The SCRA Interest Rate – Know When and How to Calculate It!

The SCRA, or Servicemembers Civil Relief Act, is a federal law that first and foremost protects military personnel who are on active duty military service from persecution in legal or financial matters while they are deployed.

This unique benefit for servicemembers also offers a 6% interest rate, with a recent 4% reduction.

What is the Servicemembers Civil Relief Act?

Before anything else, what is the SCRA exactly?

Formerly known as the Soldiers’ and Sailors’ Civil Relief Act, the SCRA is a federal law that protects all military members from being sued or otherwise oppressed by legal means while on active duty in the service of their country and for up to a year after they complete their active military task.

The SCRA outlines extra privileges and rights afforded to active-duty servicemembers but does not offer any blanket immunity to legal or financial action. The SCRA’s primary purpose is to ensure that any military member is given a fair chance to defend themselves against any legal or financial claims made against them while they are away on active duty.

Who can Benefit from the SCRA?

To qualify for SCRA protections, you must fall under one of the following categories:

• Serving under any branch of the military (Army, Navy, Marine Corps, Air Force, Space Force, and Coast Guard)
• National Guard with qualifying federal active duty military service
• Reservists called to active duty
• Commissioned officers of the Public Health Service in active duty military service
• Commissioned officers of the National Oceanic and Atmospheric Administration in active service

The National Guard may be eligible for SCRA protections when it is authorized by either the President or the Department of Defense to respond to a President-declared or federally funded emergency lasting more than 30 consecutive days.

Select provisions of the SCRA, which include the interest rate reduction, cover dependents of service members, which may include their spouse, children, and other dependents.

How do I Check if my Account is Eligible for SCRA protections?

If you want to acquire SCRA benefits, you can start by checking to see if you can apply for those protections.

First and foremost, you are eligible for SCRA benefits if your Navy Federal account was opened before you were deployed to active duty.

The SCRA benefits include:

• Consumer loans
• Mortgages (including Home Equity Lines of Credit)
• Checking Lines of Credit
• Credit cards
• Business loans
• Student loans
• Vehicle loans
• Personal loans

However, you must request your SCRA benefits from the official SCRA website no later than 180 days after your active duty military service ends.

How much is the SCRA Interest Rate?

The primary purpose of the SCRA is to provide protection and benefits to active duty service members who are legally or financially pursued while deployed. This means they are protected from foreclosures and repossessions while they are on active duty service, and their personal property is protected from seizure or foreclosure as long as they are deployed.

However, that is not the only benefit of the SCRA; it includes benefits like a 6% interest rate cap and protections from foreclosures and similar processes.

Effective April 1st, 2022, the Navy Federal Credit Union is offering an interest rate reduction of 4% from 6% to any eligible members. This is a better rate than what the federal SCRA requires.

Finally, a servicemember’s SCRA interest rate protection ends after they are discharged from entering military service, with only one important exception. Interest on the mortgage interest may continue to be charged even after the termination date for one year. The Military Lending Act states the 36% limit is for the life of the loan, and that limit will not terminate.

How do I Calculate the Interest Rate?

The SCRA interest rate cap is at 6%, but there is confusion about when it strictly applies. If you are a lender or a banker, you must know exactly how to calculate interest rates when you let servicemembers take out loans.

The SCRA states that lenders cannot charge servicemembers more than 6% interest. At the same time, they are deployed, and this law applies to all types of loans that the servicemember in question might have entered before their active duty military service. These include car loans, mortgages, business loans, personal loans, and even student loans, as long as the loans in question are entered into before the servicemember is called to active duty. In short, any loan incurred before the service member entered military service is under SCRA protection.

The interest rate cap section of the SCRA is different from the other benefits that servicemembers receive in that the law states that servicemembers must file a request for interest rate reductions themselves. The other SCRA protections are not bound to a similar request system. For this exact purpose, requests can be made through several different types of online forms.

When a retroactive request is made, often, all debt payments made up to that point need to be recalculated and then refunded to the requester. However, this is where the confusion starts: some think that the recalculation date starts when a servicemember receives their orders to deploy. Some others think it is the date that they report to active duty and begin their military service.

For civilians entering the military service, you may start from your date of induction. If you are a reservist, you may use the date of receiving your call-up orders instead of the date you report for duty. Debt incurred during or after active duty is not generally covered by the SCRA. The SCRA requires that debts covered be incurred before the start of a servicemember’s busy duty period.

How do I request SCRA Interest Rate Reduction?

If you have not yet requested SCRA benefits and would like to be a member, you may do so by filling out the request form on the SCRA website.

First, check if you are eligible, and then be ready to provide the following information:

• Service dates (initial active duty start date and the date active duty service orders were issued)
• Branch of service

Once you have lodged your request for SCRA benefits, an SCRA specialist may contact you to seek additional documentation and information to complete your application. Some of this extra information may include:

• Call to active duty orders
• Recall active duty orders
• Leave and earning statement
• A certified letter signed by your Commanding Officer
• Statement of Service (must also be signed by your Commanding Officer)

SCRA protections dictate that the 6% interest must be forgiven and not simply deferred: the interest rate reduction will reduce your monthly payments going forward. To do this, file a request through your loan servicer. This is where the written notice and online form come in. As you submit this request, you must include a copy of your orders from your commanding officer for entering active duty.

The request can be submitted anytime after the servicemember enters military service and 180 days after military service ends. If you are unsure whether you qualify for the SCRA benefits of an interest cap, speak to your local legal office and an attorney.

However, this specific provision does not always hold up in a court order. A court is within its rights to blame the lender for not investigating the matter thoroughly.

Conclusion

If you are a banker or a lender, your best approach is to proactively address these situations by having a team verify the military status of your clients. A good plan is to have a dedicated team that does just that: regular diligence will save you a lot of trouble in the long run and keep you on your toes as a lender or banker.