For active duty military customers, additional federal law protections exist in the form of the Servicemembers Civil Relief Act of 20031, (“SCRA”). This includes insulation from litigation and judgments, the ability to delay court actions, and what is known as the “6% Rule” for finance contracts for automobile and other consumer credit financing.
What is the 6% Rule?
Quite simply, once a service member is called to active duty where their yearly earnings are reduced as a result thereof, the borrower has a legal right to a reduction in any consumer finance interest rate to no more than 6% beginning on the date active duty begins through one year after active duty is terminated. Once demanded, any interest amount in excess of 6% is forgiven by law. The lender would have to adjust the interest rate for this borrower down to 6% and write-off the difference. Application of this rule may cause the lender to charge back an assigned contract, especially if military status was not properly determined by the F&I representative and provided as part of the financing documents submitted at the time of contract assignment.
Aside from the potential interest rate impact, enforcing a court judgment, especially one resulting from a customer not appearing in court (i.e. a default judgment), against an active duty member of the military is difficult, if not impossible, in some circumstances. At best it can be a long drawn out process.
Courts usually apply the SCRA to require that the plaintiff (usually a dealer or lender) provide a military affidavit (also called a non-military affidavit, SCRA Affidavit, Affidavit of Military Service, and many other iterations) to attest to whether the defendant is subject to the protections of the SCRA.
Students of the College of Automotive Management are taught key compliance laws and how to ensure they do not violate them, including proper disclosures and forms needed to protect themselves and their dealership from both inadvertent mistakes as well as intentional legal compliance violations.
1 The Servicemembers Civil Relief Act of 2003; Public Law 108-189; 50 U.S.C. App. §§501–596 (19 Dec 2003);as amended by Public Law 108- 454 (10 Dec 2004.)
-- Submitted by Marc Bonanni, Esq. 11/26/13