The law meant to protect military personnel can reduce interest rates and even refund payments, but there are limits and hoops to jump through
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
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.
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.
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