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Protecting Those Who Protect Us: Evidence of activated Guard and Reserve servicemembers’ usage of credit protections under the Servicemembers Civil Relief Act

The Servicemembers Civil Relief Act (SCRA) provides important legal and financial protections to active duty servicemembers. These protections include the ability to reduce the interest rate on any pre-service obligations or liabilities to a maximum of 6 percent. Existing literature suggests that the interest rate reduction benefit is underutilized. To address this information gap, this report seeks to quantify, for the first time, the use of the SCRA interest rate reduction benefit. We limit this analysis to members of the National Guard and Reserves (collectively, reserve component servicemembers) serving in a federal active-duty status. Members of the reserve component are likely to have financial obligations that are taken out while they are inactive, predating a subsequent period of service. As a result, the interest rate reduction benefit provides considerable financial value.

However, according to the CFPB’s research, only small fractions of activated Guard and Reserve servicemembers receive interest rate reductions. Specifically:

  • Between 2007 and 2018, data indicate that fewer than 10% of eligible auto loans and 6% of personal loans received a reduced interest rate.
  • In addition to the $100 million of foregone benefits on auto and personal loans, members of the reserve component also infrequently benefit from interest rate reductions for credit cards and mortgage loans.
  • For longer periods of activation, when an interest rate reduction would be most beneficial, the utilization rate continues to be low.

To ensure that members of the reserve component benefit from their right to interest rate reductions, the CFPB recommends:

  • Creditors apply SCRA interest rate reductions for all accounts held at an institution if a servicemember invokes their rights for a single account.
  • Creditors automatically apply SCRA rights.
  • Development of comprehensive and periodic indicators of SCRA interest rate reduction utilization.
Full report

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Associated press release

CFPB Finds Members of the Reserves and National Guard Paying Millions of Dollars in Extra Interest Each Year