Is the Servicemembers’ Civil Relief Act Working? Military Connection

Federal law may guarantee military student loan deferments, but more reports to the Consumer Financial Protection Bureau (CFPB) are indicating that many loans are either being denied or mishandled by financial institutions.

Protections should be in place for borrowers under the Servicemembers’ Civil Relief Act. The bill states that lenders cannot charge more than six percent interest on any pre-service debt to anyone on active duty. Additionally, it states that additional charges cannot be added when the service person is no longer on active duty.

The bill also protects borrowers from eviction during their deployment. Considering the number of reports filed with the CFPB, it would seem that these provisions have been bypassed, evaded, or simply ignored by a number of lenders, despite a recent non-compliance group settlement.

Holly Petraeus, assistant director to the CFPB, has stated that some non-compliant lenders are not identifying their reasoning for either denying or refusing deferments. When one borrower deployed to Afghanistan reported a denied request for deferment, the lender offered little basis for their decision.

“Instead of clearly explaining the reason for the denial,” explained Petraeus, “the borrower’s servicer merely listed the various criteria used to determine eligibility, without indicating which of the criteria he failed to satisfy.”

Eventually, with the efforts of the CFPB, the lender in this case reversed their decision. The fact that it took pressure from the bureau to correct their determination is what remains most frustrating.

What does a borrower in the military with a student loan do if they are faced with a less-than compliant lender? Review the resources at regulations.gov for more information pertaining to your situation. Contact the Consumer Financial Protection Bureau for support. Be aware that defaulting on a loan affects your credit, which could affect your ability to obtain or maintain your security clearance. Know your rights and seek the support you need to assure your loans are handled within the provisions of the SCRA, and in your best interest.

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