Vets face fiscal minefield

End of active-duty status brings loss of financial protections

By Fred O. Williams

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 70,000 people.

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.

Experts have 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.

And 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 and troops.

These factors make the loss of debt protections from the civil relief act more daunting.

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. 

Published: November 11, 2012

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