Failure to Comply with Servicemembers Civil Relief Act Can Be Costly for Businesses

The U.S. Department of Justice (“DOJ”) filed its first ever Servicemembers Civil Relief Act (“SCRA”) lawsuit against a residential landlord company on September 11, 2018. In its complaint against Twin Creek Apartments, LLC d/b/a Pavilion at Twin Creek  (“Twin Creek”), the Government alleged that Twin Creek illegally charged service members a fee when they terminated their leases early due to military relocation or deployment orders.

SCRA is a federal law meant to grant active-duty service members additional protections against challenges faced by those serving our country, including many consumer transactions. Whether SCRA applies to such a transaction depends on (a) the military consumer’s status; (b) the type of good or service sold; and (c) whether the transaction is materially affected by his or her service. SCRA applies to various businesses such as consumer lending, mortgage foreclosures, landlord-tenant agreements, automotive leases, consumer debt collection, and certain insurance products. A common situation ‘materially affecting service’ occurs when a service member is deployed or permanently reassigned to another duty station and wants to end their current apartment or vehicle lease. The servicemember may use SCRA to end their lease, without penalty, by giving proper notice.

The DOJ’s case alleged that Twin Creek charged 65 servicemembers with early lease termination fees despite receiving proper notice under SCRA. The landlord-tenant relationship, in this case, was covered by SCRA because each of the active duty servicemembers had received orders to relocate or deploy and needed to end their leases. The fees varied from $78 to $1,498 for each tenant’s early termination. Twin Creek simultaneously settled the case and agreed to remit over $75,000 to affected tenants and pay a $20,000 fine. The Pavilion also agreed to repair any consumer credit impacted by the fees, conduct SCRA training for its employees, and implement new SCRA policies and procedures.

As both a business attorney and an Army lawyer, I have advised on and litigated SCRA compliance numerous times and recommend that businesses stay abreast of their relevant SCRA obligations. In addition to financial penalties, SCRA failures affecting servicemembers may bring even greater loss to your business as a result of bad publicity and negative impact to your brand. It pays dividends to develop, train, and audit SCRA compliance to avoid government enforcement and related lawsuits.