Interest Rate Reduction under the SCRA
1. Q. I heard that I can reduce the interest on all my loans and debts due to my military service. Is that true?
A. Not exactly. But you do have a right to reduce interest on some debts; those that qualify for rate reduction under the Servicemember Civil Relief Act (SCRA). The SCRA (at 50 U.S.C. 3937) provides that qualifying loans and debts can be reduced to an annual percentage rate of interest (APR) of 6%.
2. Q. Which debts qualify for interest rate reduction under the SCRA?
A. Only debts incurred prior to military service qualify for SCRA rate reduction. For example, if you are currently on active duty (or your active-duty service ended within the last 180 days) and you took out a vehicle loan or personal loan or incurred some other financial obligation prior to entering the armed forces, that debt is subject to SCRA rate reduction.
3. Q: What about preservice debts incurred jointly by the SM and the SM’s spouse? Are they covered?
A. Yes. The SCRA interest rate reduction applies to such joint debts and the rate is reduced as to both the SM and the spouse. For example, husband and wife sign a mortgage and then the wife joins the armed forces. The mortgage is eligible for SCRA rate reduction. Once the rate is reduced, the lower rate applies to both the husband and the wife.
4. Q. What about preservice debts incurred by the civilian spouse but not the SM? Are they covered?
A. No. SCRA rate reduction applies to preservice debts of the SM or of the SM and spouse jointly. It does not apply to debts incurred solely by the civilian spouse. For example, husband signs a personal loan and then wife joins the armed forces. The husband’s personal loan is not subject to SCRA rate reduction.
5. Q. Does the SCRA rate reduction cover student loans?
A. Yes. The rate reduction covers pre-service student loans of all types.
6. Q. I have a federal student loan, or a Federal Family Education Loans (FFEL) Are they covered?
A. Not only are they covered, but there are extra protections concerning these types of loans. In the case of most preservice obligations, the SM must make written application to the creditor for SCRA rate reduction. However, in the case of federal student loans and Federal Family Education Loans (FFEL) (a loan program under which state or private loans are guaranteed by the federal government) the loan servicer is required to check monthly to determine whether the borrower has joined the armed forces and if so, reduce the interest even without a request! The Department of Defense has created an online program to assist creditors to determine borrower military status. This automatic reduction is imposed by the U.S. Department of Education on all servicers of federal student loan. A federal loan servicer is a company hired to collects payments, issue account statements, and handle accounting matters concerning the loan.
7. Q. What if I consolidate loans after joining the armed forces?
A. The consolidation loan, obtained after the commencement of military service, is not subject to SCRA rate reduction. Example: John Doe, civilian, obtains a personal loan with an APR of 16%. He obtains a private student loan at an APR of 12%. After entering the armed forces, John Doe obtains a consolidation loan at 8% APR to pay off these debts in full. The consolidation loan is not subject to SCRA rate reduction.
8. Q. How do I apply for SCRA interest rate reduction?
A. There is no required format for an SCRA rate reduction request; however, the request must contain certain information. The request must include (a) military orders calling the SM to military service and any orders further extending service, or (b) “any other appropriate indicator of military service, including a certified letter from a commanding officer.” The request must be made not later than 180 days of the SM’s release from military service. The request should identify the debt / account to be reduced. Templates for SCRA rate reduction request and for Commanding Officer certification of service are provided as appendices to this article.
9. Q. I want to prove my military service dates by using a letter from my command rather than by providing military orders and other documents. Can someone other than my commanding officer sign such a verification letter? Can it be signed “by direction,” of the commanding officer by some other staff officer?
A. It is likely that a verification letter signed “by direction” of the commanding office is valid. This is so because (i) the statute says that the letter must be “from” the CO rather than “signed, (ii) it is common practice within the armed forces for the CO to delegate certain tasks and authorize by direction authority to other staff officers, and (iii) the U.S. Supreme Court has long held that the SCRA is to be interpreted liberally on behalf of people it is designed to protect. Nonetheless, the better practice by far is to have the CO actual sign the letter to refrain from giving the creditor any excuse, however flimsy, to deny your request.
10. Q. Can the creditor lawfully deny a rate reduction request that meets all the requirements of the SCRA?
A. No. There are only two lawful creditor responses to a proper request. First, the creditor can reduce interest as requested. Secondly, the creditor may seek a court order declaring that the applicant’s military service does not materially affect borrower ability to pay. Creditor application for such judicial relief, let alone successfully obtaining it, is exceedingly rare. It is not up to the SM to prove that military service materially affects ability to pay. The onus is on the creditor to obtain a court order declaring that military service does not materially affect borrower ability to pay.
