A proposal to limit interest rates on all troops' loans to 3 percent would offer unprecedented sweeping new benefits to service members if it became law.
New legislation would provide precedent-setting, sweeping new benefits and protections for service members — including limiting interest rates to 3 percent on every loan, regardless of whether it was taken out before military service.
Sen. Patty Murray, D-Wash., introduced the SCRA Enhancement and Improvement Act of 2016 on Thursday, proposing stronger and more far-reaching financial legal protections under an amended Servicemembers' Civil Relief Act. It would amend the SCRA.
Under the SCRA, service members are supposed to receive a 6 percent interest rate cap on on debts incurred before they enter active duty. That applies to loans service members took out either before they joined the military on active duty, or before they are called to active duty as a Guard or rReserve member.
The legislation proposed Thursday would require all loans to service members be capped at a 3 percent interest rate, regardless of when the debt is incurred. For service members who are eligible for hostile fire pay or imminent danger pay, the interest rate would be zero.
If this legislation becomes law, it could mean that service members could not be charged more than 3 percent for any loan, including mortgages and credit cards.
The proposed legislation would have to move through a number of steps before becoming law and some observers say it is a long shot,
"I’m sure this is well-intended, but the rate seems awfully low," if extended to all loans for all those on active duty, said one representative of an organization that advocates for the military community. While the organization is supportive of benefits for service members, requiring a 3 percent ceiling on interest rates could lead to military members being unable to obtain loans or credit cards, he said.
But that wouldn't be a problem under Murray's bill, contends Murray spokeswoman Kerry Arndt. She said the bill would prohibit lenders from denying credit because of eligibility for SCRA protections, so service members wouldn't see any reduction in access to credit and they would be protected from predatory and unfair practices.
Current law allows service members to waive their SCRA rights, which could prevent those problems, said Kerry Arndt, spokeswoman for Murray. "We are confident that would not be a problem," she said.
The bill also would prohibit lenders from denying credit to service members solely because of their SCRA protections.
It’s also unclear what impact this would have on financial institutions whose primary constituents are military members.
Murray, the top Democrat on the Senate Health, Education, Labor and Pensions Committee and a senior member of the Senate Veterans’ Affairs Committee, said that businesses haven't always honored in the past, the protections of the Servicemembers' Civil Relief Act protections, and the law needs to be strengthened to reflect ongoing challenges that service members and their families face. The most recent example is student loan servicers who overcharged military borrowers on their student loan interest ratesafter they were called to active duty. Some servicers did not reduce the rates to 6 percent.
"In recent years, we’ve seen our service members subjected to predatory practices and unfair treatment on several fronts, from overcharges on their student loans, to foreclosures on their homes when they’re deployed. That is simply unacceptable," Murray said in a statement announcing the proposed changes.
The legislation would require student loan servicers of federally guaranteed student loans to automatically apply the interest rate cap, and provide timely responses to inquiries. The servicers would also be required to have a designated service representative or point of contact for service members and ensure that these staff are properly trained.
If a service member dies in the line of duty, federal and private student loan debt would be forgiven.
The proposed legislation includes some other expanded protections — including prohibiting prepayment penalties if a mortgage is paid off early for reasons related to a permanent change-of-station move.
It would also allow service members to cancel contracts on cable TV and Internet services in the event of permanent change-of-station moves. Currently, similar protections are offered for residential and auto leases and cellphone contracts.
The genesis of the Servicemembers' Civil Relief Act was in the 1940s, when troops were drafted, and had difficulty paying the financial obligations they had before the military.
Many of the provisions of the Servicemembers' Civil Relief Act apply mostly to activated members of the Guard and reserves. This bill would represent an historic change that would cover an all-volunteer force at all times, one source said.
Karen Jowers covers military families, quality of life and consumer issues for Military Times. She can be reached at kjowers@militarytimes.com.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.
