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Soldier's bid for loan relief caught up in legal dispute

The Baltimore Sun

The men and women in military service give up a lot to fight for our country.

Oftentimes, they leave behind families. They walk away from good jobs. They put their lives in danger. For that sacrifice, they deserve a lot of credit.

This is why Congress has passed laws to protect members of the military - from guaranteeing that employers reinstate returning service members in the same job or a comparable one, to making it harder for lenders to foreclose on a service member's home.

With that in mind, Maj. James A. Smith of Owings Mills e-mailed us to say he put in a request for loan relief last year when he was recalled into active duty with the Army National Guard. The lender, America's Servicing Co. in Des Moines, Iowa, promptly denied him.

"I am a combat veteran and have served my country proudly," Smith said in a letter to the lender. "I had several other creditors which I submitted my orders to and had no problems getting my benefits under this act. Why is this so difficult for your company?"

The lender stood by its denial, saying Smith did not qualify under the Servicemembers Civil Relief Act (SCRA).

Under the act - which protects service members who experience a cut in income due to their active-duty status - a written request can be made to a lender to cap interest rates on mortgages, credit cards, auto and business loans if being activated affects a service member's ability to make payments.

But the act does not guarantee a service member the right to automatic relief, and that's a point to remember here.

This column is based solely on documentation Smith sent us regarding his complaint. He wasn't available to talk for long enough for me to determine whether his military service had an adverse effect on his finances.

Smith's first term of active duty lasted from Dec. 8, 2003, to Dec. 7, 2006. Upon its conclusion, according to Smith's paperwork, the major received a second order recalling him into active duty, indefinitely, on June 22, 2007.

Smith is seeking interest relief for a note he executed to purchase his Owings Mills property on Nov. 18, 2005, while he was still on active duty.

That's a critical point. Because Smith bought his property after he went on active duty, "he is not eligible for an interest rate reduction," America's Servicing Co. said. The lender then told the Better Business Bureau, to which Smith complained, that it considered the matter resolved.

Smith disagreed.

2 sets of orders

"I currently have two sets of orders," Smith said in his letter to the lender. "The second order is an amended order of the first one. ... In that case, I incurred the debt prior to them bringing me back on active duty in 2006. Disregard the first order."

Both make good points. Who is right? Who is wrong?

The SCRA clearly says that "an obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember, or the servicemember and the servicemember's spouse jointly, before the servicemember enters the military service shall not bear interest at a rate in excess of 6 percent per year during the period of military service." (Emphasis added.)

In most cases, the act requires that lenders immediately grant a request for relief as of the date the service member is called into active duty. But it also says that if a creditor believes it can show that military service did not "materially affect" the service member's ability to pay, it may challenge the request in court.

To find out if Smith's argument about two tours of service would make a difference in his favor, I contacted a number of government agencies - from the Federal Deposit Insurance Corp. to the Department of Housing and Urban Development - to see who might regulate such issues. All pointed me to the military and to Mark E. Sullivan, a retired Army Reserve Judge Advocate General colonel who wrote "A Judge's Guide to the Servicemembers Civil Relief Act."

In other words, Sullivan helps direct courts on how to rule in SCRA cases.

Sullivan said only one point mattered in Smith's case.

"The loan was incurred while he was in active duty service," Sullivan said. "You can't change the statute. If the way Congress worded it was fuzzy or vague, you could err on the side of the service member. But, the SCRA says you have to incur the debt before you enter military service. The guy is out of luck."

Had Smith taken the loan out between his two tours, while he was not in service, he could have asked for relief and had it granted, Sullivan said. I say "could have" only because it's not clear whether Smith's finances were "materially affected" by his active duty service.

The lender may have had a case against him by pointing out that the major had the financial wherewithal to take out the loan and pay the debt while he was still in service. That would make the two-tour question moot.

Right to counsel

Debora K. Blume, a spokeswoman for Wells Fargo & Co., which owns America's Servicing, said in an e-mailed statement that it had confirmed through the Department of Defense that Smith was on active duty at the time he took out the loan.

"Thus ... he isnot eligible for an interest rate reduction under the ServicemembersCivil Relief Act," Blume wrote.

If Smith still disagrees, he has the right to seek legal counsel from his Army base's JAG.

Reach Consuming Interests by e-mail at consuminginterests@ or by phone at 410-332-6151. Find an archive of Consuming Interest columns at

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