11. Q. How long does the rate protection last?
A. The rate reduction is effective retroactively to the date that the borrower was called to military service and continues throughout military service. If the affected debt is a mortgage, then the reduction extends through military service and for one year thereafter.
12. Q. Once the protection period ends, will I get stuck paying deferred interest or some other balloon payment?
A. No. The SCRA requires that the excess interest be forgiven and not deferred. The excess interest goes away as if it never existed. Further, the creditor is prohibited from accelerating the loan in response to an SCRA rate reduction request. “Accelerating the loan” is legalese for making you pay the entire amount immediately rather than in monthly payments.
13. Q. What can / should I do if the creditor fails to reduce the interest as required?
A. There are several actions that you can take. ou or your attorney can make a demand letter to the lender explaining the issue. You can sue the lender. You can request enforcement assistance from the U.S. Attorney General or the North Carolina Attorney General. You can sue the lender in a private lawsuit.
14. Q. What is a demand letter? What should it say?
A. A demand letter is simply a written request to the creditor informing them of the law, asking them to follow it, and, as appropriate, advising of potential consequences of non-compliance. Sometimes you will get a better response if the demand is sent to someone in the company’s hierarchy senior to the person or office that initially denied the request. In the demand letter you can:
- explain the law (and provide a copy) to the creditor,
- point out that the borrower’s request meets all the statutory requirements,
- advise that the creditor is obligated either to reduce interest or to obtain a court order absolving the creditor of this requirement,
- advise that the SCRA authorizes the SM to initiate suit against the lender in federal court,
- advise that the NC SCRA authorizes the SM initiate lawsuit against the lender in NC state court,
- advise that a person aggrieved by a violation of the SCRA may complain to the U.S. Department of Justice (Department of Justice), that the Department of Justice aggressively enforces the SCRA against errant businesses and may seek money damages, a fine of up to $55,000 for the first violation, and up to $110,000 for each subsequent violation [50 U.S.C. 4041].
- advise that the SM may complain to the North Carolina Department of Justice, which is authorized to enforce the NC SCRA; and
- that the knowing violation of this provision of the SCRA constitutes a crime punishable by a fine and not more than a year imprisonment [50 U.S.C. 3937(e)].
15. Q. How can the U.S. Department of Justice assist?
A. The Department of Justice has a Servicemembers and Veterans Initiative. Pursuant to this project, the Department of Justice maintains a website that provides information to the public. In addition, the website contains a portal for people to complain about violations of the SCRA. The website contains a platform to provide a narrative account and to upload relevant documents. See: https://www.justice.gov/servicemembers . The Department of Justice aggressively enforces the SCRA, suing offending individuals as well as companies, large and small. The project website contains information concerning previous SCRA enforcement actions. Often, a letter from the Department of Justice advising that it is considering suing the offending business is sufficient to obtain compliance.
Your complaint obviously helps you since the Department of Justice may decide to take enforcement action. The complaint also helps the Department of Justice identify target businesses to sue. Based on your complaint, and perhaps others, the Department of Justice may decide to investigate to determine how many other people the offending business victimized. It is not unusual for the Department of Justice to receive a handful of complaints, investigate, and determine that there are dozens, hundreds, even thousands more victims. Such litigation may, and in some past cases has, resulted in court orders and settlements requiring the offending business to change its practices, provide millions in restitution, and to pay a civil penalty.
16. Q. How can the North Carolina Attorney General assist?
A. On July 25, 2019, North Carolina enacted the NC SCRA [NC GS 127B-25 et seq], which incorporates the federal SCRA into North Carolina law and authorizes the North Carolina Attorney General to seek relief in court, including injunction, restitution, a civil penalty of $5,000 per violation, and other relief. The website of the NC Department of Justice hosts a portal that facilitates online consumer complaints.
17. Q. Can I sue the company in federal court for violating the rate reduction provisions of the SCRA?
A. Yes. The SCRA authorizes persons it protects to seek relief in federal court, including money damages, attorney fees, court costs, and other relief [50 U.S.C. 4042]. You will probably need to hire private counsel to exercise this option.
