Military Members Often Wrongly Charged Extra Interest

The Service Members Civil Relief Act (SCRA), passed in 2003, grants all active duty military service members a reduction in the interest rate on pre-service obligations and liabilities up to a maximum of 6%.

But according to a recent report by the Consumer Financial Protection Bureau (CFPB), too few eligible service members received that benefit, resulting in more than $100 million in lost interest savings over an 11-year period.

Keys to take

  • The CFPB found that the vast majority of military personnel did not benefit from the lower interest rates offered through SCRA.
  • The federal agency analyzed data from 2007 to 2018 for credit cards, auto loans, personal loans and mortgage loans, particularly for members of the U.S. Army Reserve and National Guard.
  • The CFPB also provided some suggestions for maximizing the benefits SCRA provides to military personnel.

SCRA’s financial protections are not having the intended impact

The financial and legal protections under the SCRA are designed to allow service members to devote all their energy and focus to the nation’s defense needs. One of the provisions of the law entitles eligible personnel to get a reduction in their interest rate on pre-service obligations, such as credit cards, car loans, student loans, personal loans and mortgage loans.

But in a recent study by the CFPB, the federal agency found that covered military personnel are not receiving promised benefits. The report, which includes data from 2007 to 2018 for members of the US Army Reserve and National Guard, found that only 9.5% of eligible auto loans and 5.9% of eligible personal loans saw a reduction of interest rates during that time.

Between those two types of loans alone, the federal agency estimates that service members paid roughly $100 million in additional interest that they didn’t have to pay.

Service members with longer activation periods, usually a year or more, were more likely to get an interest rate reduction, but even so, the likelihood for personal and auto loans remained below 16%. Credit card and mortgage loan data were too complex to provide similar estimates.

The CFPB did not say why service members did not receive the benefits they are entitled to under SCRA, but it may be due to the cumbersome application process, which requires the service member to submit an application along with a copy of their deployment. or mobilization letter to your creditors by certified mail.

The CFPB offers potential solutions

Along with its analysis, the CFPB offers three steps to increase the use of the interest rate reduction provision under SCRA, including:

  • Apply interest rate reductions to all accounts maintained at an institution if a service member requests a reduction for a single account with that institution.
  • Explore ways to automatically apply interest rate reduction to limit attrition during the application process.
  • Develop comprehensive and periodic indicators of utilization of SCRA benefits to inform and evaluate future efforts to maximize the law’s protections.

Source

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