When an obligation was incurred before entry on active duty, the interest rate goes down to 6%, unless the creditor (bank, finance company, credit card issuer, etc.) can prove in court that the member’s ability to pay was not materially affected by military service.  The term “interest” includes service charges.

The new Act clarifies the rules on the 6% interest rate cap on pre-service loans and obligations by specifying that interest in excess of 6% per year must be forgiven.  50 U.S.C. App. Sec. 527(a)(2).  The absence of such language in the SSCRA has allowed some lenders to argue that interest in excess of 6% was merely deferred.

The SCRA also specifies that a SM must request this reduction in writing and include a copy of his/her military orders.  50 U.S.C. App. Sec. 527(b)(1).  Once the creditor receives notice, it must grant the relief effective as of the date the servicemember is called to active duty.  The creditor must forgive any interest in excess of six percent with a resulting decrease in the amount of the periodic payment that the servicemember is required to make.  50 U.S.C. App. Sec. 527(b)(2).  The creditor may challenge the rate reduction if it can show that the SM’s military service has not materially affected his or her ability to pay.  50 U.S.C. App. Sec. 527(c).