BILL ANALYSIS Ó
SENATE COMMITTEE ON VETERANS AFFAIRS
Senator Ben Hueso, Chair
BILL NO: SB 720 HEARING DATE: 4/23/13
AUTHOR: Correa
VERSION: 4/4/13
FISCAL: Yes
VOTE: Majority
SUBJECT
Military service: financial protections for mobilized reservists
DESCRIPTION
Summary
Ensures that National Guard and federal military reserve
servicemembers, who are ordered onto temporary state or federal
active service, receive financial protections for all active
duty assignments that are equivalent to the financial
protections that currently are reserved only for their service
on federal active duty tours that are "part of the Iraq and
Afghanistan conflicts."
Existing law:
Helps protect National Guard and federal military reservists
from the adverse effects of military deployment by providing
various financial protections with regard to court proceedings,
credit contract obligations, rental agreements, taxes, health
insurance, eviction protection, and fees related to recording a
power of attorney, termination of mobile telephone contracts,
academic tuition, state bar membership, vehicle leases, and
residential utility service.
Financial protections provided under Military and Veterans (MVC)
§409.3 apply to:
" National Guard members mobilized onto temporary state
active duty by the Governor (MVC 143 or 146) or federal
active duty (Title 10 or Title 32, U.S. Code);
" Federal reservists mobilized onto federal active duty
under Title 10, US Code.
Broader protections, including prohibition on interest accrual
on deferred obligations, provided under MVC §§800, apply only
to:
" National Guard members and federal reservists mobilized
onto federal active duty "as a part of the Iraq and
Afghanistan conflicts."
This bill:
" Provides that servicemembers - mobilized onto temporary
state active duty by the Governor (under MVC 143 or 146) or
federal active duty (under Title 10 or Title 32, U.S. Code)
- are eligible under existing law to defer loans and
obligations, but now can do so without being financially
penalized by having to pay interest on deferred interest at
the end of their deferment.
" Ensures that the protections afforded to financial
institutions in MVC §§800 are incorporated into MVC §409.3.
Additionally, making clarifying amendments to MVC §409.3
will ensure the protections provided by this section for
deployed Servicemembers shall be interpreted consistently by
both members and financial institutions.
BACKGROUND
SB 720 (Correa)
2
Recent History of State Financial Protections
The State's intent to provide increased financial protections
for servicemembers called to active service can be found in
several places in California Law.
In response to the events of September 11, 2001, the California
Military Department sponsored AB 1433 (Horton), which borrowed
heavily from federal law. This bill enabled National Guard
members serving in state or federal status and other military
reservists performing federal duty to receive financial
protections consistent with those found within the federal
Soldiers and Sailors Civil Relief Act (SSCRA). These protections
were placed in MVC §§400-420.
In 2005, the Legislature enacted AB 306 (Baca) to amend MVC
§§800-810, which originally had been enacted in 1991 to address
service in the first Gulf War (Desert Storm). This bill expanded
and enhanced financial protections of existing federal and state
laws for members called to active duty due to ongoing conflicts
in Iraq (Iraqi and Afghanistan.
For practical examples on how existing law affects varying loan
deferment scenarios, see "Sponsor Comments" below.
For a concise three-way comparison of servicemember protections
under MCV §§800, MVC §409.3, and federal law 50 USC 591, see the
following chart.
