(a) Prohibition of penalties When an action for compliance with the terms of a contract is stayed pursuant to this chapter, a penalty shall not accrue for failure to comply with the terms of the contract during the period of the stay. (b) Reduction or waiver of fines or penalties If a servicemember fails to perform an obligation arising under a contract and a penalty is incurred arising from that nonperformance, a court may reduce or waive the fine or penalty if— (1) the servicemember was in military service at the time the fine or penalty was incurred; and (2) the ability of the servicemember to perform the obligation was materially affected by such military service . (Oct. 17, 1940, ch. 888, title II, § 203, as added Pub. L. 108–189, § 1 , Dec. 19, 2003 , 117 Stat. 2843 .) Editorial Notes Codification Section was formerly classified to section 523 of the former Appendix to this title prior to editorial reclassification and renumbering as this section. Prior Provisions A prior section 203 of act Oct. 17, 1940, ch. 888, art. II, 54 Stat. 1181 , related to stay or vacation of execution of judgments and attachments, prior to the general amendment of this Act by Pub. L. 108–189 . See section 3934 of this title . Statutory Notes and Related Subsidiaries Effective Date Section applicable to any case not final before Dec. 19, 2003 , see section 3 of Pub. L. 108–189 , set out as a note under section 3901 of this title .