How far does SCRA go?

Q. Does the Servicemembers Civil Relief Act protect commercial loans?

A. In 2001, a federal court found that the SCRA makes no express distinction between business and consumer Loans. In Cathey v. First Republic Bank, a reservist obtained financing for business loans that he and his wife

personally guaranteed. They also secured the loan with a mortgage on their home. The reservist was called to active duty and asked the bank to reduce the interest rate to 6%. The bank refused, claiming that the act only applies to consumer loans. The court held that a business loan personally guaranteed by a soldier called to active duty is still afforded the protections of the act even where the primary borrower is a corporation. (Cathey v. First Republic Bank, 2001 US Dist. LEXIS 13150 (WD La., 2001))

If your bank has taken the personal residence of the owner of the business or the guarantor of the commercial loan as collateral for the loan, or as an abundance of caution for a commercial loan, you should keep this decision in mind when applying the protections of the SCRA.

Leslie Callaway, CRCM, contributing editor, works with ABA staff experts to provide answers to ABA member bank questions. Submit your questions to Leslie at lcallawa@aba.com