Compliance with the protections for active military status men and women outlined in the Servicemembers Civil Relief Act is growing more important every day, and in few areas of the law is there more scrutiny than under the credit card protections it details.
A number of credit card companies have gotten into hot water with regulators for failure to comply with the SCRA. Notably, Capitol One was accused of a number of violations of this law between 2006 and 2011, according to InsideARM.com. An investigation into the company’s actions showed that it was guilty of denying active military status men and women the 6 percent interest rate to which they are entitled on credit cards and car loans, even after they made the appropriate requests. The investigation also found Capitol One repossessed cars and foreclosed upon homes of servicemembers while they wee on active military status. They also failed to obtain a court order. Finally, the company collected debts owed on mortgage foreclosures, credit cards and vehicles without filing an affidavit as to military service.
As a penalty for these violations of the SCRA, Capitol One agreed to pay almost $7 million in damages. It also had to provide $5 million in funds to compensate those active military status men and women who did not receive the SCRA benefits on their loans, according to the news source. This helps to demonstrate the seriousness with which regulators and federal prosecutors take the protections outlined under the SCRA. An individual found guilty of these violations could even very well go to jail in addition to paying financial penalties.
It is not impossible to pursue loans held by active military status men and women. But a number of important steps must be followed. The most important requirement is that the creditor obtain an affidavit as to military service to take to court. The court can then make a ruling on how the creditor should proceed.
It is also important to understand the credit card protections afforded to those with active military status. These are outlined below.
Active Military Status Credit Card Protections
The following protections apply to servicemembers with regards to credit cards and many other forms of debt, according to the Consumer Finance Protection Bureau.
- Interest rate cap – Lenders cannot charge active military status servicemembers an interest rate on any amount owed before entering active-duty service above 6 percent. Note that interest includes not just periodic interest in this case, but also any other financial charges or fees related to the debt. To obtain this lower rate, servicemembers must notify the company of their active military status in writing. They must also include a copy of their orders to deploy.
- Retroactive interest rate cap – Lenders may apply the cap on interest rates retroactively. Servicemembers have up to 180 days after release from active duty to tell the lender about their active military status. They can then request lenders apply the lower rate for the time they were on active duty.
- Credit revocation protections – The act bars credit card companies from revoking or reducing the credit extended as a result of that person exercising their right to a 6 percent interest rate under the SCRA. This prevents companies from dropping these customers simply because they represent a slimmer profit margin.
- Credit rating protections – Similarly, the act prohibits credit card companies from making an adverse credit report because a servicemember exercises their right to a 6 percent interest rate under the SCRA.
- New purchases – Some credit card companies choose to voluntarily grant servicemembers a reduced interest rate on purchases made while they have active military status. However, the act does not require them to do so. But any payment servicemembers make on credit card debt above the minimum due must go toward the new balance first. This helps to preserve the lowest interest rate possible on the servicemembers debt as a whole.
Get an Affidavit as to Military Status
Protecting active military status men and women is a top priority for the Consumer Finance Protection Bureau. Capitol One is not the only lender that has faced consequences for failure to comply with the SCRA.
According to InsideARM.com, the CFPB reached a landmark settlement against five leading mortgage servicers and lenders in the U.S. These included GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo. These lenders had to aid borrowers, grant loan modifications and pay homeowners in compensation for illegally foreclosing on their homes.
Pursuing loans against servicemembers is a difficult legal proposition. Those who fail to obtain an affidavit as to military service may find themselves in trouble. The Servicemembers Civil Relief Act Centralized Verification Service can make this process easy.