Consumer Lending

GAO: Many eligible borrowers do not take advantage of SCRA protections

us soldierA new report released by the Government Accountability Office this month found that while some servicemembers benefitted from the six percent interest rate cap under the Servicemembers Civil Relief Act, many eligible borrowers did not take advantage of the protection.

The SCRA seeks to protect active eligible servicemembers in the event their military service interferes with their ability to meet their financial obligations. Protections include prohibiting servicers from foreclosing on homes without court orders and a six percent cap on interest rates and fees.

The interest-rate cap applies to loans in existence at the time the servicemember entered active duty. Financial institutions must extend the cap if requested by the servicemember.

In its report, however, the GAO said that data from one institution showed that approximately 32 percent of identified SCRA-eligible borrowers had loans with interest rates above six percent. While some borrowers had their rate reduced below six percent, 82 percent of servicemembers who could benefit from the SCRA protections still had mortgage rates higher than six percent.

Though the total number of servicemembers eligible for SCRA protections is unknown, a 2012 survey from the Department of Defense indicated that approximately 30 percent of 1.4 million active duty servicemembers—plus an additional 848,000 National Guard and Reserve members—made mortgage payments.

“Several financial institutions told us that more servicemembers could benefit from the rate cap protection if they provided proof of their active duty status to their mortgage servicer,” the GAO report said. “For example, representatives from one financial institution told us that they receive military documentation on 31 percent of their SCRA-eligible borrowers—as a result, up to 69 percent may not be receiving the full financial benefit that SCRA affords.”

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