SB 720 (Correa)
3
Comparison Chart of MVC §§800, MVC §409.3, and 50 USC 591
-----------------------------------------------------------------
| | MVC §§800 | MVC §409.3 | 50 USC 591 |
|---------+-----------------+------------------+------------------|
|Eligibili|National Guard |National Guard |Applies to Active |
|ty |and Reserve |members who are |Duty members |
| |members called |called to active | |
| |to Iraq and |state service or |(Rarely utilized |
| |Afghanistan. |active federal |as full-time, |
| | |service for a |active component |
| | |period in excess |Servicemembers |
| | |of seven days in |very rarely |
| | |any 14-day |suffer material |
| | |period. |impact due to a |
| | | |deployment.) |
| | |and | |
| | | | |
| | |Reserve | |
| | |Servicemembers | |
| | |who have been | |
| | |called to | |
| | |full-time federal | |
| | |active duty for a | |
| | |period in excess | |
| | |of seven days in | |
| | |any 14-day | |
| | |period. | |
|---------+-----------------+------------------+------------------|
|Length |The lesser of |The period of the |The period of the |
|of |180 days (6 |Servicemembers' |Servicemembers' |
|Deferment|months) or the |active military |active military |
| |period of active |service. |service |
| |duty plus 60 | |(deployment). |
| |calendar days. | | |
|---------+-----------------+------------------+------------------|
|Process |Servicemember |Servicemember |Servicemember |
|to Defer |must send a |must petition the |must apply to |
| |signed letter to |court and show |court for relief |
| |their lender, |they have been |and prove that |
SB 720 (Correa)
4
| |under penalty of |materially |they have been |
| |perjury, |affected by their |materially |
| |requesting a |most current |affected by |
| |deferment of |period of |reason of |
| |financial |military service |military service. |
| |obligations. |in order to defer | |
| | |a loan or | |
| | |obligation. | |
|---------+-----------------+------------------+------------------|
|Method |The maturity |Extends the |Same as §409.3. |
|of |date of the loan |maturity date of | |
|Repayment|is extended by |the loan by the | |
| |the deferred |period of | |
| |amount (in |military service | |
| |essence the 6 |and, at the end | |
| |months of |of the deferment, | |
| |payments |rolls the unpaid | |
| |deferred are |principal and | |
| |paid at the end) |accumulated | |
| |and no interest |interest into the | |
| |is charged or |principle balance | |
| |accumulated on |of the loan or | |
| |the principal or |obligation. | |
| |interest on |(Servicemember | |
| |which the |pays interest on | |
| |payment was |the deferred | |
| |deferred. |interest.) | |
| | | | |
-----------------------------------------------------------------
SB 720 (Correa)
5
Reserve Mobilization
A full appreciation of the effects of mobilization requires a
solid understanding of the various categories of reserve
servicemembers and the distinct purposes of and legal
authorities behind the differing types of mobilization. The rest
of this "Background" section provides that informational
foundation for those who feel they lack it.
The United States Armed Forces consist of regular, active
component forces that are always on full-time duty and "reserve
component" forces that usually train in part-time status, but
are called onto full-time active duty to help the active
component forces meet national security contingencies. Troops
serving in the reserve forces must maintain the same mental,
physical, technical and combat readiness standards as the active
forces.
The U.S. Army, Air Force, Navy, Marine Corps and Coast Guard
each have one active component force and one federal reserve
component force. However, the Army and Air Force are unique in
that each has an additional reserve component - the National
Guard - that they share with the 50 states and several U.S.
territories.
Unlike the other five reserve components, which are purely
federal, the Army National Guard (ARNG) and Air National Guard
(ANG) have both federal and state missions. The dual mission of
the National Guard is provided by the U.S. Constitution and the
U.S. Code of laws, and results in each soldier or airman holding
membership in both the National Guard of his or her state and in
the U.S. Army or the U.S. Air Force.
From a federal government perspective, the ARNG and ANG are
administered by the United States National Guard Bureau (a joint
bureau of the Departments of the Army and Air Force). Like the
five purely federal reserve components, the ARNG and ANG can be
mobilized by the President and integrated into the structures
and operations of the full-time active duty military during
periods of national need.
SB 720 (Correa)
6
From a state perspective, the National Guard is the primary, and
sometimes the sole, component of the statutorily authorized
"organized militias" of 54 separate entities: the 50 states, the
territories of Guam and the U.S. Virgin Islands, the
Commonwealth of Puerto Rico, and the District of Columbia. When
not mobilized onto federal active duty status, Guard units and
individual members may be called by their state's governor onto
state active duty to help respond to natural disasters, civil
unrest, and other public safety concerns.
Most of the laws for Federal Mission operations are contained
within Title 10 of the U.S. Code. Title 10 outlines the role of
all U.S. armed forces, both active and reserve. For any type of
reserve troop, whether federal or National Guard, serving on
"Title 10 active duty" means full-time duty in the active
federal military service of the United States. Title 10 allows
the President to call up the five purely federal reserve
components and also to "federalize" the states' National Guard
forces.
