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Active military personnel protected from interest rate hikes

The law sets the maximum APR to 6 percent

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the CreditCards.com expert

Dear Credit Guy,
My son has been deployed and has sent letters to Bank of America, Choice Privileges and Discover requesting they reduce his interest rate to 6 percent. He sent the letter in June and will be deployed in August. He sent the letters when he made his payments but has received no response, and the interest rate is still locked in at 21 percent.

He needs help in getting an accurate address. These creditors do not have military deployment forms like student loans, and he wants to get this resolved ASAP. Can you help? -- Rosialyn

Answer for the CreditCards.com expert

Dear Rosialyn,
For readers who may not be aware, the Servicemembers Civil Relief Act of 2003 (SCRA) provides protections for military members as they enter active duty. One of the protections included in the act is a limit on interest rates charged on debts incurred before military service. The creditor is limited to charging 6 percent interest when the service member makes the request in writing, and provides the necessary proof of military service.

The act states, "In order for an obligation or liability of a service member to be subject to the interest rate limitation in subsection (a), the service member shall provide to the creditor written notice and a copy of the military orders calling the service member to military service and any orders further extending military service, not later than 180 days after the date of the service member's termination or release from military service."

Each creditor should have an address for correspondence on the billing statement. I would suggest that your son give his creditors a call and determine whether they have received his written notice. If he did not include a copy of his deployment orders, he will need to resend the request along with the proof of his deployment. If he has any doubt about the correct address to send the request for a reduction in his interest rate per the act, I would recommend that he call each creditor (the number is on the card) and ask where the request and supporting documentation should be sent. I also recommend that he send the information as certified mail with a return receipt request. When mailed in this manner, he will receive a receipt in the mail (or online) listing the person who signed for his letter.

The fact that the interest rate has not changed on his statements is not necessarily a bad sign. The SCRA provides for the lowered interest rate of 6 percent to be "effective as of the date on which the service member is called to military service." So, unless your son is already considered to be on active duty, his interest rates will not be reduced until the date he is actually deployed.

The SCRA, formerly the Soldiers' and Civil Sailors' Relief Act of 1940, was rewritten in 2003 to add protections for military personnel who were called to active duty from the Military Reserves. Most of the persons who were called into full-time service from the Military Reserves took a cut in pay, so the protections such as the limited interest rate charges were very much needed. The act does, however, provide some creditor protection. A creditor may go to court to request relief from the interest rate limitation if the creditor can prove to the court that "the ability to pay interest upon the obligation or liability at a rate in excess of 6 percent is not materially affected by reason of the service member's military service." I don't believe that your son's creditors will seek relief from the courts, but it is important to know that they have the option to do so.

I hope your son is able to get this all resolved before his deployment. Please thank him for his service to our country.

Take care of your credit!

See related: Law eases debt burden for active military

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to The Credit Guy.

Published: August 3, 2009


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