In 1940 Congress passed the Soldiers’ and Sailors’ Civil Relief Act in order to provide certain financial protections to men and women serving the United States in active military duty. The statute was amended as the Servicemembers Civil Relief Act, or SCRA, in 2003 when President George W. Bush signed it into law.
The SCRA offers significant benefits to active military duty members of the Army, Navy, Air Force, Marine Corps, Coast Guard, and National Guard. Benefits are also sometimes available to the dependents of active duty servicemembers as well.
The statute is approximately 45 pages long, but the following is a comprehensive overview of the protections provided by the SCRA along with scenarios where the law does not apply.
Capping credit card interest rates
Servicemembers are offered some protections on credit card debts incurred prior to their enlistment. Those balances established prior to enlistment can be capped at a very affordable 6% interest rate, which is about 10 percentage points below the generally recognized average.
The 6% cap also applies to credit card fees. This particular benefit of the Servicemembers Civil Relief Act can cover not only the period of time that the servicemember is enlisted but also can apply for up to a full year after the active duty period has ended.
The card issuer is prohibited from closing a servicemember’s account or reducing the credit limit of the account due to the request for an interest rate reduction under the Servicemembers Civil Relief Act.
It’s worth noting that the cap on credit card interest rates is not automatic. Instead, it is up to the servicemember to forward a copy of their orders and request for the interest rate cap to be applied to the account. Of course, if a servicemember charges additional credit card debt after enlistment then the new debt would not be eligible for the 6% interest rate cap.
Capping mortgage interest rates
The Servicemembers Civil Relief Act also requires mortgage lenders to cap mortgage interest for eligible, active duty servicemembers at 6% upon request, provided the loan was taken out prior to enlistment.
Even mortgages that are jointly held with a spouse may still be eligible for the rate cap. If the interest rate is lowered to 6% then the mortgage lender must also recalculate the servicemember’s monthly payment in order to account for reduction in interest being charged.
The 6% interest rate cap is not limited to government-backed mortgages such as FHA, VA, and USDA, but also includes conventional mortgage loans. However, Servicemembers Civil Relief Act mortgage reduction protections only apply to active duty servicemembers.
Unlike the credit card interest rate cap, mortgage interest rate caps only apply during the period of active duty service and are not applicable once the active duty period has ended. Additionally, it is also up to the servicemember to request the rate reduction by submitting a copy of his or her orders to the mortgage lender since rate reductions are not issued automatically.
If 6% sounds like a very high mortgage interest rate, you’re right. When the SCRA was passed in 2003 a mortgage interest rate of 6% was very competitive. Today 6% would be considered subprime. As such, if the servicemember has decent credit it’s likely he or she will never need this particular protection.
Civil litigation protection
The Servicemembers Civil Relief Act was passed primarily to ensure that active duty members of the armed forces are able to focus their attention fully on the protection of our country. As such, the Act can provide servicemembers with a temporarily suspension of certain judicial and administrative court proceedings.
Civil cases covered under the Act are defined as lawsuits, which are not criminal in nature, typically involving private property rights. Some examples of covered cases can be lawsuits initiated by creditors, lawsuits initiated by landlords, bankruptcy, and foreclosure.
Additionally, family legal proceedings such as child support, child custody, divorce, and alimony can potentially be covered under the SCRA as well and delay to proceeding until the servicemember is in a better position to respond and react.
If a servicemember wishes to seek protection under the SCRA in a civil matter such as one of those listed above, it is typically best to begin by seeking out a military legal assistance attorney. The attorney will be able to help the servicemember to determine if the SCRA protections are applicable to their situation.
‘Small dollar’ lenders
One area where the Servicemembers Civil Relief Act falls somewhat short of protecting active duty servicemembers is in the area of predatory “small dollar lenders.” The Military Lending Act (MLA), passed in 2006, helped to provide additional protections for active duty soldiers with regard to these short-term, non-traditional loans.
Small dollar lenders to whom the MLA applies include lenders that issue payday loans, car title loans, and tax refund loans. These loan types are generally considered to be “last resort” options for consumers who have very poor credit and often charge outrageous interest rates.
The MLA includes a cap on interest of no more than 36% on applicable short-term loans of $2,000, or less. The cap includes all fees and costs associated with the loan.
Short-term loans can often have interest rates that, when annualized, add up to several hundred percent, so the 36% cap on these products offers an extreme reduction in costs.
Short-term loans are also prohibited from being “rolled over,” which is a type of refinance of the initial loan causing the borrower to pay additional and typically very high fees. The MLA prohibits these lenders from making servicemembers waive the rights afforded to them under the Servicemembers Civil Relief Act.
What Servicemembers Civil Relief Act doesn’t cover
While the Servicemembers Civil Relief Act offers some wonderful protections for active duty members and their dependents, it is worth noting that the law is not all encompassing.
Contractors and their dependents are not afforded any of the protections provided to active duty servicemembers and their dependents under the SCRA. The SCRA’s protections apply to civil cases and not criminal cases, although that limitation seems reasonable.
Protections under the Servicemembers Civil Relief Act also do not apply to debt incurred by a servicemember after he or she has enlisted. The premise behind the caps is the idea that a person may have taken out debt, prior to enlisting, which was affordable at his or her previous salary. However, upon enlisting the soldier’s salary would likely be reduced. As such it would be unaffordable for the servicemember to keep up with the loan payments according to the existing terms of their loan agreement.
Once a servicemember becomes familiar with his or her new income, any future loans would not fall under the protections of the Servicemembers Civil Relief Act because at that point you would have been able to plan ahead.
