Due to recent events overseas, there has been recent deployment of US troops with potential additional deployment to happen in the future. Interest rates are higher than they have been in the past; the current Prime Rate is at 8.5%. All financial institutions should be prepared for Servicemembers enacting their rights under the Servicemembers Civil Relief Act (SCRA).
SCRA has seven forms of protections for the Servicemember applicable to financial institutions – one is reducing the interest rate on any pre-service loans to a maximum of 6 percent.
The rate reduction for pre-service obligations applies during the period of active-duty service for most loans and, for mortgages, for an additional year after the end of active-duty service. The Servicemember must request the rate reduction in writing and include a copy of the orders for active-duty service. In lieu of the orders, the financial institution can request a letter from the commanding officer which shows the date when the Servicemember began active duty service or can document by obtaining the information from the DOD Manpower website.
For an interest rate reduction under the SCRA, the lender must reduce the interest rate on pre-service obligations to 6% for the entire time Servicemember is serving on active duty, and if a mortgage is involved, for one year following. The lender can’t add the amount of interest above 6% back into the loan later on after the Servicemember leaves active duty. The Servicemember can request an interest rate reduction from the bank at any time while serving on active duty and up to 180 days after release from active duty.
Other things a bank must remember are that a lender can’t revoke a loan or credit account, change the terms of the credit, or refuse to grant credit just because a Servicemember exercised their SCRA rights. In addition, a lender can’t furnish negative information to a credit reporting company just for invoking their SCRA rights.
The SCRA applies to the following servicemembers:
- Active-duty members of the Army, Marine Corps, Navy, Air Force, and Coast Guard;
- Members of the Reserve component when serving on active duty;
- Members of the National Guard component mobilized under federal orders for more than 30 consecutive days; or
- Active duty commissioned officers of the Public Health Service or the National Oceanic and Atmospheric Administration.
SCRA rights may be exercised by anyone holding a valid power of attorney for the servicemember. Some SCRA protections also apply to dependents.
The Banks need to be sure their front-line staff and loan servicing staff are knowledge and prepared to provide the required assistance upon requests, especially those bank’s that are near military installations.
If you have a question regarding SCRA, please feel free to contact TCA at 800-934-7347.
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