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CFPB Issues Reminder on Military Borrower Rights Under the SCRA

CFPB logo with magnifying glassBureau research shows that active-duty Army Reserve and National Guard members are paying more interest annually because they may not be receiving loan protections under the Servicemembers Civil Relief Act.

12/07/2022 3:35 P.M.

3 minute read

Research from the Consumer Financial Protection Bureau this week serves as a reminder for ACA International members and their creditor clients to review policies and procedures for working with servicemembers for compliance with the Servicemembers Civil Relief Act (SCRA).

Overall, the bureau reports that Army Reserve and National Guard members called to active duty are paying an extra $9 million in interest annually “because they are not always receiving the benefit of their right to rate reductions under the Servicemembers Civil Relief Act,” according to a news release.

The SCRA provides active duty servicemembers the right to ask for interest rate reductions on outstanding loans during the time they are activated and for an additional year for mortgage loans, the CFPB reports.

The bureau used data from 2007 and 2018 for the report, “Protecting Those Who Protect Us: Evidence of Activated Guard and Reserve Servicemembers’ Usage of Credit Protections Under the Servicemembers Civil Relief Act” (PDF) and noted that interest rates have increased since 2018.

One of the protections under the SCRA includes reducing the interest rate on any pre-service loans for servicemembers to a maximum of 6%.

Findings from the CFPB’s research include:

  • Between 2007 and 2018, fewer than 10% of auto loans and 6% of personal loans received a reduced interest rate for servicemembers in the Army Reserve and National Guard.
  • During that time, there were $100 million of missed benefits on auto and personal loans. The CFPB said members of the Army Reserve also “infrequently benefit from interest rate reductions for credit cards and mortgage loans.”
  • For longer periods of active duty, when a lower interest rate would be most beneficial, servicemembers’ utilization continues to be low. “While reserve component servicemembers are more likely to obtain a reduced interest rate during longer periods of activation, even among activations of a year or more, the likelihood of an interest rate reduction remains under 16% for auto and personal loans,” according to the CFPB.

The CFPB’s recommendations in response to the findings include, according to the news release:

  • “Creditors apply SCRA interest rate reductions for all accounts held at an institution if a servicemember invokes their rights for a single account. If a servicemember requests an interest rate reduction for one account, the creditor could apply that request to every account held at the respective institution.
  • Creditors automatically apply SCRA rights: Beginning in December 2014, the Department of Education required federal student loan servicers to check the Defense Manpower Data Center SCRA website monthly to identify borrowers eligible for the SCRA interest rate cap. When automatic interest rate reductions were applied for federal student loans, utilization increased dramatically. The low utilization rates identified in this report suggest that automatic application of benefits should be pursued where possible, and public and private sector resources should be aligned to increase adoption of an automatic application process.
  • Development of comprehensive and periodic indicators of SCRA interest rate reduction utilization: Better and more frequent information on SCRA rate reduction utilization would help inform and evaluate future efforts to expand servicemembers’ financial rights and protections.”

ACA’s Take

Members may want to review policies for working with servicemembers with creditor clients and ensure that interest rates conform to SCRA requirements, as well as ensure servicemembers’ accounts in collections receive the benefit of SCRA protections. In particular, this means that where a covered servicemember has made a proper request for an interest rate reduction under the SCRA, interest in excess of the 6% cap must be forgiven, not merely deferred. Additionally, because servicemembers must request these rate reductions from lenders, it may behoove creditors to ensure that SCRA protections have been disclosed to military borrowers where appropriate, even if only via a link to the CFPB’s SCRA information page.

More information is available through ACA’s SearchPoint library and the “Servicemembers” tag.

If you have executive leadership updates or other member news to share with ACA, contact our communications department at [email protected]. View our publications page for more information and our news submission guidelines here.

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