What is the Servicemembers Civil Relief Act?

January 5, 2015

Although this program was established almost one hundred years ago in 1918 as a means to protect the financial interests of the nation’s military, it is even more appropriate today. The idea evolved from the recognition that the men and women of America’s armed forces already have the responsibility of national security on their shoulders. The Servicemembers Civil Relief Act (SCRA) serves to protect them from, “the excessive financial burden that service may impose.”

Over the years SCRA has been rewritten and amended several times. The latest version was approved in 2008. Even after 96 years, the idea remains the same: provide a financial safety net to military personnel so they can fulfill their duties without experiencing hardships brought on by their civilian financial obligations.

One of the program’s main features is the requirement that lenders place a 6 percent cap on the interest rates of loans that members of the military acquired before becoming active. The 6 percent cap does not apply to just mortgages. It also includes credit card debt, auto loans, fees, renewal charges, and service charges. The one exception that this rule does not apply to is any type of insurance, including automobile, health, and home policies.

In this type of interest rate deduction, the individual must file a written request and submit documentation that confirms their active duty military orders. Changes that were made in 2008, now make it is possible for them to cap the interest on all pre-service loans and obligations, even federally guaranteed student loans. Any amount over 6 percent is not just deferred, but completely forgiven.

Again, to be eligible for this rate cap, a written request must be submitted to whomever holds the loan or service agreement. Along with the paperwork the service member must supply a copy of his or her military orders that also prove the individual has not been not released for active duty for more than 180 days.

Other ways that military personnel are protected under SCRA regulations include:

  • Protection for those who rent property that they will not be evicted and be able to have their security deposits returned.
  • The termination of sales or lease agreements for automobiles is prohibited under SCRA guidelines as long as the armed forces member is serving his or her country. The lender is not allowed to pursue a contract termination or repossession as long as the borrower’s military service is active.
  • When one’s obligation to military duty prevents them from appearing in court for legal matters such as bankruptcy, foreclosure or divorce cases, the court system is allowed to grant a stay until the tour of duty or post obligation is completed. This also applies to those who have served within 90 days or less from the date of the legal action.
  • One of the 2003 changes added a clause that defends service members from any ill effects of credit scores and bad reports that may occur during the time they are actively serving and/or as a consequence of claiming any of the SCRA protective measures.

After the economic downturn, the Military Lending Act was established. It works to prevent the victimization of military personnel from, “high-rate loans in the form of payday loans, car title loans, and tax refund anticipation loans.” The act also does not allow the refinancing of any loans that are held by the same creditor and caps loan rates at 36 percent. That cap figure includes insurance fees and service charges.

As more attention has been focused on members of the U.S. military and their families, especially in the aftermath of the last recession, scores of cases of financial abuse have been uncovered. In 2011, the Consumer Financial Protection Bureau created the Office of Service Member Affairs to specifically address these types of problems. Since it began three years ago, members of the U.S. have filed more than more than 4,500 complaints.

Among the formal complaints, 49 percent had to do with mortgages, 18 percent were credit card-related, 13 percent had to do with bank accounts and 8 percent concerned credit reporting. Holly Petraeus is the director of this office and made the following statement in July during a testimony before the U.S. Senate’s Veterans’ Affairs Committee, “These complaint statistics aren’t just numbers to us. They represent military and veteran families and we know the impact consumer financial issues can have on their quality of life.”

Learn more here: http://www.benefits.va.gov/HOMELOANS/scra.asp

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