In a putative class action handled by Robert Maddox, Mike Pennington, and Keith Anderson, the Northern District of Alabama recently dismissed a lawsuit for alleged violations of the Servicemembers’ Civil Relief Act (“SCRA”). The decision in Murphy v. Bank of America, Case No.: 2:12-CV-2520-VEH (N.D. Ala. Nov. 28, 2012) provides much-needed clarity on the very limited scope of the SCRA.

The lawsuit alleged violations of Section 518 of the SCRA pertaining to credit reporting, Section 527 relating to reduction of the loan’s interest rate, and a claim under the Fair Credit Reporting Act (“FCRA”). The Plaintiff was an Air Force reservist who was deployed to Afghanistan in September 2010 and did not make his regularly scheduled mortgage payments while on active duty. The Plaintiff alleged he had been told that he did not need to make payments and that his credit would not be reported on during his active duty time. The creditor disputed this and continued to report the Plaintiff’s delinquency. The plaintiff claimed this violated the SCRA and sought class-wide damages.

Section 518 of the SCRA sets out that application by a service member for a stay pursuant to the SCRA “shall not itself (without regard to other considerations) provide the basis for . . .a determination by a lender or other person that the service member is unable to pay the civil obligation or liability …” The court found, as other district courts have held, that Section 518 is an anti-retaliation provision that prohibits only discrimination or retaliation for a service member seeking a stay under the SCRA. If the creditor has a valid and alternative reason for its action – i.e. simply reporting payment and delinquency information in a standard fashion – there can be no violation of Section 518. The court even pointed out that an application for a stay under the SCRA can be considered by the creditor, however it cannot be the sole basis for any of the prohibited activities under Section 518. In this instance, the Plaintiff’s Complaint failed to allege that the creditor adversely reported his credit because he had applied for a stay under the SCRA. The plaintiff was seven months behind on his mortgage payments and this provided a valid and alternative reason for the creditor to make the adverse credit reports as it would do with any other borrower. The court specifically noted that nothing in Section 518, or any other section of the SCRA, excuses a service member from making his or her mortgage payments while on active duty.

After dismissing the Section 518 claim, the court quickly dismissed the Plaintiff’s Section 527 claims as well. Section 527 requires lenders to reduce the interest rate for protected service members to 6%. Service members are only eligible for this interest rate reduction if their loan was taken out prior to their entry onto active duty and when they provide notice to the lender of their active duty status. In this instance, the Plaintiff’s loan had a fixed rate of 4.875% - well below 6% to begin with and, thus, he could not sustain a viable claim under Section 527. Finally, the court dismissed the FCRA claims because they were premised on the allegations under the SCRA. Because the creditor was found not to have violated the SCRA, there could be no possible FCRA violation either.

Overall, the case demonstrates that while the SCRA provides numerous protections to service members while on active duty (and deservedly so), a court will not expand its reach to make the statute say what it does not say. The statute does not purport to prohibit normal credit reporting of actual delinquencies on the same basis as for other borrowers, and the court refused to read such a prohibition into the statute.

To read the complete Murphy Opinion, click here.