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Fines and Penalties on Contracts

Section 202

(50 U.S.C. App. § 522)

When an action for compliance with the terms of any contract is stayed pursuant to this Act no fine or penalty shall accrue by reason of failure to comply with the terms of such contract during the period of such stay, and in any case where a person fails to perform any obligation and a fine or penalty for such nonperformance is incurred a court may, on such terms as may be just, relieve against the enforcement of such fine or penalty if it shall appear that the person who would suffer by such fine or penalty was in the military service when the penalty was incurred and that by reason of such service the ability of such person to pay or perform was thereby materially impaired.

Section 202 of the Act deals with two types of situations. First, when compliance with the terms of a contract is stayed pursuant to the Act, no fine or penalty shall accrue by reason of failure to comply during the period of the stay. Second, when no stay exists and a fine or penalty is imposed for nonperformance, the court can relieve enforcement if the person was in the military service when the penalty was incurred and his ability to pay or perform was materially impaired.

This section can be applicable to late charges on an installment contract, early termination penalties for an automobile lease with an option to purchase clause, or to a delinquency fine on a promissory note. In these cases, the court must conclude that the maker's military service impaired the ability to pay.

Exercise of Rights Under Act Not to Affect Certain Future Financial Transactions

Section 108

(50 U.S.C. App. § 518)

Application by a person in military service for, or receipt by a person in military service of, a stay, postponement, or suspension pursuant to the provisions of this Act in the payment of any tax, fine, penalty, insurance premium, or other civil obligation or liability of that person shall not itself (without regard to other considerations) provide the basis for any of the following:

(1) A determination by any lender or other person that such person in military service is unable to pay such civil obligation or liability in accordance with its terms.

(2) With respect to a credit transaction between a creditor and such person in military service--

(A) a denial or revocation of credit by the creditor;

(B) a change by the creditor in the terms of an existing credit arrangement; or

(C) a refusal by the creditor to grant credit to such person in substantially the amount or on substantially the terms requested.

(3) An adverse report relating to the creditworthiness of such person in military service by or to any person or entity engaged in the practice of assembling or evaluating consumer credit information.

(4) A refusal by an insurer to insure such person.

This section was added by the 1991 Amendments. Of course, creditors may take adverse action against service members who fail to comply with obligations after they are adjusted by reason of the Act. For example, a service member who fails to pay monthly installments on an obligation reduced to 6% pursuant to 50 U.S.C. App. § 526 could be subject to an adverse credit report.

What may a service member do if he wrongly receives an adverse credit report because he asserted the SSCRA stay or 6% interest cap provisions? Enforcement is through the Fair Credit Reporting Act (FCRA) provisions for “adverse actions”, handling disputed information involving “adverse actions”, and consumer remedies for "willful or negligent noncompliance by credit reporting agencies upon consumer showing of causal connection between inaccurate credit report and denial of credit or other consumer benefit." A service member who is refused further credit by the lending institution, or has his credit limit downgraded because of asserting the SSCRA 6% interest cap on a loan, may also seek relief under this section. A failure of a lender to forgive interest above 6% may be the basis for a private cause of action against the lender, pursuant to Section 518 (2)(B).

Stay or Vacation of Execution of Judgments, Attachments

Section 203

(50 U.S.C. App. § 523)

In any action or proceeding commenced in any court against a person in military service, before or during the period of such service, or within sixty days thereafter, the court may, in its discretion, on its own motion, or on application to it by such person or some person on his behalf shall, unless in the opinion of the court the ability of the defendant to comply with the judgment or order entered or sought is not materially affected by reason of his military service--

(a) Stay the execution of any judgment or order entered against such person, as provided in this Act; and

(b) Vacate or stay any attachment or garnishment of property, money, or debts in the hands of another, whether before or after judgment as provided in this Act.

This is another "stay" section of the Act. It differs from other stay provisions because it is not a stay of proceedings, but authorizes a court to stay execution of a judgment or order entered against a service member. It also authorizes a court to vacate or stay an attachment or garnishment on a service member's property. The same basic rules for granting stays under section 201 apply. These rules require good faith on the part of service members. Their military service also must materially affect their ability to comply with the judgment or decree entered against them. The suit giving rise to the judgment may have commenced prior to, during, or within 60 days after military service. Additionally, "as in the case of sections 201, 301, and 302 the court is empowered to order a stay on its own motion if it finds material effect and must grant the stay on the service member's motion unless it finds an absence of material effect."

This section does not apply to actions to involuntarily allot military pay to civil creditors pursuant to Department of Defense Directive 1344.9, and Department of Defense Instruction 1344.12. These involuntary allotments are not court-ordered executions or garnishments, and thus this section will not stay enforcement of such an involuntary allotment for non-marital debts. The Department of Defense will not enforce involuntary allotment requests where the creditor has failed to comply with SSCRA procedural requirements.

In the proper case, a service member might use this section as authority to request a court to reduce the amount of alimony or child support the court has required him to pay. Although the statutory language speaks only of relief in cases brought against the service member, courts have granted relief to a husband who initiated a proceeding to determine the extent of his obligation for support and maintenance because of his change in circumstances when he entered military service. The usefulness of this section may be limited by the advent of administrative support and paternity hearings mandated by the Welfare Reform Act of 1996.

Additionally, one court ruled that once judgment against a service member-defendant is entered and stayed, a service member cannot question the entry of the judgment when the plaintiff appeals the court's order to suspend collection.

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Above Information Courtesy of United States Army JAG Corps