By Chris Willis, Esq. and Ryan Labriola
(Originally published in ABA Risk and Compliance, July/August 2026)
State-level expansions of the Servicemembers Civil Relief Act (SCRA) are broadening protections for servicemembers, often addressing gaps in the federal framework. For financial institutions, however, these enhancements introduce variation across jurisdictions that can increase operational complexity and compliance risk if not fully integrated into policies and processes.
When Congress first passed it in 1940, what we now know as the Servicemembers Civil Relief Act (SCRA) was originally the Soldiers and Sailors Civil Relief Act (SSCRA). This law established the framework for today’s SCRA, which was passed in 2003 and subsequently amended several times. The SCRA is a major focus for consumer financial institutions (FIs), because it provides a series of important benefits and protections to servicemembers related to credit transactions and leases.
For example, the SCRA limits interest rates on pre-service obligations to six percent for the duration of military service (and, in the case of mortgages, an additional year), provided the servicemember meets eligibility criteria. Additionally, the SCRA allows certain servicemembers to cancel automobile leases, prohibits lenders from foreclosing on an active duty servicemember’s home or repossessing their automobile without a court order, and prohibits evictions during a period of military service. Likewise, courts may not enter a default judgment against a servicemember during a period of military service.
While Congress dropped the additional “s” from the original SSCRA, keen compliance minds may note a new use for the original SSCRA title – state SCRA. Many states have passed their own versions of the federal SCRA. Some of these laws reinforce federal law, while others expand benefits and protections, redefine eligibility criteria for certain benefits, or enhance penalties for noncompliance.
This article examines a sample of state laws that go beyond the federal SCRA and discusses compliance and operational considerations that FIs need to take into account in order to comply with these state laws.
Examples of states going beyond
Extension of benefits and protections to state National Guardsmen
The federal SCRA limits the benefits and protections of National Guard members. Federal protections for National Guard members only apply when active service is “authorized by the President or the Secretary of Defense for a period of more than 30 consecutive days under section 502(f) of title 32 for purposes of responding to a national emergency declared by the President and supported by Federal funds.”[i] This definition means SCRA benefits and protections are not provided to National Guardsmen serving in their typical capacity — serving at the direction of the governor of their state.
Several states’ SCRA laws broaden eligibility beyond federal protections by extending benefits and protections to National Guardsmen called to active service by the governor under state authority. For example, California state law defines a servicemember as “a member of the [state] militia…called or ordered into active state or federal service”[ii] (emphasis added) and adopts a broader definition of military service, saying “as to a member of the militia, full-time active state service or full-time active federal service.”[iii] The law then applies the same six percent interest rate relief to servicemembers in a period of military service.[iv]
Kentucky provides SCRA interest rate relief to “a member of the Kentucky National Guard called to… state active duty by the Governor of the Commonwealth of Kentucky, if the active duty orders are for a period of thirty (30) days or more.”[v]
Massachusetts expands SCRA eligibility even further. The law provides that:
“All members of the armed forces of the commonwealth, including the state defense force… and those who reside within the commonwealth pursuant to military service and all members of the armed forces of another state or territory who reside within the commonwealth, ordered to active duty under this chapter, appropriate authority of another state or territory or Title 32 of the United States Code shall be entitled to all rights, protections, privileges and immunities afforded under the federal [SCRA] […].”[vi]
These are but a few examples of states making nuanced changes to the federal SCRA’s limitations on the applicability of its provisions to National Guard duty.
Those nuances, however, translate into additional operational compliance considerations for FIs handling SCRA interest rate relief requests.
Expanded Loan Eligibility Criteria
Three states (Louisiana, Pennsylvania, and Ohio) have broadened coverage by changing the eligibility criteria for interest rate relief, making more borrowers eligible for relief. Federal law limits interest rate relief only to debt incurred before a period of military service (i.e., the servicemember was not on active duty or in an early alert period at the time of loan origination). Louisiana,[vii] Pennsylvania,[viii] and Ohio[ix] remove that qualifier and extend interest rate relief benefits regardless of when the servicemember incurred the debt.
The Ohio law serves as an excellent example of the ways in which state laws can vary from the federal SCRA. As noted above, it extends interest rate relief to obligations incurred during active duty, but it defines “obligation” to include only retail installment contracts and other transactions related to the “purchase of goods or services.”[x] So, certain types of credit transactions would be covered, but a pure loan of money not connected to a purchase of goods or services would not fall within the language of the statute. And, like the Military Lending Act, but unlike the federal SCRA, the Ohio law extends protections to the spouse of a servicemember.[xi]
Automobile Lease Terminations in California
The federal SCRA generally permits servicemembers to terminate an automobile lease without penalty before the original lease expiration date. The servicemember must be 1) in a period of military service and 2) be deploying for at least 180 days or be in receipt of a “permanent change of station” (PCS) order directing a move across state or national boundaries.
