BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 526| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- CONSENT Bill No: AB 526 Author: Melendez (R) Amended: 6/14/13 in Senate Vote: 21 SENATE VETERANS AFFAIRS COMMITTEE : 7-0, 6/11/13 AYES: Hueso, Knight, Block, Correa, Lieu, Nielsen, Roth NO VOTE RECORDED: Vacancy SENATE JUDICIARY COMMITTEE : 7-0, 6/25/13 AYES: Evans, Walters, Anderson, Corbett, Jackson, Leno, Monning SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 76-0, 4/25/13 - See last page for vote SUBJECT : Military service: benefits SOURCE : Author DIGEST : This bill extends 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 also adds utility bills to the list of financial obligations subject to statutory deferment. ANALYSIS : Existing law: 1. Permits a member of the United States Military Reserve or the CONTINUED AB 526 Page 2 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. 2. Requires, in order for an obligation or liability to be deferred under the Military and Veterans Code (MVC) Section 800, a reservist or National Guard member to deliver to the lender a letter signed by the member, under penalty of perjury, requesting deferment of the obligation. 3. 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 the MVC. 4. Permits any federal military reservist or National Guard member who is called to active duty to, at any time during his/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/her period of military service, or from any tax or assessment falling due prior to or during the period of service. 5. 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 must 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. 6. 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 CONTINUED AB 526 Page 3 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, must 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, and subject to any other terms as may be just. 7. 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. This bill: 1. Expands the class of military reservists and National Guard members eligible to receive benefits under MVC 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. 2. Adds utility payment obligations to the list of financial obligations subject to deferment under current law. 3. Requires, 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/her activation or deployment orders as part of an application for deferment under current law. 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 Soldiers' and Sailors' Relief Act of 1940, and granted certain CONTINUED AB 526 Page 4 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 MVC. MVC 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. (MVC Section 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. MVC 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. (MVC Section 804) Both Section 400 and Section 800 contain other additional benefits that mostly overlap with each other. Each requires CONTINUED AB 526 Page 5 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. (MVC Section 806(a); MVC Section 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 (MVC Sections 409.5, 811(a)), and prohibit the assessment of penalties for the nonpayment of principal or interest during a period of deferment. (MVC Sections 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 10% 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. 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 service members an existing provision of law that protects service members from the assessment of interest at a rate greater than 6%. 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 MVC, 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. CONTINUED AB 526 Page 6 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT : (Verified 8/9/13) American Legion, Department of California AMVETS, Department of California Attorney General Kamala Harris California Association of County Veterans Service Officers California State Commanders Veterans Council National Guard Association of California Vietnam Veterans of America, California State Council ARGUMENTS IN SUPPORT : 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 CONTINUED AB 526 Page 7 active duty. Also, utility payments will be added to the list of able deferral obligations. With the Iraq and Afghanistan wars both winding down, 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. ASSEMBLY FLOOR : 76-0, 4/25/13 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom, Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Maienschein, Mansoor, Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting, Torres, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Cooley, Lowenthal, Nazarian, Vacancy AL:d 8/13/13 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED