CFPB says lenders ought to do extra to help active-duty troops

Financial institutions should be doing a better job of ensuring that military service members deployed on active duty receive federally protected interest rate benefits, the Consumer Protection Financial Bureau said in a report.

The regulatory agency said that “only small fractions” of National Guard and military reserve members deployed on active duty take advantage of interest rate reductions provided by the Servicemembers Civil Relief Act.

Between 2007 and 2018, the foregone interest-rate reductions amounted to $100 million in lost benefits, the CFPB’s data showed. While the SCRA can save service members thousands of dollars on debt payments, the benefits were applied to fewer than 10% of auto loans for active-duty reserve members and just 6% of their personal loans, according to the report.

Active-duty members of the U.S. military did not receive about $100 million in interest rate reductions between 2007 and 2018 even though they were eligible under the Servicemembers Civil Relief Act, according to the Consumer Financial Protection Bureau.

Andrei Pungovschi/Bloomberg

“Given rising interest rates, financial companies should take steps to ensure military family financial rights are respected,” CFPB Director Rohit Chopra said in a statement.

The SCRA is a World War II-era law that provides financial protections to active-duty troops. The law provides reduced interest rates on pre-military service debt obligations as well as protections against default, property repossession and home foreclosure.

The CFPB called on banks to help broaden access to SCRA benefits by easing processes for applicants to sign up. Currently, many lenders require reservists to provide written notice that they’ve been called up to active duty.

The agency suggested that financial institutions should apply interest-rate reductions on all accounts held by service members who have invoked their SCRA rights for a single account. It also urged financial institutions to use an online Department of Defense system to check whether borrowers are on active duty.

Ed McFadden, a spokesperson for the American Financial Services Association, a trade group that represents consumer lenders, encouraged all service members to take “full advantage” of SCRA benefits. But he also said that the CFPB “does not have the authority to rewrite the plain language of the law.”

If the CFPB seeks to change policy, it “should do so through notice and comment rulemaking,” McFadden said in an emailed statement.

Organizations that advocate for members of the military expressed greater support for the CFPB’s report.

Life in the military is “hard enough without overpaying on loans,” Cory Titus, a spokesperson for the Military Officers Association of America, said in an email, adding that the organization “urges companies to take the recommended steps to ensure SCRA rights are being applied.”

“Helping troops be able to singularly focus on their mission is what laws like the SCRA are meant to do,” said Patrick Murray, director of national legislative service at the Veteran of Foreign Wars. “These things matter so that we’re not burdening service members with unnecessary debts.”

Sen. Jack Reed, a Rhode Island Democrat who has championed consumer protections for members of the military, called the SCRA’s interest rate cap a “critical consumer protection for our troops” that prevents them from getting “trapped in debt by predatory lenders.”

“We want our service members treated fairly and focused on the mission,” Reed, a member of the Senate Banking Committee, said in an emailed statement.

The report issued this week is only the latest action by the CFPB in connection with the SCRA.

In July, the CFPB and the Department of Justice issued a joint letter to auto lenders about their obligations under the law.

In 2014, the student loan providers Sallie Mae and Navient reached a $60 million settlement with the CFPB and the Justice Department for overcharging service members on student loans.

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