California state law includes the federal SCRA’s 180-day deployment language but further expands eligibility to include intrastate permanent changes of station for at least 90 days.[xii] The only limitation is that the new location must be “more than 100 miles from the prior duty station.”[xiii] For reference, California hosts Marine Corps Base Camp Pendleton in Oceanside and the Marine Corps Air Ground Combat Center in the Mojave Desert. These are two of the largest Marine bases on the West Coast — and are 151 miles apart. Assuming a Marine who is otherwise ineligible for the federal SCRA’s automobile lease termination benefit is transferring to one of these bases from the other, California law may grant them this benefit by virtue of the distance between the two bases.
North Carolina’s penalties for violations
North Carolina’s SCRA statute includes enhanced penalties for knowing noncompliance. The North Carolina SCRA allows the state’s Attorney General to seek restitution, injunctive relief and penalties of up to $5,000 per violation, and then in addition provides that “[a] knowing violation of this Article is an unfair or deceptive trade practice for purposes of Chapter 75 of the General Statutes.”[xiv] The referenced statute (North Carolina’s UDAP law) permits the North Carolina Attorney General to seek a penalty of up to $5,000 per knowing violation.[xv] This provision grants the North Carolina Attorney General and its associated investigative and enforcement divisions with latitude to pursue remedies under multiple statutes, which may increase risk for FIs.
Compliance and operational considerations
The federal SCRA is nuanced and frequently presents compliance and operational challenges for FIs. Layering state laws with even broader consumer protections or more nuanced requirements can exacerbate existing operational and compliance hurdles. These hurdles, however, are not insurmountable.
First, FIs must maintain a detailed understanding of the requirements of state analogues to the SCRA. Compliance will not be possible without an understanding of each state’s law and how it varies from the more familiar federal SCRA.
Second, a company’s policies, procedures and training must reflect the requirements of state laws protecting servicemembers. This is especially true because some FIs may have very few servicemembers among their customers, which means that employees are not accustomed to applying the SCRA or its state analogues. But experience shows us that only a handful of errors can result in a public enforcement action under the SCRA,[xvi] and thus the risk of noncompliance is far greater than the numbers would suggest.
Third, FIs must understand the specific terms and conditions of their products and services. This understanding can directly inform the applicability of state and federal SCRA provisions.
Military scrubs such as a review of the Defense Manpower Data Center (DMDC) are another critical aspect of SCRA compliance. Where possible, FIs should rely on automated scrubs to identify eligible servicemembers under federal and state law, while also accepting submissions from servicemembers of documents like orders calling them to active duty. Relying solely on servicemember requests or submissions can lead to human errors in assessing and applying benefits for servicemembers. This is especially true for critical servicing activities, such as foreclosures and repossessions, where SCRA protections apply without a servicemember request.
Lastly, it is a good idea to provide servicemembers with benefits, even in circumstances where the law may not require it. Regulators or courts may interpret servicemember protections broadly, and the small volume of servicemembers in most portfolios means that there is no significant business harm to being more generous to servicemembers than the law requires. It also allows for easier operational processes, since it may sidestep some of the nuanced technical requirements of the SCRA or its state counterparts.
Conclusion
While the federal supervisory and enforcement apparatus is generally posturing for reduced compliance burdens on financial institutions, SCRA is a notable exception. The Department of Justice (DOJ) settled four federal SCRA-related matters in three months in 2025 and similarly settled or maintained a number of Military Lending Act cases. The DOJ also settled an SCRA matter in early 2026. The OCC also updated its SCRA examination handbook in November 2025, introducing additional compliance considerations. Additionally, state laws surrounding SCRA may see increased enforcement commensurate with the perceived federal reprioritization of supervisory efforts. The SCRA, for both federal and state regulators, is a bipartisan set of laws that both major parties routinely enforce. Enforcement is not limited to egregious violations – even small volumes of compliance violations can constitute a pattern or practice. Institutions must remain prepared to comply with these critical laws and regulations.
References
[i] See 50 USC 3911(2)(A)(ii).
[ii] See Cal. Mil. & Vet. Code §§ 400(d).
[iii] See Cal. Mil. & Vet. Code §§ 400(c).
[iv] See Cal. Mil. & Vet. Code §§ 405(a).
[v] See KY Rev Stat § 38.510.
[vi] See Mass.Gen.Laws.ch. 33, §13A.
[vii] See LA Rev Stat § 29:312.
[viii] See 51 PA Cons Stat § 7316.
[ix] See OH Rev Code § 1343.031.
[x] Id.
[xi] Id.
[xii] See CA Mil & Vet Code § 409.
[xiii] See CA Mil & Vet Code § 409(b)(2)(C).
[xiv] See NC Gen Stat § 127B-34.
[xv] See NC Gen Stat § 75-15.2.
[xvi] See Settlement Agreement Between the United States of America and New City Funding Corp., September 29, 2025.