If your service member ever gets into financial trouble, it can impact their military career. For this reason, there are two major laws – the Servicemembers Civil Relief Act and the Military Lending Act – that help protect the finances and ease the stress of active-duty service members and their families.
SCRA interest rate limit
The SCRA can help service members who come into the military with high-interest debt. It limits interest rates on debt to 6%, including debt held jointly with a military spouse. The interest rate reduction covers the time when a service member first entered active-duty status to the day they are no longer active.
To get this benefit, your service member must request it in writing from creditors and include a copy of their military orders and any notices extending military service. The legal office of a military installation can determine if your service member qualifies and can help write the letters requesting the 6% cap. Your service member has 180 days from their last day of active service to inform creditors of the change.
SCRA housing protections
These protections in SCRA are known as “the military clause.” If your service member owns a home, it can’t be foreclosed on without a court order, if the mortgage was taken out before being on active duty. If your service member has a rental, they can end leases they signed before active duty.
In addition, if your service member has permanent change of station or deployment orders of at least 90 days, they can end a housing lease without penalties. They need to give their landlord a written notice of lease termination along with a copy of orders or a letter from their commanding officer. Another SCRA benefit: landlords can’t evict active-duty service members or family members without a court order.
More SCRA protections
- Vehicle leases can be ended if your service member is deployed for 180 days or longer after they sign the lease.
- Life insurance is reinstated for nonpayment of premium for two years after military service is completed.
- Your service member can request the postponement of civil court proceedings, such as bankruptcy, divorce or foreclosure, for at least 90 days.
Military Lending Act
The MLA protects your active-duty service member – including National Guard soldiers and reservists on active-duty orders for 30 days or longer – by capping the cost of credit at 36% Military Annual Percentage Rate. Interest, application fees and credit insurance, which pays off debt due to death or makes payments on debt if your service member is disabled, are covered under the MLA. Family members enrolled in the Defense Enrollment Eligibility Reporting System are also covered under MLA.
The MLA covers credit card debt, vehicle title loans, unsecured open lines of credit, refund anticipation loans, installment loans and pawn loans. Loans to purchase or refinance a home are not covered under the MLA, nor are vehicle loans or loans secured by property.
Lenders must disclose both orally and in writing that the Military Annual Percentage Rate is to be applied to the credit being offered, along with a clear description of payment terms. Lenders may not require your service member to waive their legal rights or to submit to arbitration. Lenders also cannot require repayment by military allotment.
Learn more about the SCRA and MLA and their important features:
- Consumer Credit Guide for Members of the Armed Services
- Federal Trade Commission
- Department of Justice
- Servicemembers Civil Relief Act Website
- Consumer Financial Protection Bureau
Military members can also reach out to their installation’s personal financial manager or personal financial counselor for more information on protecting their finances and making good financial decisions. Your service member can also contact Military OneSource to speak with a financial counselor.