" Full Mobilization requires a formal declaration of war
or national emergency by the United States Congress,
affects all reservists (including those on inactive status
and retired members), and may last until six months after
the war or emergency for which it was declared.
" Partial Mobilization : In time of national emergency
declared by the President for any unit or any member for
not more than 24 consecutive months. Limits the call-up to
a maximum of one million personnel activated for no more
than two years.
" Presidential Reserve Call Up : When the President
determines that it is necessary to augment the active
forces for any operational mission for any unit or any
member for not more than 270 days. Does not require a
declaration of national emergency, but requires the
President to notify Congress and the number of individuals
called up is limited in number.
" Voluntary Order to Active Duty : Volunteers may request
SB 720 (Correa)
7
to go on active duty regardless of their reserve component
category, but state governors must approve activating
National Guard personnel.
All reserve troops, whether federal or National guard, activated
under Title 10, are subject to the Uniform Code of Military
Justice (UCMJ), receive all federal benefits, and are protected
by all federal laws, such as SSCRA.
Title 32 of the U.S. Code applies only to the two National Guard
reserve components. Guard members activated under Title 32 are
under the command of their state's governor and adjutant
general, but are paid by the federal government. Title
32-mobilizees cannot exercise command over Title 10-mobilizees,
are still subject to the federal UCMJ, and you are only
protected by certain federal laws.
Typically, Title 32 is used for homeland defense. Homeland
defense operations protect the territory or domestic population
of the United States, or of infrastructure or other assets of
the United States, determined by the Secretary of Defense as
being critical to national security, from a threat or aggression
against the United States. The Posse Comitatus Act (Title 18)
limits the powers of the Federal government in using federal
military personnel to enforce the State laws. Title 32 works
around the Posse Comitatus restrictions by providing the
Governor with the ability to place National Guard members in a
full-time duty status under the command and control of the
State, but directly funded with Federal dollars.
A recent example of Title 32 mission came in response to the
9/11 terror act, which focused the country on defending the
homeland. President Bush requested a Presidential Selected
Reserve Call-up of the National Guard for conducting airport
security. States sought out volunteers for this operation and
employed its soldiers with federal funds in a Title 32 status,
supporting a homeland security mission named "Operation Noble
Eagle." The troops performing this mission worked for
independent state Governors in support of the Federal Aviation
Administration.
California National Guard members activated under the emergency
SB 720 (Correa)
8
state active duty provisions contained in MVC 143 and 146 are
solely under state command and are paid by the state. They are
not subject to the federal UCMJ, receive no federal protection,
and exercise no command authority over federal troops.
COMMENT
1.Committee staff comments
a. The California Bankers Association's is aware of this
bill, but has not taken a position. The Association's
legislative committee did not have an opportunity to
formally review it in its recently amended form and is not
scheduled to convene again until May 9.
b. This bill's provisions do not apply to:
1) Uniformed state employees, who work full-time as
members of the state active duty (SAD) force, "ordered"
onto active state service by the Governor via his
authority under MVC §142. These are permanent employees.
2) Uniformed members of the Army or Air National Guard
or the U.S. Army or Air Force reserve components, who are
full-time active duty employees under the Active Guard
Reserve (AGR) program.
3) Uniformed members of the Navy Reserve Full-Time
Support program, Marine Corps Active Reserve, and Coast
Guard Reserve Program Administrators.
c. Current use of protections under existing law:
1) The Military Department says it is difficult to
determine the annual number of deferments under the
existing MVC §409.3 and MVC §§800, because, in most
cases, the member is able to initiate and complete the
process of deferment on their own without legal counsel.
Generally, Department legal staff is only notified if the
member encounters a problem with their financial
institution complying with state law.
SB 720 (Correa)
9
2) Military Department estimates that one-third of
deploying National Guard members use MVC §§800 annually
to defer home mortgages and car loans. They estimate that
less than 10% of deploying National Guard members use
§409.3 annually. Legal staff states that they are only
aware of approximately 50 members deferring obligations
under §409.3 during the last year.
