The Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) recently posted a joint letter directed to financial institutions, reminding them to honor the Servicemembers Civil Relief Act (SCRA). In particular, the DOJ and CFPB highlighted the importance of honoring the interest rate limit for service members, recently discharged veterans, and their spouses.
A 2022 Analysis revealed that less than ten percent of eligible automobile loans and six percent of personal loans honored this SCRA protection, resulting in a $10 million loss in potential savings.
CFPB Director Rohit Chopra said in a statement that high interest rates have burdened many eligible military families and that financial institutions shouldn’t make it hard for service members to manage their budgets.
Justice Department’s Civil Rights Division Assistant Attorney General Kristen Clarke highlighted how service members make a great sacrifice for the country. In turn, financial institutions should honor their SCRA rights as mandated by the law.
The SCRA stipulates that people covered by the federal law should not be charged more than a 6% annual interest rate for pre-service debt. This protection includes credit card debt, mortgage loans, and car loans. This limit also covers renewal charges, fees, service charges, or other fees. The only exception is bona fide insurance.
The joint letter also highlighted the process for applying for SCRA protections. The first step is to provide written notice and proof of military status. While military orders or a letter from a commanding officer suffice, active duty service members can also utilize services like SCRACVS for quick and easy military verification. The notice should be submitted within 180 days after discharge.
In response to the request, the creditor must forgive but not defer the annual 6% interest rate retroactively. Monthly payments should also be reduced accordingly.
The interest rate reduction for mortgages extends to a year after the military member leaves active duty. Other types of debts are limited to one’s active duty period only.
Lenders are reminded to note the following:
- Joint Accounts: The SCRA extends the 6% interest rate reduction to spouses through joint accounts.
- Active Duty Date: Written notice should indicate when the service member commenced their active duty service: Military reservists’ protection starts after receiving military orders, possibly before entering active duty.
- National Guard Members: They are covered if they render over 30 consecutive days of active service, as the United States president or Defense Secretary mandated.
In many cases, it is important for lenders to verify an individual’s active duty status in order to extend or verify eligibility for certain protections. SCRACVS can help verify if a person is eligible for SCRA protections. Click here to sign up at SCRAVS and verify the active duty status.