Guest Post – Servicemembers Civil Relief Act (SCRA) – How to Hold on to More of Your Own Money

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By Dr. Mike Lloyd

(Editor’s Note – The lesson from the guest post below is that if you have any debt of any kind you should make sure whoever services that debt knows you are Active Duty and that you are requesting they follow the SCRA. I know of multiple people who got hundreds if not thousands of dollars back from credit card companies when they called them.)

After 17 cumulative years of active duty service (enlisted, line, then Medical Corps), I thought that I knew everything there was to know about the Servicemembers Civil Relief Act (SCRA). I had counseled many of junior sailors on it that had fallen prey to predatory loans, so I felt fluent in the nuance of the law. Yet somehow I assumed – erroneously – that the SCRA only applied to new servicemembers with pre-existing debts from before their first entry into active duty. I also figured that if any benefits applied to me, as a senior officer, I would have been savvy enough to have already known about them.

One day a few months ago, that all changed. Randomly, a large check showed up in the mail unannounced from our mortgage company. Despite this being a happy surprise, I realized I needed to learn more about the SCRA and its protections to make sure I wasn’t missing out on any other benefits.

A Brief History of the Servicemembers Civil Relief Act

The birth of the SCRA goes back to the Civil War when the U.S. Congress passed a law protecting Union soldiers from legal action relating to personal debt while away from home. This law went on to have multiple iterations throughout the subsequent 150+ years, eventually becoming the Soldiers’ and Sailors’ Civil Relief Act of 1940 and then, in 2003 when the law was modernized again by Congress, becoming the SCRA we know today.

The SCRA, as codified under in federal law under 50 U.S.C. §§ 3901—4043, broadly covers most types of pre-existing personal debts originated before the period of active military service.

  • SCRA applies to most types of personal debt, including: car loans, student loans, credit cards, and mortgages;
  • Debt must have been incurred prior to a service member entering into active duty or being called to active service if in the National Guard;
  • Effective for the duration of military service for most obligations;
  • Provides broad home foreclosure, repossession, and eviction protections;
  • Effective for one year beyond the end of active-duty service for mortgages and deeds;
  • Caps the annual interest rate at 6% for the servicemember (and any joint loans with a legal spouse);
    • A court-order can reverse the SCRA 6% rule only if the creditor can prove the burden is not too great for the service member to pay;
    • Interest is defined as service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability.
    • The sum of the above is often referred to as the effective interest rate.

Back To My Story …

Throughout my career, I have alternated through several periods of active and inactive duty service: I first enlisted in 1998, then got out to attend ROTC at the University of Southern California and commissioned back into the Navy 2004 as a pilot. Then, after my flying career I got out of the Navy, attended medical school on the HPSP scholarship, and came back into the Medical Corps. By the time I had re-commissioned into the Navy I had new kids, new debts, and a mortgage to boot, mostly all acquired while in the Navy Reserves as an HPSP student.

This constant phasing in and out of active duty status created a lack of clarity for me. Despite being in reserve status while in med school, my association with the Navy had lasted so long that I hardly considered debt acquired during med school as pre-existing to my active duty service. In short, it was confusing. I failed to fully comprehend that that the SCRA applies to debt acquired during any period of inactive status, not just my initial pre-Navy period of inactive status way back in 1998.

So, as mentioned, just prior to my Medical Corps commissioning in 2017, while I was still an inactive reservist in HPSP and blissfully unaware of my rights under the SCRA, my spouse and I bought a house. Given my ignorance on the matter, I never wrote to my mortgage company asking for the debt relief to which I was entitled. I thus had a low-interest, fixed-rate loan that the SCRA law could not help me out with because (1) I assumed I was already considered to be “in the Navy” when I took out the loan, and (2) my mortgage rate was less than 6%.

I was wrong on both counts.

First off, I was not on active duty status when we secured our loan; I was in the reserves and the SCRA makes this distinction very clear and actionable.

Secondly, the combined fees and interest on our loan, what is often referred to as the effective interest rate, exceeded 6% even thought the loan rate itself was far below that.

Eventually through no actions of my own, word had eventually been passed to our mortgage company via the Defense Manpower Data Center (DMDC) (five years after my 2017 commissioning) that I had transitioned back to active duty. The DMDC is a DoD entity that apparently reaches back to banks and lenders periodically to provide such information. The DMDC website proudly proclaims itself to be the “central source for identifying, authenticating, authorizing, and providing information on personnel during and after their affiliation with DoD.”

Once legally informed of this change in status, my scrupulous mortgage company was obligated to refund any fees in excess of the 6% effective interest rate. They wrote us that fat refund check giving us years of retroactive interest relief and they lowered our monthly mortgage interest even more. It was our own money back, but it felt good.

My Advice

We got lucky. The DMDC caught my mistake and our mortgage company dutifully returned loads of our hard-earned money to us. This was money we could now use to stash in our retirement or spend on our kids. For those of you who are currently in med school or who may have debts acquired from before you were commissioned, I hope my story encourages you to seek out more information on the SCRA. My advice to military folks is to always inform your financial institutions of any change in military status as it may have a positive impact on your loan repayment. Know how important and easy this information is to provide to your lender (documents on your online personnel system, such as BUPERS online). It may save your thousands of dollars. You work hard and you deserve the protections under this law!

“The views expressed in this article reflect the results of research conducted by the author and do not necessarily reflect the official policy or position of the Department of the Navy, Department of Defense, nor the United States Government.”

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One thought on “Guest Post – Servicemembers Civil Relief Act (SCRA) – How to Hold on to More of Your Own Money

    Nancy said:
    September 14, 2022 at 07:11

    Great advice. Will share with others. Thank you.


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