How Does the SCRA Affect Interest Rates?

The SCRA interest rate cap is 6%, but you must know when it applies. As a banker or lender, you have to be especially careful when calculating interest rates on loans to servicemembers. So, how do SCRA requirements for lenders work?

The Servicemembers Civil Relief Act protects servicemembers from some actions taken while they are deployed, including eviction, foreclosure, repossession, and more. This federal law also says lenders cannot charge servicemembers more than 6 percent interest while they are on active duty.

This law applies to any type of loan the servicemember has entered into before going on active duty. This includes mortgages, car loans, business loans, personal loans, and student loans.

The interest rate cap section of the SCRA differs from other benefits servicemembers receive in that the law requires a servicemember to request the interest rate reduction. No such requests are necessary for other protections.

However, in a court of law, this provision does not always carry a lot of weight. The courts may blame the lender for not doing their own investigation.

Because of this and because of enforcement action by the Department of Justice, many lenders routinely review or “scrub” their client lists, searching for active servicemembers. Some consent agreements among lenders and the government have even built-in that requirement.

SCRA interest rate reduction

When do the Lowered SCRA Interest Rates take Effect?

A service member’s active duty status determines when the SCRA interest rate reduction kicks in. Their deployment orders should be examined to determine the exact date a person in active service can request interest rate reduction. The general rule is that the Servicemembers Civil Relief Act comes into effect depending on when the servicemember’s military service period began. This particular SCRA protection ends on the day that service member finishes their active duty service.

To determine a service member’s active duty status, military personnel’s deployment orders would specify when they entered into active duty. It doesn’t matter if that person is from the Air Force or Marine Corps. All branches issue their service members deployment orders once they’re called to render active duty military service.

The confusion often starts when servicemembers make this request, often retroactively. Many varieties of online forms are available for servicemembers to use to make this request. Servicemembers need not use one particular form; however, they must state their request for reduction of interest and provide a copy of their orders to report for active duty. Lenders should remain flexible with the proofs required.

With a retroactive request, you often must go back and recalculate the debt payments and refund the requester’s money. The Department of Justice points out that the interest over 6 percent must be forgiven and not deferred.

When a civilian joins the military service, you use the induction date. With reservists, you should use the date of the call-up orders and not the date the reservist reports for duty. The SCRA does not generally cover a debt incurred during or after active duty.

Who is Covered by the Servicemembers Civil Relief Act?

The Servicemembers Civil Relief Act (SCRA) applies to active-duty service members. This generally covers people from the Army, Marine Corps, Navy, Air Force, and Coast Guard. The SCRA also covers members of the Reserve component who are called to active duty military service. Likewise, National Guard members mobilized under federal orders for more than 30 consecutive days are granted SCRA protections.

One doesn’t necessarily have to be a soldier to be covered by the SCRA. Commissioned officers from the Public Health Service or the National Oceanic and Atmospheric Administration are granted SCRA protections, too.

Select portions of the SCRA cover members of military families, such as military spouses and other dependents. The Armed Forces definition of dependents also covers another individual for whom the servicemember provided more than half the support in the 180 days prior to an application for relief.

When Does the SCRA Interest Rate Protection End?

The servicemember’s SCRA interest rate protection ends at the time they leave active duty (the active duty termination date) with one important exception. Interest on mortgage interest may continue AFTER the termination date for one year. The 36% limit under the Military Lending Act is for the life of the loan, and the limit does not terminate.

The SCRA Offers Little Guidance on Interest Rates

The truth is that the SCRA does not spell out any specifics involving interest rate caps (state laws usually set usurious amounts). If you think you can’t be sued because the law is ambiguous, you’re wrong. Ignorance of the law is no excuse, even, as in this case, when the law is unclear or unwritten altogether.

Further, even though the Servicemembers Civil Relief Act SCRA specifies that servicemembers must request the rate cap in order to get it, banks and lenders cannot use this as a defense if they have not been informed of the change and have erroneously charged a higher interest rate.

After a $12 million settlement with the DOJ for violations relating to foreclosure, repossession, and interest rate reductions, Capital One announced its intention to automatically apply the 6 percent interest rate to all loans a client has after they have requested a reduction for one. So if a servicemember requests the rate cap for their car loan and they also have a credit card with Capital One, the bank must adjust the rate for that card as well.

