Letter to Representative Mike Simpson regarding H.R. 5111, the Soldiers' and Sailors' Civil Relief Act
August 9, 2002
The Honorable Mike Simpson
Chairman, Benefits Subcommittee
Veterans' Affairs Committee
U.S. House of Representatives
337 Cannon House Office Building
Washington, D.C. 20515
Dear Chairman Simpson:
The Credit Union National Association (CUNA) appreciates the opportunity to present its views on H.R. 5111, legislation to amend the Soldiers' and Sailors' Civil Relief Act (SSCRA). With its network of affiliated state credit union leagues, CUNA serves more than 90% of America's 10,200 credit unions, which are owned by more than 80 million consumer members.
Credit unions, as financial cooperatives, are organized, owned and controlled by their members. They are chartered to serve their members' financial needs, and strive to be responsive to the financial concerns of all members, including active duty servicemembers and their dependents. Credit unions have always supported their military servicemembers and strongly believe that those faced with reduced financial circumstances are entitled to protection under the SSCRA.
Nevertheless, credit unions have encountered a number of issues in their efforts to comply with the SSCRA. Whenever many troops are called to active duty, CUNA's regulatory compliance department receives a flood of phone calls from credit unions. Credit unions are always looking for guidance, and have found very little in the way of interpretive materials. It was our hope that a revised SSCRA would provide broad rulemaking authority to either the Treasury Department, or to the Department of Defense, working in concert with the federal financial institution regulators. Less detail in the statute combined with a comprehensive regulation would be far more useful to all who must comply with the Act on an ongoing basis.
Apart from regulatory guidance, the number one concern credit unions have expressed has to do with the rigidity of the six percent interest rate limitation on debts incurred prior to active military service. Section 207 of the bill retains this limitation, although much has changed since 1940. Credit unions are sympathetic to the financial difficulties faced by active duty servicemembers. However, many credit unions have endured substantial administrative expenses and foregone interest as a result of their compliance with the SSCRA's six percent interest rate cap. As a possible solution, we suggest that the interest rate cap be adjusted according to a market index, such as the one-year Treasury bill rate, plus a differential set by the statute.
This change would allow the adjusted interest rate to reflect the economic conditions at the time the individual is called to active duty.
In addition, many credit unions are concerned that some servicemembers who have the ability to repay their debts are unjustly enriched by the six percent rate cap. Credit unions want to lend a helping hand to servicemembers who are truly "materially affected" by their active duty status. However, credit unions are compelled to apply the rate cap automatically, and can only find relief by taking the servicemember to court, Section 207(c).
Besides avoiding the financial impact of paying court costs, credit unions do not want to appear unsympathetic to their members in the U.S. military. However, as financial cooperatives, credit unions must also serve the needs of their other members. Therefore, it would be helpful if credit unions could use the member's rank as well as other information on file to make a preliminary decision regarding material effect without a court's intervention. If challenged by the servicemember, then the credit union could apply to the court for relief.
Credit unions are also concerned with the way "military service" is defined. Section 101(2)(A) of H.R. 5111 states that "military service" means "active duty, as that term is defined in section 101(d)(1) of title 10 of the United States Code." Section 101(d)(1) of the U.S. Code defines "'active duty" as full-time duty in the active military service of the United States, including full-time training duty, annual training duty, and attendance at a military service school. Credit unions have suggested that the term military service be limited to ''active duty for a period of more than 30 days,'' as defined in Section 101(d)(2) of the U.S. Code. For purposes of extending the statute of limitations (Section 206), reducing interest rates (Section 207), and for anticipatory relief (Section 701), credit unions have commented that their cost of administering relief for short term periods undoubtedly greatly exceeds the financial benefits to the servicemember.
Lastly, Section 207(b)(1) of the bill requires the servicemember to notify the creditor and provide a copy of military orders not later than 180 days after the date of the servicemember's termination or release from military service. The new section is helpful in that it requires the servicemember to actually provide his or her orders to the credit union in order for the reduced interest rate to apply. However, the timing will likely create administrative problems for credit unions which will be required to retroactively adjust interest and loan payments several months or even years after the servicemember is released from military service.
In fact, one has to ask why the adjustment needs to be made at all if the member was financially able to pay the debt at the contract rate while on active duty. It would be more logical for credit unions to receive notice within a short time period after the servicemember receives orders to report for duty, and after the servicemember is released from service. That way, creditors will know exactly when to adjust the rate to comply with the SSCRA, and when to return it to the original contract rate.
On behalf of our member credit unions, CUNA appreciates the opportunity to provide our views on this important legislation. Should the Committee require any additional information, please feel free to contact Gary Kohn, Vice President of CUNA Legislative Affairs and Senior Legislative Counsel.
Daniel A. Mica President and CEO