2.Author comments :
Both the §§400 and §§800 of the MVC now provide for deferment of
loans and obligations during a servicemember's call to active
military service; however these sections are inconsistent in
three ways: (1) applicability, (2) the process of obtaining
deferrals, and (3) repayment of deferred loans and obligations.
This discrepancy inadvertently financially penalizes members who
must defer a portion or the entirety of their loan or obligation
under MVC §409.3.
MVC §§800 applies to any member of the federal military reserves
or the California National Guard, who is called to active duty
as a part of the Iraq and Afghanistan conflicts. The relief
provided to members by MVC §§800 is for the lesser of 180 days
(six months) or the period of active duty plus 60 calendar days.
To obtain deferment of a loan or obligation, the servicemember
must send a signed letter to their lender, under penalty of
perjury, requesting a deferment of financial obligations.
MVC §§400-420 are essentially identical to the federal SSCRA and
apply to members of the National Guard who are called or ordered
to active state service or active federal service pursuant to
Title 10 or 32 of the United States Code and to other Reservists
who have been called to full-time federal active duty for a
period in excess of seven days in any 14-day period. The relief
provided to members by MVC §409.3 is for the period of their
active military service. Under MVC §409.3, a servicemember must
petition the court and show they have been materially affected
by their most current period of military service in order to
defer a loan or obligation.
In terms of how the deferred monies are repaid, MVC §§800
SB 720 (Correa)
10
contemplates that the maturity date of the loan will be extended
by the deferred amount (in essence the six months of payments
deferred are paid at the end) and that "no interest shall be
charged or accumulated on the principal or interest on which the
payment was deferred."
3.Sponsor comments :
"Example of Deferred Loan Under §§800: A Servicemember's
monthly mortgage payment is $2,000, in which $400 is applied to
their principle balance and the remaining $1,600 is applied to
interest. At the end of the six month deferral, $2,400 ($400 x
6) would be added to the Servicemember's principle balance, the
maturity date of the loan would be extended by six months and
interest would be paid on the deferred amount at the rate called
for by the obligation.
"In contrast, MVC §409.3 extends the maturity date of the loan
by the period of military service and, at the end of the
deferment, rolls the unpaid principal and accumulated interest
into the principle balance of the loan or obligation. The
Servicemember then pays in equal installments at the rate of
interest on the unpaid balance as prescribed in their contract,
which effectively means the Servicemember pays interest on the
deferred interest.
"Example of Deferred Loan Under §409.3: A Servicemember's
monthly mortgage payment is $2,000, in which $400 is applied to
their principle balance and the remaining $1,600 is applied to
interest. At the end of a six month deferral, $12,000 ($2,000 x
6) would be added to the Servicemember's principle balance, the
maturity date of the loan would be extended by six months and
interest would be paid on the deferred amount at the rate called
for by the obligation.
"In summary, Servicemembers who defer loans and obligations
under MVC §§800 are only adding the deferred payments of their
principle to the end of their loan and therefore are not
increasing their original principle loan amount. However,
Servicemembers deferring pursuant to MVC §409.3 are actually
increasing their original principle balance due to both the
deferred principle and interest being added to their principle
SB 720 (Correa)
11
balance at the end of their deferment, causing the Servicemember
to pay interest on interest. This unfairly increases the
Servicemember's principle loan balance and reduces the
Servicemember's equity in their home.
"Senate Bill 720 would amend MVC §409.3 to treat the repayment
of deferred loans and obligations in the same manner under §804,
ensuring that Servicemembers will not be forced to pay interest
upon deferred interest. Incorporating this portion of MVC §§800
into MVC §409.3 also ensures that all Servicemembers who are
called to state or federal active service are provided the same
financial protections for the entirety of their active military
service.
"As the majority of National Guard Servicemembers' orders to
federal active service are for a minimum of 12 months in
duration and, for many Servicemembers, their compulsory
requirement to active service additionally meets the eligibility
criteria to defer a loan or obligation under both MVC §409.3 or
MVC §§800, the inconsistencies and complexity of these two code
sections cause confusion for both Servicemembers and financial
institutions.
