CFPB concerned National Guard and reservists pay extra interest on loans
On December 7, the CFPB released a report examining the use of the Servicemembers Civil Relief Act's (SCRA) interest rate reduction benefit. Among other things, the CFPB raised concerns that servicemembers pay extra interest each year as a result of not taking advantage of interest rate reductions to which they are entitled under the SCRA. The SCRA provides certain legal and financial protections to active duty servicemembers, such as the ability to reduce the interest rate on certain pre-service obligations or liabilities to a maximum of 6 percent. According to the Bureau, members of the National Guard and Reserves are likely to have financial obligations that predate a subsequent period of service. As a result, the interest rate reduction benefit could provide considerable financial value. However, the Bureau found that only a small fraction of activated Guard and Reserve servicemembers receive interest rate reductions. Specifically, the Bureau noted that: (i) between 2007 and 2018, less than 10 percent of eligible auto loans and six percent of personal loans received a reduced interest rate; (ii) in addition to the $100 million of foregone benefits on auto and personal loans, members of the reserve component infrequently benefit from interest rate reductions for credit cards and mortgage loans; and (iii) for longer periods of activation, the utilization rate is low. The Bureau recommended that creditors apply SCRA interest rate reductions for all accounts held at an institution if a servicemember invokes their rights for a single account, and stressed that creditors should automatically apply SCRA rights. The Bureau also noted that more frequent information on SCRA rate reduction utilization would help inform and evaluate future efforts to expand servicemembers’ financial rights and protections.