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§ 3937. Maximum rate of interest on debts incurred before military service.

[Section 207 of the Act]

Prior to 2008, 20 U.S.C. 1078(d) made this section of the SCRA inapplicable to interest rates on federally-insured student loans. In 2008, 20 U.S.C. 1078(d) was amended to add this section (50 U.S.C. 3937) to the list of exceptions to its general statement of nonapplicability of usury laws. The provision at 20 U.S.C. 1078(d) now reads:

Usury laws inapplicable. No provision of any law of the United States (other than this chapter and part C of subchapter I of chapter 34 of title 42 and section 3937 of title 50) or of any State (other than a statute applicable principally to such State’s student loan insurance program) which limits the rate or amount of interest payable on loans shall apply to a loan—

(1) which bears interest (exclusive of any premium for insurance) on the unpaid principal balance at a rate not in excess of the rate specified in this part; and

(2) which is insured (i) by the United States under this part, or (ii) by a guaranty agency under a program covered by an agreement made pursuant to subsection (b) of this section.


(a) INTEREST RATE LIMITATION-

(1) LIMITATION TO 6 PERCENT- An obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember, or the servicemember and the servicemember's spouse jointly, before the servicemember enters military service shall not bear interest at a rate in excess of 6 percent --

(A) during the period of military service and one year thereafter, in the case of an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage; or

(B) during the period of military service, in the case of any other obligation or liability.

(2) FORGIVENESS OF INTEREST IN EXCESS OF 6 PERCENT- Interest at a rate in excess of 6 percent per year that would otherwise be incurred but for the prohibition in paragraph (1) is forgiven.

(3) PREVENTION OF ACCELERATION OF PRINCIPAL- The amount of any periodic payment due from a servicemember under the terms of the instrument that created an obligation or liability covered by this section shall be reduced by the amount of the interest forgiven under paragraph (2) that is allocable to the period for which such payment is made.

(b) IMPLEMENTATION OF LIMITATION-

(1) WRITTEN NOTICE TO CREDITOR- In order for an obligation or liability of a servicemember to be subject to the interest rate limitation in subsection (a), the servicemember shall provide to the creditor written notice and a copy of the military orders calling the servicemember to military service and any orders further extending military service, not later than 180 days after the date of the servicemember's termination or release from military service.

Editor's Note: Effective August 13, 2018, paragraph (1) was amended by § 600 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (P. Law 115-232) to read as follows:

(1) PROOF OF MILITARY SERVICE.—

(A) IN GENERAL.—Not later than 180 days after the date of a servicemember's termination or release from military service, in order for an obligation or liability of the servicemember to be subject to the interest rate limitation in subsection (a), the servicemember shall provide to the creditor written notice and a copy of—

(i) the military orders calling the servicemember to military service and any orders further extending military service; or

(ii) any other appropriate indicator of military service, including a certified letter from a commanding officer.

(B) INDEPENDENT VERIFICATION BY CREDITOR.—

(i) IN GENERAL.—A creditor may use, in lieu of notice and documentation under subparagraph (A), information retrieved from the Defense Manpower Data Center through the creditor's normal business reviews of such Center for purposes of obtaining information indicating that the servicemember is on active duty.

(ii) SAFE HARBOR.—A creditor that uses the information retrieved from the Defense Manpower Data Center under clause (i) with respect to a servicemember has not failed to treat the debt of the servicemember in accordance with subsection (a) if—

(I) such information indicates that, on the date the creditor retrieves such information, the servicemember is not on active duty; and

(II) the creditor has not, by the end of the 180-day period under subparagraph (A), received the written notice and documentation required under that subparagraph with respect to the servicemember.

(2) LIMITATION EFFECTIVE AS OF DATE OF ORDER TO ACTIVE DUTY- Upon receipt of written notice and a copy of orders calling a servicemember to military service, the creditor shall treat the debt in accordance with subsection (a), effective as of the date on which the servicemember is called to military service.

(c) CREDITOR PROTECTION- A court may grant a creditor relief from the limitations of this section if, in the opinion of the court, the ability of the servicemember to pay interest upon the obligation or liability at a rate in excess of 6 percent per year is not materially affected by reason of the servicemember's military service.

(d) DEFINITIONS.—In this section:

(1) INTEREST.—The term ‘interest’ includes service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability.

(2) OBLIGATION OR LIABILITY.—The term ‘obligation or liability’ includes an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage.

(e) Penalty-

Whoever knowingly violates subsection (a) shall be fined as provided in title 18, United States Code, imprisoned for not more than one year, or both.

(f) Preservation of Other Remedies-

The penalties provided under subsection (e) are in addition to and do not preclude any other remedy available under law to a person claiming relief under this section, including any award for consequential or punitive damages.



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