How Soldiers can cap interest rates at six percent

Are you on active duty? Are you currently paying a mortgage or consumer debt, like a car loan, a credit card bill, or a private education loan? Did you personally or jointly with your spouse acquire that debt before you came on active duty? If your answer to these three questions is “yes,” then the Servicemembers Civil Relief Act (SCRA) of 2003 could save you money.

According to the SCRA, while a Soldier serves on active duty, creditors may not charge more than 6 percent interest on any outstanding debts which preexisted the Soldier’s activation. This means that if a Soldier is paying 17 percent interest on a credit card bill, when starting active duty service, the credit card company upon notification must reduce interest charges from 17 to 6 percent for so long as the Soldier remains on active duty. The credit card company is also required to back date the change in the Soldier’s interest rate. Thus, if the Soldier came on active duty in July but did not notify the credit card company until January of the next year, the credit card company would have to give a credit for the 9 percent difference in interest paid for the months from July to January. Once leaving active duty, the credit card company can reset the original interest rate to 17 percent. Mortgage lenders are required to maintain the 6 percnt cap for an additional year after the Soldier leaves active duty.

The SCRA also dictates that creditors cannot delay or defer interest charges while a Soldier is on active duty. In other words, creditors cannot reduce a Soldier’s interest payment on a pre-existing loan from 13 to 6 percent only to increase the post-active duty interest rate from 13 to 20 percent or add months to the loan to recoup what it feels to be losses. Under the SCRA, creditors must permanently forgive any interest charges lost due to a Soldier going on active duty.

In order to receive the 6 percent interest rate protection, a Soldier must prove four things:

1. active duty service;
2. the date active duty began;
3. that the interest rate capped stems from a debt entered into before active duty and
4. that coming onto active duty “materially effected” a Soldier’s finances in relation to the debt.

The Fort Irwin Legal Assistance can assist Soldiers in assembling an information packet to send to creditors. Such information packets will usually include: a copy of your orders; a copy of the bill, contract, mortgage, etc., showing the interest you want to cap; a form letter notifying the creditor of your right to cap an interest rate, and; an explanation of why coming onto active duty has materially effected your ability to pay the debt. This “materially effected” point is usually not too difficult to prove, particularly where coming onto active duty reduced a Soldier’s salary, resulted in a big move, divided the household, or led to a deployment.

Should a creditor refuse to comply with your request to cap an interest rate, the Veterans’ Benefit Act of 2010 allows you and/or the U.S. Attorney General’s Office to sue the creditor for enforcement of the cap, damages, public fines, and in some cases, attorney’s fees and costs.

If you are interested in getting any of your pre-activation interest rates capped, make an appointment to meet with one of Fort Irwin’s Legal Assistance Attorneys by calling 380-5321. The Legal Office is locate in Building 288 on Barstow Road.