California’s Servicemember Protections Expanded for Student Loans

With the start of the new year, California has expanded protections for military servicemembers with student loans.

Student loans incurred by a protected servicember before entry into service have an interest rate cap of 6 percent during the period of service plus one year thereafter. Additionally, student borrowers can obtain a deferment on their payment obligations for 180 days or the period of active duty plus 60 days. California’s law AB-3212 amends the California Military & Veterans Code providing these protections.

The deferment protections have long been in place under the California Military & Veterans Code for other types of loans but the expansion to student loans, with the inclusion of the one-year period following the end of active duty, is noteworthy and new for California. Under the federal Servicemembers’ Civil Relief Act (SCRA) interest-rate protection in 50 U.S.C. §3937 (which does apply and has applied to student loans), a protected borrower is required to submit a written request with a copy of his or her orders. The California provision has no requirement for a request by the borrower for the interest rate protection. The amendments in AB-3212 include many other expansions of servicemember protections touching on the time periods of protections, lease termination, and storage liens among others. Now a lender receiving a request for relief from a servicemember must respond within 30 days regarding the request or the recipient waives any objection and the servicemember is automatically entitled to the relief sought.

“Interest” has a broad definition in this provision to include “service charges, renewal charges, fees, or any other charges, except bona fide insurance, in respect to any obligation or liability. The interest amount above the 6 percent protection is forgiven, and the period payment is to be reduced by the amount of interest forgiven. A covered servicemember includes anyone in federal active service or those called into active state service.

If a deferment is sought, the servicemember must either petition a court or deliver a written request with a copy of the military orders to the financial institution. Creditors should also be aware that the new provisions prohibit debt collectors from contacting a servicemember’s military unit or chain of command without the written consent of the member. Notably, protections under the federal SCRA can be waived, whereas the California provisions are enforceable by the Attorney General and cannot be waived by the servicemember.

Student lenders and servicers should be in tune with these California amendments and be prepared to provide safeguards for servicemember student borrowers.