New SCRA updates make it easier for servicemembers to verify military status to lenders.
One of the significant benefits to servicemembers under the Servicemembers Civil Relief Act (“SCRA”) is the possibility that interest rates on certain loans and credit card accounts be reduced to 6% when the person obtains active duty status.
Under the SCRA, the burden was on the servicemember to provide the lender with a written request to reduce the interest rate, as well as a copy of their military orders. The deadline for this request was 180 days after the end of the servicemember’s tour of duty.
Often, servicemembers had difficulty finding and giving a copy of their orders to lenders. Now, in addition to copies of orders, there are other proofs that lenders are authorized and required to accept. One alternate proof can be a “certified letter” from a commanding officer. Another solution is now that the lender can, on its own, obtain verification as long as the ultimate source is the U.S. Defense Department’s Defense Manpower Data Center (which is the source utilized by the SCRACVS – the Servicemembers Civil Relief Act Centralized Verification Service).
The recently passed John S. McCain National Defense Authorization Act (“NDAA”) allows this additional flexibility. Lenders now have alternate ways to accommodate servicemembers’ requests to lower interest rates, as of August 13, 2018. Their hands are no longer tied to having to rely upon the servicemember finding a copy of their military orders.
In a compliance blog article appearing on the National Association of Federally-Insured Credit Unions web site, the following changes in the SCRA were highlighted:
“§3937. Maximum rate of interest on debts incurred before military service
[ . . .]
(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….
(Emphasis added. See below for new text)
Note the prior provision technically required the servicemember to provide written notice and a copy of military orders. Now, here is the recently amended text from the NDAA:
“SEC. 600. PROOF OF PERIOD OF MILITARY SERVICE FOR PURPOSES OF INTEREST RATE LIMITATION UNDER THE SERVICEMEMBERS CIVIL RELIEF ACT.
Section 207(b)(1) of the Servicemembers Civil Relief Act (50 U.S.C. 3937(b)(1)) is amended 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) [written notice and military orders], 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 [DMDC]…with respect to a servicemember has not failed to treat the debt of the servicemember [as subject to the 6% interest rate cap] 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.”
Remember, although the SCRA update makes it easier to prove that someone is eligible for SCRA benefits, it does not affect the 180-day deadline for notifications. That being said, the change is welcome by lenders and servicemembers who are anxious to give the servicemembers their due benefits under the SCRA.
If the servicemember’s social security number is not known, the SCRACVS continues to be an important tool for lenders to achieve compliance with SCRA.