The Servicemember Civil Relief Act limits the amount of interest that may be charged on certain financial obligations that were incurred before military service began to no more than 6% percent per year, including most fees and charges, the CFPB and the Justice Department reminded financial institutions in a recent letter.
The 6 percent SCRA benefit applies to all types of financial obligations and liabilities, including credit cards; automobile, ATV, boat, and other vehicle loans; student loans; home equity loans; and mortgage loans..
For mortgages, interest is capped at 6 percent during the entire period of military service and for one year after the period of military service. For all other obligations, interest is capped at 6 percent only for the duration of the period of military service.
The letter, signed by CFPB Director Rohit Chopra and Kristen Clarke, the DoJ’s assistant secretary for civil rights, also reminds financial institutions that:
- The SCRA provides interest rate protections to servicemember spouses who are jointly liable with the servicemember for the loan or obligation, which can be the case when the spouse is a cosigner on the loan
- For most servicemembers, SCRA protections begin on the date they enter active-duty military service. For reservists, protections begin upon the receipt of certain military orders, which in some cases, may occur months before the entry into active duty.
- Members of the National Guard are covered by the SCRA when serving under Title 10 orders for federal active duty, including training orders. Under 32 U.S.C. § 502(f), members of the National Guard are also covered by the SCRA when they are on orders to respond to a national emergency, as declared by the President or Secretary of Defense, for more than 30 days.
- Most SCRA benefits end when a servicemember leaves military service, although there are two limited situations in which a veteran is eligible for SCRA protections. First, a veteran continues to be able to request the interest rate benefit up to 180 days after the end of military service. Second, for mortgages, the 6 percent interest rate benefit continues one year after military service ends.
- Creditors can verify a borrower’s military status using the Defense Manpower Data Center (DMDC) database.
The letter closes by encouraging creditors to go beyond the letter of the law by providing rate relief to eligible borrowers after checking the DMDC database, rather than waiting for borrowers to request relief, and by providing rate relief on all of a borrower’s eligible loans even if the borrower only seeks relief on one particular loan.
