As detailed in a previous post , the Servicemembers Civil Relief Act of 2003 (SCRA) protects members of the Army, Navy, Air Force, Marine Corps, and Coast Guard whose financial obligations and ability to participate in civil proceedings are materially affected by active-duty military service. The SCRA affects the rights of lenders on a range of issues including default judgments, termination of leases, security deposits, personal loan interest rates, mortgage interest rates, mortgage foreclosures, civil lawsuits, and income tax payments.
A recent report from the Consumer Financial Protection Bureau (CFPB) documents how some lenders violate the rights of military members under the SCRA. Common violations include:
- Lacking consistent and clear procedures for verifying active-duty military service which triggers certain protections under the SCRA;
- Denying the six-percent interest rate cap required by the SCRA for certain loans;
- Disapproving military deferments to service members seeking to postpone monthly payments on federal student loans;
- Failing to adequately disclose payment allocation methodologies designed to maximize late fees; and
- Requiring military members to apply for SCRA protections multiple times, making it difficult for active-duty military members to assert their rights.
Improper lending practices like these harm the financial readiness of military members preparing to deploy and impede their ability to focus on their mission. Noncompliance with the SCRA can also result in reputational harm and financial liability to lenders. Sallie Mae recently paid $60 million into a compensation fund to settle a civil lawsuit filed by the Department of Justice on behalf of military members alleging Sallie Mae charged excessive rates on student loans.
Many SCRA violations ultimately originate in the failure of lenders and loan servicers to understand the requirements of federal law. Banks and other financial institutions should review their policies and procedures with counsel to ensure transparency and compliance with the SCRA.