BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 2476 (Committee on Veterans Affairs)
As Introduced
Hearing Date: June 19, 2012
Fiscal: No
Urgency: No
TW
SUBJECT
Service member obligations or liabilities: rate of interest
DESCRIPTION
Existing law provides that, unless otherwise determined by a
court, service members may not be charged more than six percent
interest per year, during any part of the period of military
service, on any obligation or liability incurred by a service
member before that person's entry into service. This bill would
extend the maximum interest protection on mortgage liabilities
to one year after the service member leaves military service.
BACKGROUND
The federal Servicemembers Civil Relief Act (SCRA), formerly
known as the Soldiers' and Sailors' Relief Act of 1940, provides
a comprehensive scheme to stay the enforcement of certain civil
liabilities against persons called to military service overseas.
Among other benefits, the SCRA allows the service member to
seek leave of court to delay payments on debts and tax
obligations, stays enforcement of civil judgments, tolls
statutes of limitation, provides a fixed interest rate on debts,
and stays eviction of a service member's dependents. These
benefits are available to members of the Armed Forces,
reservists, and National Guard members ordered to duty under
Title 10 of the United States Code.
In 2002, AB 1433 (Horton, Ch. 60, Stats. 2002) enacted many of
the financial and consumer-related service member protections as
are provided under the SCRA. Those provisions generally seek to
provide protections against various potential adverse effects of
(more)
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a deployment, including financial protection with regards to
court proceedings, credit contract obligations, rental
agreements, taxes, health insurance, and eviction protection.
AB 1666 (Frommer, Ch. 345, Stats. 2005) provided additional
protection for members called into active duty with regards to
fees for recording a power of attorney, termination of mobile
telephone contracts, academic tuition, state bar fees, vehicle
leases, and residential utility service.
In 2008, the SCRA was updated to provide, among other things,
that service members may not be charged more than six percent
interest on mortgage-related liabilities during any part of the
military service and for one year after and on any other
obligation or liability during any part of the military service.
This author-sponsored bill would conform California law to the
new maximum interest provisions for mortgage-related liabilities
and other obligations under the SCRA.
CHANGES TO EXISTING LAW
Existing state law provides that no obligation or liability
bearing interest at a rate in excess of six percent per year
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 six percent per
year unless, in the opinion of the court, upon application
thereto by the obligee, the ability of the service member to pay
interest upon that obligation or liability 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. Existing law provides that "interest"
includes service charges, renewal charges, fees, or any other
charges, except bona fide insurance, in respect of any
obligation or liability. (Mil. & Vet. Code Sec. 405(a).)
Existing federal law , under the Servicemembers Civil Relief Act
(SCRA), provides an interest rate limitation of six percent for
the following obligations incurred before the service member
enters military service by a service member and/or the service
member's spouse:
during the period of military service and one year thereafter,
an obligation or liability consisting of a mortgage, trust
deed, or other security in the nature of a mortgage charged;
and
during the period of military service, any other obligation or
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liability. (50 U.S.C.S. Appx. Sec. 527.)
This bill would conform state law to the obligation interest
restrictions provided under the SCRA.
COMMENT
1. Stated need for the bill
The author writes:
The Servicemember's Civil Relief Act (SCRA) was amended
recently to change the amount of time to which it applies to a
servicemember. Previously, with regard to an interest rate
cap of 6 �percent], a servicemember was covered during his/her
time in service. The federal law has amended the act to cover
the servicemember for a year after their time in service.
State law only covers the servicemember for time in service,
and this bill will amend state law so that it is also extended
to a year following his/her time served.
2. Extending interest rate protections on service member mortgage
liabilities
This bill would provide that, for mortgage-related liabilities
incurred prior to entry into military service, a service member
may not be charged more than six percent interest during the
period of military service and for one year thereafter.
Existing state law generally provides that obligations incurred
by a service member prior to enlistment may not be charged more
than six percent interest during the service member's military
service.
In 2008, the subprime mortgage crisis in the U.S. prompted
Congress to enact consumer protections and housing reforms in
the Housing and Economic Recovery Act of 2008 (HERA) (Pub.L. No.
110-289 (July 30, 2008) 122 Stat. 2654). HERA, among other
things, revised the SCRA by extending interest rate restrictions
on mortgage liabilities for service members to one year after
the end of the service member's military service.
The author argues that service members, through the SCRA, now
have broader protections than currently exist under California
law. Under the SCRA, a service member who has completed his or
her military service will maintain a six percent or lower
mortgage interest rate for an additional year after completion
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of service. Since California's existing service member interest
rate protection is based on the SCRA, and the SCRA has been
modified to provide broader protections regarding mortgage
liabilities, this bill would provide the same mortgage liability
protections to California's service members.
The California Bankers Association and the California Mortgage
Bankers Association are in support of this bill and have "worked
collaboratively with interested parties to advance reasonable
measures that improve consumer protections." Other supporters
of this bill assert that this bill is important to help service
members with financial matters during their transition to
civilian life.
It is important to note that existing law authorizes a court to
allow an interest rate higher than six percent if a creditor
proves that the service member's call to military service does
not affect the service member's ability to pay the higher
interest rate. This bill would not alter the court's ability to
review, at the request of a creditor, a service member's
obligations and authorize the imposition of a higher interest if
the court deems appropriate.
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 Known
HISTORY
Source : Author
Related Pending Legislation : AB 2475 (Committee on Veterans
Affairs, 2012) would change from three to nine months after the
period of military service that the sale, foreclosure, or
seizure of property for nonpayment of any sum due relating to a
mortgage would be invalid. AB 2475 is currently in this
Committee.
Prior Legislation :
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AB 713 (Block, Ch. 105, Stats. 2011) provided that dependents of
a service member are entitled to the benefits accorded to
service members regarding obligations or liabilities bearing an
interest rate in excess of six percent, unless, in the opinion
of the court, the dependent's ability to comply has not been
materially impaired by the military service of the person upon
whom the applicants are dependent.
AB 2365 (Lieu, Ch. 385, Stats. 2010), among other things,
permitted service members, when enforcing their rights and
protections under existing law, to recover reasonable attorney's
fees and costs, removed filing fees and court costs for
specified actions, and permitted an expedited review for certain
cases.
AB 1433 (Horton, Ch. 60, Stats. 2002) See Background.
Prior Vote :
Assembly Floor (Ayes 76, Noes 0)
Assembly Committee on Judiciary (Ayes 10, Noes 0)
Assembly Committee on Veterans Affairs (Ayes 8, Noes 0)
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