The Servicemembers Civil Relief Act is designed to protect active-duty military members’ rights while deployed, both in the U.S. and abroad. Today, one of the biggest issues with the SCRA is compliance. When are military members’ rights different than the average civilian?
One key area of the SCRA involves lending – specifically, SCRA eligible-borrowers have an interest rate cap of 6 percent. Recently, the U.S. Office of the Comptroller of the Currency, the U.S. Department of Justice and the U.S. Department of Education all concluded separate investigations into SCRA violations involving lenders.
In fact, we reported on the results of the DOJ and OCC investigations, which revolved around Bank of America and student-loan servicer Navient, formerly a part of Fannie Mae. While the conclusion of those investigations led to nearly $100 million in settlements, it appears lender-related SCRA violations are still an issue.
CFPB hears more servicemember complaints
The recent reports from the DOE, OCC and DOJ were important rulings in SCRA cases. Even so, the number of SCRA violations is still high. This is based on information from the Consumer Financial Protection Bureau, which found that loan servicers are still overlooking legal protections for servicemember borrowers.
“We continue to receive complaints from military student loan borrowers detailing a range of breakdowns and roadblocks,” said CFPB Director Richard Cordray. “Our deployed servicemembers should be able to focus on their military mission and spend precious free time talking with loved ones, not wrangling over problems with student loan servicers.”
Common complaints from servicemembers, as outlined by the CFPB, included:
- Delays in the application of SCRA mandates – Some military members have reported delays in the application of their SCRA rights, including the interest rate cap.
- Servicer errors – Military members have also reported having their student loans sent to collection agencies, even though SCRA protections can postpone loan payments
- Disabled veterans – Under the SCRA, certain disabled veterans with wounds received while on active duty are exempt from all remaining loan payments. Some of these servicemembers have reported defaulted loans regardless of this protection.
Overall, the CFPB noted more than 1,300 complaints from servicemembers or family members since 2012. Given the added emphasis on the SCRA and its protections, it appears that many loan servicers are overlooking the law when working with military members.
Scope of violations still a question mark
One of the biggest problems with SCRA compliance right now is a lack of knowledge. Many lenders are unclear about the specific nuances of the SCRA, such as when the borrower is eligible, while governing bodies like the DOE and DOJ are unsure of how many loans violated this legislation.
This is illustrated by the varied results from the DOE and the DOJ recent examinations of student loan servicers. According to the DOE, less than 1 percent of service members’ cases had interest rates above the 6 percent cap.
On the other hand, the DOJ reported that roughly 78,000 active military status borrowers encountered SCRA violations. That is a fairly large discrepancy, and one that the DOE attributed to a difference in sample size.
“We are pleased that the Department of Justice was able to do a review with a much wider scope than the Education Department’s loan portfolio to ensure greater accountability for our men and women in uniform,” Under Secretary Ted Mitchell said in a press release. “This ensures that no matter where servicemembers get student loans, they will receive the benefit to which they are entitled under the law.”
“More awareness of SCRA violations can help get results.”
Even so, these results highlight the lack of understanding about the scope of SCRA violations. How many servicers have made mistakes in the past? How many servicemembers have been on the wrong end of a violation?
Awareness makes all the difference
This is why awareness – of both the extent of violations and when and how the SCRA is applicable – is so important.
From a lender’s perspective, knowing when a borrower is protected under the SCRA is the best way to prevent a mistake. Servicemembers are eligible if they acquired the loan prior to active duty, but are currently on active duty. There is also a brief grace period after returning in order to address any outstanding debts.
Therefore, all lenders should know exactly when their borrowers entered active duty. This date will help determine SCRA eligibility and avoid costly penalties later.