Affairs Committee (Ayes 9, Noes 0)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Floor (Ayes 76, Noes 0)
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