The U.S. Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) issued a joint letter intended to remind financial services providers of their responsibility to honor interest rate protections for servicemembers, recent veterans and their spouses as stipulated in the Servicemembers Civil Relief Act (SCRA).
Servicemembers are afforded additional rights and protections under the SCRA in recognition of the unique financial challenges related to their service. For example, the law limits the amount of interest providers may charge servicemembers on certain financial obligations incurred before their military service to no more than 6 percent per year, including most fees.
A 2022 analysis of the financial marketplace estimated that less than 10 percent of eligible auto loans and 6 percent of personal loans to activated members in the National Guard and military reserves were receiving these statutorily mandated interest rate reductions, resulting in nearly $10 million a year in estimated lost savings.
“Many military families have been hit hard by high interest rates on credit cards, mortgages and auto loans, even though they are entitled to an interest rate cap,” CFPB Director Rohit Chopra in a statement. “Financial firms shouldn’t be price gouging those who serve in uniform.”
With current interest rates on car loans and even mortgages well above 6 percent for many borrowers, more servicemembers would now benefit from a reduction than in previous years, the agencies asserted in the letter.
“Servicemembers make great sacrifices to serve our nation and protect our democracy,” Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division said. “Financial services providers must ensure that servicemembers are afforded their rights and benefits under the law.”
The letter was issued to ensure financial services providers are aware of the SCRA provision capping interest rates for service members who make proper credit requests. The letter also includes recommendations for providers to further help servicemembers, such as automatically applying the interest rate cap to all eligible accounts held at that institution if a servicemember invokes protections for a single account.