"Due to the negative financial effect that Servicemembers are
experiencing through deferring their loan or obligation under
MVC §409.3, Servicemembers are compelled to use a combination of
protections under MVC §§800 and MVC §409.3 in an effort to
minimize the negative impact of their military service on their
financial situation. For example, if a Servicemember is called
to active service for 12 months in Afghanistan, that
Servicemember may choose to defer the first six months of their
loan under MVC §§800 by writing a letter to their lender. The
Servicemember may then petition the court to defer the second
six months of their loan under MVC §409.3. Unfortunately, in
this scenario, the Servicemember would have to endure two
deferral processes to obtain the best financial protection.
"The California Military Department's legal staff has found time
and again that Servicemembers are unable to decipher when and
which each of these code sections should be utilized and
therefore fail to receive the full assistance of the financial
protection. Legal staff has also experienced on many occasions
SB 720 (Correa)
12
that financial institutions are confused on how to apply two
different code sections to what they see as a single period of
deferment. Financial institutions are left to decipher how to
roll the deferred monies back into the Servicemembers loan and
on more than one occasion have inaccurately applied one code
section over the other for the entirety of a Servicemember's
deferment.
"It is not practical to treat the two deferments in
distinctively different ways. By amending MVC §409.3 to treat
the repayment of deferred loans and obligations in the same
manner as MVC §§800, all Servicemembers who are called to state
or federal active service, regardless of the geographical
location, would be able to defer loans and obligations under a
single code section. This eliminates the situation where
Servicemembers have to defer loans and obligations under two
code sections and provides financial institutions with a
singular mechanism in which to calculate deferred monies back
into the original loan.
"Protections for financial institutions do not currently exist
in MVC §409.3.
"In codifying MVC §§800, the Legislature recognized the inherent
risks of financial institutions during the deferment process and
built in protections for lenders. This proposal would add the
protections provided to financial institutions in MVC §802 to
MVC §409.3, ensuring that financial institutions are not forced
to take on additional financial risk.
"Military and Veterans Code §§800 will become null and void in
the near future.
"As the conflicts in Afghanistan come to a close, the financial
protections offered under MVC §§800 will become inactive.
However, this legislation anticipates the National Guard's
continued deployments in support of the Department of Defense in
the post-conflict era. This legislation ensures the protections
provided by California to those that defend and serve their
state and nation remain."
4.Related Legislation
AB 526 (Melendez, pending, 2013)
SB 720 (Correa)
13
Adds financial protections for Reserve and California National
Guard members, their spouses and legal dependents, expands scope
of eligibility for protections. (Amends MVC §§800, 803 and 811).
Specifically, this bill:
" Deletes the requirement that the protections in these
code sections apply only to members who have served in
support of a conflict in Afghanistan or Iraq. (Any active
duty service is now eligible.)
" Adds utility payment obligations to the list of
obligations which may be deferred during active duty;
" Requires that the servicemember deliver to the lender a
copy of his or her activation or deployment order and any
other information that substantiates the duration of the
servicemember's military service.
AB 713 (Block, Ch. 105, Stats. 2011)
Made minor revisions to the MVC that clarified which order to
military service gives a servicemember the ability to apply to a
court for relief from financial obligations. Also ensures that a
servicemember's dependents are eligible for the reduction of
interest rates to six percent on obligations and liabilities
incurred prior to the Servicemember's entry into service.
AB 2365 (Lieu, Ch. 385, Stats. 2010)
Permits a service member to recover actual damages, reasonable
attorney fees, and costs from any person who violates specified
rights and protections of the MVC; granted service members an
expedited review of a specified petition for relief, and
provided that a court shall not charge a filing fee or court
costs for specified actions.
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
SB 720 (Correa)
14
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.
POSITIONS
Sponsor: California Military Department
Support:
American Legion - Department of California
AMVETS - Department of California
California State Commanders Veterans Council
Vietnam Veterans of America - California State Council
Oppose: None received
Analysis by: Wade Cooper Teasdale
SB 720 (Correa)
15