Misconceptions of the Servicemembers Civil Relief Act and late fees

We’ve all heard the rumors. My personal favorite rumor (or lie…) is “active-duty servicemembers don’t have to pay for anything once they join.”  That’s right. Once you join the military everything is smooth sailing from there! EVERYTHING! Well… while one might argue our servicemembers are very deserving of free things, that isn’t always necessarily true. We in the financial world know that federal regulations provide protection for servicemembers from certain financial risks, including the Servicemembers Civil Relief Act (SCRA).

The SCRA was enacted to help alleviate financial burdens of active-duty military members entering the military and safeguarding their assets and legal interests.  The Act provides interest rate reductions, protections against foreclosure and repossession, the ability to terminate leases, limitations on evictions, and specific safeguards during civil legal proceedings. If you want a more in-depth view on the parameters of the SCRA, check out this NAFCU Compliance Monitor article (member login required).  For the purposes of this blog, we will discuss how late fees are affected under this context. More simply, does the SCRA shield military persons from paying late fees? The short answer is maybe.

The SCRA doesn’t directly address late fees. Instead, late fees are addressed in another way. The Act defines “interest” broadly. Interest consists of “service charges, renewal charges, fees or any other charge” other than bona fide insurance costs (emphasis added). Due to the broad nature of the definition, late fees, which are typically charges a credit union imposes when a member misses a payment, are considered interest. The SCRA limits the interest for past debts at 6%, found in § 3937 of the Act.


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