ADVERTISEMENT

Servicemembers Act 6 percent interest rate not always easy to claim

Law can reduce payments, get refunds for overpayments, but there are limits

By Tanisha Warner

Credit Care
'Credit Care' columnist Tanisha Warner
Tanisha Warner is the communications manager for Money Management International, where she manages educational content designed to teach consumers about personal finance topics. She writes "Credit Care," a weekly reader Q&A about debt issues, for CreditCards.com.

Ask a question

'Credit Care' archives

Question for the CreditCards.com expert Dear Credit Care,
I joined the Army Reserves in February 2012 and was gone from Feb. 14 to June 22 for training. This time period is considered active duty military service. While I was gone, my husband was able to pay off many of my debts (home loan, credit cards, personal loan, etc). When I returned I wrote to my creditors asking them to reduce my interest rate to 6 percent for this time period. I received a response from one bank that said there was nothing they could do for me because the loan had been paid off. I was told by other soldiers that there should be a refund in this situation, but I can't find anything online to confirm this. Did I lose my chance of the reduction/refund by paying off these balances? -- Karla

Answer for the CreditCards.com expert Dear Karla,
Congratulations on finishing your military training and thank you for your service. What you are referring to in your letter is a protection included in the Servicemembers Civil Relief Act. Specifically, the protection is, "the maximum rate of interest on debts incurred before military service." Do note that this protection does not include debt incurred during active duty service. For mortgage debts, the creditor is required to charge a maximum rate of interest of 6 percent for the duration of active duty service and for one year after. On all other debt obligations, the creditor is required to charge no more than 6 percent interest on the debt for the duration of active duty service.

An important thing to remember is that the protection is not automatic. To be eligible for the interest rate limitation, you must write to the creditor, as you have done, and include copies of your orders with dates of active duty service no later than 180 days from the date you are released from active duty. The creditor must then retroactively charge the limited interest rate of 6 percent from the date you started active duty through the date you were released from active duty (or for an additional one year from that date for a mortgage loan). Any interest above 6 percent that would have accrued on your accounts must be forgiven, according to the act.

Given these provisions included in the act, your creditors would either reduce the amount owed on your balances by the difference of interest rate charges (for example, the savings from 20 percent interest to 6 percent) for the months you were on active duty, or refund you the difference if the balance was subsequently paid in full.

However, the Servicemembers Civil Relief Act also contains protections for creditors. The provision that relates to interest rate limitation reads:

"A court may grant a creditor relief from the limitations of this section if, in the opinion of the court, the ability of the servicemember to pay interest upon the obligation or liability at a rate in excess of six percent per year is not materially affected by reason of the servicemembers military service."

The fact that some of your balances were paid in full during your time of service may be a factor in whether you receive the benefit of the interest rate limitation included in the act. You might check with your military legal resources to help determine your rights in this situation.

Handle your credit with care!

See related: Active duty military protected from rate hikes, Military families under fire at home from predatory lenders

Meet CreditCards.com's reader Q&A experts

Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.

Published: July 23, 2012


Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.




Follow Us


Updated: 12-05-2016


Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.


ADVERTISEMENT