18. Q. Can I sue the creditor in North Carolina state court for violating the rate reduction provisions of the SCRA?
A. Yes. As noted above, North Carolina has enacted its own SCRA [NC GS 127B-25 et seq] It authorizes persons aggrieved by an SCRA violation to seek relief in court, including injunction, restitution, damages, attorney fees, and court costs. You will probably need to hire private counsel to exercise this option.
19. Q. If I want assistance about these matters, where can I get it?
A. Contact your military legal assistance office. That office will have attorneys who can explain how the SCRA applies to the facts of your case, assist in drafting demand letters, and provide advice about making a complaint to the U.S. Department of Justice or to the North Carolina Department of Justice.
If you want to pursue a private lawsuit, you will probably need to hire a civilian attorney. Your legal assistance office can also provide advice and assistance concerning the American Bar Association Military Pro Bono Program. Through this program, the volunteer attorneys may provide litigation assistance to clients and cases meeting program criteria.
Each service has detailed rules concerning eligibility for military legal assistance services. However, in general, eligible clients include active-duty SM and their dependents, and military retirees and their dependents.
APPENDIX I
SAMPLE INTEREST RATE REDUCTION REQUEST
Alter as needed to fit facts of your case.
YOUR NAME HERE
YOUR ADDRESS HERE
Date_________
CREDITOR NAME HERE
CREDITOR ADDRESS HERE
Subject: INTEREST RATE REDUCTION UNDER SERVICE MEMBER CIVIL RELIEF ACT:
Debtor name:__________________________
Account #_____________________________
To Whom It May Concern:
Pursuant to the interest rate reduction provisions of the Service Member Civil Relief Act, Title 50, U.S. Code, section 3937 (hereinafter referred to as the SCRA) I hereby request that the interest on the above-mentioned debt be reduced to 6% as of the date that I was called to military service.
I incurred this civil debt prior to the date that I was called to military service. I began active duty on ___________________________ and have remained on active duty as reflected in the following documents [Identify the document(s) that show the date you were called to or entered the armed forces and your current military status. Examples: enlistment contract / extensions, appropriate pages of military service record, reserve call up orders, or letter from commanding officer].
My current enlistment extends through _______________. However, I may choose to reenlist at that time. I will notify you upon my release from active duty.
You may also confirm my military service dates online at the website of the Defense Manpower Data Center (DMDC) https://www.dmdc.osd.mil/appj/scra/
Access to my information on this website requires you to input my date of birth and / or social security number. I have previously provided this information to you in connection with the loan application.
I am currently assigned to [UNIT NAME] ___________________, located at [Military Installation Name]. [If applicable, add the following: I anticipate deployment to_XXXX_in the near future.]
The SCRA sets a 6% per annum ceiling on interest charges (including service charges, renewal charges and fees) during the period of military service for obligations made prior to the date of entry onto active duty. Interest above 6% must be forgiven and not accrued. Please ensure that your records reflect this statutory ceiling and that any excess charge is withdrawn.
I.M. MARINE
Corporal
U.S. Marine Corps
APPENDIX II
TEMPLATE FOR COMMANDER VERIFICATION OF MILITARUY SERVICE
Tailor as necessary to fit the facts of your case.
1. I, [rank / name of commander] being duly sworn, hereby state and certify that the following is true:
-I am the Commanding Officer of the following military unit ________________________, located at [Name of Installation].
-[Name / rank of debtor / borrower] is an active-duty member of my command who has or soon will, apply for interest rate reduction of a preservice debt pursuant to the Servicemembers Civil Relief Act, Title 50, U.S. Code, section 3937 (hereinafter referred to as the SCRA). The purpose of this statement is to provide creditors with accurate information concerning this servicemember’s military service to ensure the proper application of the SCRA interest rate reduction provisions.
-To the best of my personal knowledge and belief, and after review of the relevant military records, I certify that the aforementioned [Marine, Soldier, Airman, Sailor, Coast Guardsman] commenced active-duty military service on ____________________and has remained on active duty to the present date.
-[As applicable] The current enlistment contract concerning the aforementioned service member extends through ________________________.
-This statement is true and correct to the best of my knowledge and belief.
JOHN P. JONES
Lieutenant Commander, U.S. Navy
Commanding
STATE OF __________________
COUNTY OF _________________
On this day of , 2023, personally appeared before me, the said named JOHN P. JONES, to me known and known to me to be the person described in and who executed the foregoing instrument and he/she acknowledged that he/she executed the same and being duly sworn by me, made oath that the statements in the foregoing instrument are true.
____________________________
NOTARY PUBLIC
My Commission Expires__________