Entering active duty in the nation's armed forces is a tall order. To make sure that big move doesn't come with heavy financial and legal burdens, the Servicemembers Civil Relief Act offers military professionals a variety of protections.
Taking full advantage of the protections provided by the SCRA starts with knowing what they are and how they work.
A Limit on Interest Rates
If you enter active duty and have an existing credit card, auto loan, mortgage or other debt, you may be entitled to a lower interest rate. That's because the SCRA prohibits lenders from charging more than 6% on debts incurred prior to active duty or activation.
"That limit carries on for as long as you're on active duty, and for an additional year beyond the active duty period, in the case of home loans," says Elsa Ramirez, executive director of Consumer Loan Fulfillment at USAA Federal Savings Bank. "Your lender is required to lower your payment accordingly."
One's credit card account alone could result in savings of hundreds of dollars in interest, depending on one's balance, initial interest rate and length of active duty. For example, a $5,000 eligible balance with a 14.5% interest rate and 15 months of active duty could result in a savings of more than $500 in interest at a rate of 6%.
To take advantage of this rate cap, the SCRA requires you to notify your lenders and send them a copy of your military orders. The rate adjustment is made retroactive to your first day of active duty, and you can request it up to 180 days after your release from active duty. Note that a court may grant a creditor relief from this requirement if the creditor can prove that the ability of the service member to pay is not materially affected by the service member's military service.
Also, note that the SCRA rules don't apply to debts incurred after entering active duty. "For example, if you have a credit card or home equity line of credit, your lender can't charge more than 6% on balances you created before going on active duty, but it can charge the going rate for balances you add afterward," says Ramirez.
Given USAA's commitment to serving military families, it should come as no surprise that the company provides even greater relief than what's required by the SCRA. “While the law imposes a 6% maximum, USAA knocks the rate on eligible balances all the way down to 4% — from the first day of active duty until the balance is paid off or the duty commitment ends, whichever comes first," says Ramirez. (The 4% rate does not apply to first mortgages originated by USAA and serviced by other companies.)
Other SCRA Protections
While the interest rate cap is probably the best-known feature of the SCRA, the law also provides many other safeguards for those on active duty. These include:
- Protection from eviction. Landlords are generally prohibited from evicting active duty service members or their families without a court order, provided the monthly rent is less than $2,958.53. (This threshold is periodically adjusted for inflation.) This rule applies even if the property was leased after entering active duty.
- The right to terminate leases. When you enter active duty, receive PCS orders or are deployed, the SCRA generally lets you terminate existing lease agreements for both real estate and vehicles.
- Safeguards for homeowners. You're largely protected from foreclosure while you're on active duty and for 90 days after.
- Tax relief. If your ability to pay federal or state income taxes has been affected by your service, you can apply for a deferral of those taxes that may last as long as 180 days after you separate from service.
- Life insurance. Certain life insurance policies qualify for protection from lapse or termination for nonpayment during active duty and for two years thereafter.
- Credit protection. Rating agencies can't issue a bad credit report just because you claimed your SCRA rights. Likewise, lenders can’t use that as a reason for denying you credit or changing the terms of an existing account.
- The right to request a delay of legal proceedings. If you receive notice of an upcoming legal proceeding while on active duty — or within 90 days of release from active duty — you may qualify for a delay of those proceedings if your military duty substantially affects your ability to appear.
For help understanding these and other rights under the SCRA, contact your nearest legal assistance office.
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