Several states, such as Florida, have passed laws that offer additional protections to servicemembers.

Make a Proactive Plan

Your best line of defense as a banker or lender is to establish a team to proactively address situations such as these, as well as the military status of all clients. In fact, it may be a good idea to assign some employees full time to this task. Regulatory compliance will eliminate headaches, extra costs, and possibly public relations problems later.

Even when you have definitively determined the nonmilitary status of a borrower, this is not the end of it. A civilian client could join the military at any time and become eligible for these protections.

A dedicated team of employees that continually reviews client military status can be a helpful element in the defense against charges you may face from the DOJ or individuals in civil suits. A bank that sets up programs such as mechanisms for notifying clients of their rights, a page on their website explaining servicemembers’ rights and how they can exercise them, and an 800 number for borrowers to call with questions has a stronger defense in a court case than an establishment that merely throws up its hands and says it didn’t know.

Demonstrating that you have policies and procedures to help protect servicemembers’ rights goes a long way toward fulfilling your responsibility under the SCRA.

Consequences of Non-Compliance

non-compliance of SCRA

Not all businesses understand the SCRA, but non-compliance to this federal law can be expensive. The Department of Justice (DOJ) is the driving force behind SCRA enforcement. The DOJ is authorized to litigate cases on behalf of servicemembers. Most cases that violate the SCRA result in settlements with lenders and other companies for large sums of money.

In legal terms, this is usually what’s called equitable and declaratory relief. In essence, the company or entity that violates SCRA protections will be deterred from violating this federal law.

Lenders should keep in mind that even an attempt at non-compliance with the SCRA might be enough to incur the wrath of a litigator or the DOJ. If you don’t honor SCRA protections, you might have to pay thousands of dollars as a consequence.

The first violation of the SCRA will result in a lender paying a $55,000 fine. Repeat violations will cost $110,000. Non-compliance with the SCRA can cost businesses a lot of money and might even cause some to file for bankruptcy.

SCRA Centralized Verification Service Can Help

For help with military service status verifications, rely on the Servicemembers Civil Relief Act Centralized Verification Service. We offer special bulk discounts for bankers and have tools to automate batch entry. And we can get status verifications for you usually within 24 hours, saving you time and money. We can supply notarized affidavits, next day by FedEx. Trust the SCRA Centralized Verification Service for all of your military status verification needs.


What is needed for SCRA?

You must present evidence of active duty service, like deployment orders. Moreover, you need to provide your lender with a written notice of your military service and request to honor a particular benefit under the SCRA.

Does SCRA apply to loans?

The SCRA applies to loans taken by active-duty service members before their active-duty status was activated. The SCRA covers mortgage, car, business, personal, and student loans.

What is the SCRA in banking?

The SCRA is a federal law that requires lenders such as banks to lower the interest rates of service members to a maximum of 6% per annum.

What does SCRA mean in a mortgage?

The SCRA stipulates that a service member’s mortgage interest rates would be reduced to 6% per annum. This applies only to that person’s active duty service period.

What is the full meaning of SCRA?

The SCRA stands for Servicemembers Civil Relief Act. This was formerly known as the Sailors Civil Relief Act.

Who can refer to SCRA?

Active-duty service members are allowed to refer to the SCRA to receive the protections the law grants. Select portions of this law cover military dependents, such as spouses, children, and other dependents.

How to lower interest rates with SCRA?

You need to provide proof of a servicemember’s military service. One’s deployment orders, which can be obtained from one’s military unit, can provide the documentation they need to apply for SCRA protections. A written notice that explicitly stipulates the intent to receive SCRA protections is also required for the SCRA to be recognized.

Attorney Roy Kaufmann serves as the Director of the Servicemembers Civil Relief Act Centralized Verification Service, located in Washington, D.C. As a recognized authority on the Servicemembers Civil Relief Act, Mr. Kaufmann has published hundreds of articles and hosted many webinars. His teachings help law firms and businesses to remain compliant with the SCRA rules and regulations so as to avoid costly fines.