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Reserve and National Guard paying extra interest every year

The CFPB has announced its release of research revealing that Reserve and National Guard members called to active duty are paying an extra $9 million in interest every year because they are not always receiving the benefit of their right to rate reductions under the Servicemembers Civil Relief Act. The Servicemembers Civil Relief Act (SCRA) gives servicemembers on active duty the right to request interest rate reductions on outstanding loans during the time they are activated and for an additional year in the case of mortgages. However, according to the CFPB’s research, only small fractions of activated Guard and Reserve servicemembers receive interest rate reductions.

Financial institutions can take steps to ensure these individuals can more easily assert their rights.

For a servicemember to benefit from their right to reduced interest rates, many creditors continue to require proactive notifications from the servicemember about a shift to active-duty status. In fact, the servicemember generally must notify each of their creditors in writing with a copy of their orders to active-duty service or any other appropriate indicator of military service, including a certified letter from a commanding officer, that shows the date they began active-duty service. Additionally, some creditors continue to require written requests or supporting documentation be submitted by mail or fax instead of offering a wholly online process. However, creditors could just as easily access a Department of Defense system that checks any borrower for active-duty status. By using the Defense Manpower Data Center SCRA website, creditors would help ensure servicemembers benefit from their right to interest rate reductions.

In addition, the CFPB recommends:

  • Creditors apply SCRA interest rate reductions for all accounts held at an institution if a servicemember invokes their rights for a single account
  • Creditors automatically apply SCRA rights
  • Development of comprehensive and periodic indicators of SCRA interest rate reduction utilization
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