Recently, the Consumer Financial Protection Bureau (CFPB) released research that active-duty Reserve and National Guard members are missing out on protections that are granted to them through the Servicemember Civil Relief Act (SCRA) (CFPB Finds Members of the Reserves and National Guard Paying Millions of Dollars in Extra Interest Each Year | Consumer Financial Protection Bureau (consumerfinance.gov)). Specifically, the 6% interest rate cap that can be requested by the servicemember while on active duty to the tune of $9 million.
The SCRA protections extend to active-duty military members and includes servicemembers who are in the federal military service, including members of the Army, Navy, Marine Corps, Air Force, Coast Guard, Space Force and all commissioned officers on active service with the Public Health Service or National Oceanic and Atmosphere Administration, reservists, and members of the National Guard. Protections under the SCRA are for active duty servicemembers (and their dependents) who enter into the obligation prior to their active-duty status. If they were active duty at origination, these protections do not apply under the SCRA. Many banks do have their own policies for servicemembers that apply to any active-duty member of the military, but the SCRA is more limited in scope.
The Servicemembers Civil Relief Act tends to impact banks on a day-to-day process level in two major ways – It limits the types of actions the bank can take on active duty servicemembers, and secondly, it allows for active-duty service members to request an interest rate reduction during their time of service. The first part includes automatic protection against actions like evictions, foreclosures and importantly here, repossessions on covered servicemembers; specifically, servicemembers with loans secured by motor vehicles are also granted protection against repossession of their vehicle without court order due to a default during their active-duty service.
The SCRA does state that the Servicemember needs to request any of the protections granted and provide documentation to receive the protections. The CFPB is urging Banks to utilize resources and technology to make the process as easy as possible for the Servicemember. They encourage banks to allow submission of documents online, forego the written request and utilize the SCRA database to verify active-duty status.
If you’ve listened to any of our presentations or had a policy review, you know that C/A always highlights the importance of strong policies, procedures, and staff training. A great written program won’t help anyone if it’s not trained on and refreshed from time-to-time. Similarly, hours’ worth of training won’t help employees if they don’t have strong policies and procedures to look back on once training is over. Violations of the SCRA don’t just run the risk of issues on a regulatory exam – they can also cause real reputational damage if the bank is seen by the public as taking advantage of the men and women on active duty.