Vets face fiscal minefield
End of active-duty status brings loss of financial protections
This Veterans Day, many service
members will be facing a fiscal cliff of their own, as reservists are projected
to return from deployment and the military prepares to shrink active forces.
In addition to loss of pay, service
members coming off active duty will no longer be eligible for protections under
the Servicemembers' Civil Relief Act (SCRA) and other financial protections
available to active forces.
Under the SCRA, lenders must cap at
6 percent the interest rates on loans that military service members incurred
prior to becoming active.
As of March 2012, a total of 1.4 million
U.S. service members were on active duty, and currently some 66,000 service
members are deployed overseas. Firm figures on how many service members will muster
out are not available, a Pentagon spokesman said. "It's hard to predict -- it changes
from month to month," spokesman Lt. Col. Tom Crosson said.
But with the U.S. presence in Afghanistan
winding down and military budgets facing cuts, active duty service members are
projected to be reduced by a total of 5 percent through the end of 2017, according
to a July report from the Congressional Budget Office. That equates to roughly
Servicemembers Act protections
The 6 percent interest cap applies
to any charges -- including credit card debt, service charges and renewal
charges or fees, with certain exceptions for insurance. Service members must
request it in writing and include a copy with their military orders. Additional
protections that ex-military service members will lose include:
- Reduced interest rates on mortgage payments.
- Protection from eviction if rent is $1,200 or less.
- Delay of all civil court actions, such as bankruptcy, foreclosure
or divorce proceedings.
- The promise that service members who claim any of the
law's protections would not feel adverse effects on their credit reports
or be refused future credit because of it.
said that military families must navigate the same financial difficulties as
other consumers in dealing with confusing credit card terms and other financial
pitfalls. Unlike the general public, however, those in the armed forces have
special challenges. They move
frequently, sometimes every two to three years or less. Many are young -- according
to the Defense Department, about 46 percent are 25 or younger. Often, they are
inexperienced in managing their money and personal finances.
finally, unscrupulous lenders see them as easy marks and aggressively go after
them, or more specifically, their paychecks. Because of their guaranteed
income, military families may be targeted for scams and rip-offs, according to
the Navy-Marine Corps Relief Society, a private nonprofit foundation that
provides loans, grants and other assistance to active duty and retired sailors
factors make the loss of debt protections from the civil relief act more
What is more, average student loan debt for active-duty service
members who graduated from college in 2008 was $25,566, and many in the
military are adopting less favorable repayment plans, with deferred repayment
options expected to add to the total repayment costs, according to an October
report from the Consumer Financial Protection Bureau (CFPB) Office of Servicemember
Affairs. Protections from the
Servicemembers Relief Act and other benefits, such as special military
deferment, income based repayment and public service loan forgiveness, are available only
to those on active duty.
Financial counseling for veterans is available through the Red Cross and the Navy-Marine Corps Relief Society. The Consumer Financial Protection Bureau's Office of Servicemember Affairs has information to help service members plan for the future.
See related: Understanding the Servicemembers' Civil Relief Act, Military families under fire from predatory lenders, 6 percent interest rate cap not always easy to claim
Published: November 11, 2012
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