In its blog post, the Consumer Financial Protection Bureau (CFPB) highlighted three areas where it works to help service members more. These areas include a six percent interest reduction stipulated by the Servicemembers Civil Relief Act (SCRA), restrictions on using military allotments, and protection of service members from identity theft.
This article emphasized new credit card market research that showed how certain credit card companies go beyond what is mandated to benefit active duty service members.
The study found the following:
- Credit card issuers verified with the Department of Defense’s (DoD) Defense Manpower Data Center (DMDC) independently to verify the applicant’s active duty status and interest rate reduction eligibility. The check removes service member’s need to present additional documentation.
- At least two credit card companies have SCRA policies that mandate the proactive checking of the DMDC database so they can identify accounts eligible for SCRA benefits. However, most still require service members to request an interest rate reduction proactively.
- Each issuer has SCRA policies that mandate an enterprise-wide search for additional service member accounts and the application of interest rate reductions to all accounts.
While the SCRA permits a creditor to use information from the DMDC instead of requiring notice and documentation of interest rate cap requests, creditors aren’t required.
The CFPB also found that select credit card issuers have exceeded the mandated 6% interest rate reduction. The study found the following:
- Half of the issuers reduced the interest rate to 6% or 5.9%, or just below the rate.
- One-fourth of the issues reduced the interest rate to 4%, while others reduced rates to 4% for home loans and 6% for other accounts.
- Some reduced interest rates to 0%.
Some creditors have offered interest rates below the 6% SCRA requirement for various products for over a decade. This provides additional benefits to service members while mitigating possible calculation errors by providing some cushion.
The CFPB also noted that some issuers go beyond the mandated SCRA requirement of accommodating late requests or providing interest rate reductions to dependents.
While the Military Lending Act’s (MLA) 36% APR covers dependents, the SCRA rates apply only to active duty service members.
However, the CFPB believes that more can be done to implement automation and other protective measures so service members can activate their SCRA rights without formally notifying an entity.