Military Members Often Wrongly Charged Extra Interest

The CFPB found that personnel have paid $100 million in extra interest charges.

National Guard members
Drew Angerer/Getty

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

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

Key Takeaways

  • The CFPB has found that the vast majority of military personnel have not benefited from lower interest rates offered through SCRA.
  • The federal agency looked at data from 2007 to 2018 for credit cards, auto loans, personal loans, and mortgage loans, specifically for U.S. Army Reserve and National Guard members.
  • The CFPB also provided some suggestions to maximize the benefits SCRA affords to military personnel.

SCRA's Financial Protections Not Having the Intended Impact

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

But in a recent study by the CFPB, the federal agency found that covered military personnel aren't getting the promised benefits. The, which includes data from 2007 to 2018 for U.S. Army Reserve and National Guard members, found that only 9.5% of eligible auto loans and 5.9% of eligible personal loans experienced an interest rate reduction during that time.

Between those two loan types alone, the federal agency estimates that service members paid roughly $100 million in extra interest charges they didn't have to pay.

Service members with longer periods of activation—generally one year or longer—were more likely to get an interest rate reduction, but even then, the likelihood for personal and auto loans remained under 16%. Data for credit cards and mortgage loans were too complex to provide similar estimates.

The CFPB didn't say why service members haven't received the benefits they're entitled to under SCRA, but it may be due to the cumbersome request process, which requires the service member to submit a request along with a copy of their deployment or mobilization letter to their creditors via certified mail.

The CFPB Provides Potential Solutions

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

  • Apply interest rate reductions for all accounts held at an institution if a service member requests a reduction for a single account with that institution.
  • Explore ways to automatically apply the interest rate reduction to limit attrition during the request process.
  • Develop comprehensive and periodic indicators of SCRA benefit utilization to inform and assess future efforts to maximize the law's protections.
Article Sources
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  1. Consumer Financial Protection Bureau. "The Servicemembers Civil Relief Act (SCRA)."

  2. Consumer Financial Protection Bureau. "Protecting Those Who Protect Us."

  3. United States Marines Corps. "Template Letter for Reducing Rate of Interest."