Consumer complaint received 2019-12-09
Company: NAVY FEDERAL CREDIT UNION
State: MD
Product: Credit card or prepaid card
Sub-product: General-purpose credit card or charge card
Issue: Fees or interest
Sub-issue: Charged too much interest

Complaint:
NAVY FEDERAL CREDIT UNION IS IN VIOLATION OF THE SOLDIERS AND SAILERS ACT. THEY ARE NOT SUPPOSE TO CHARGE INTEREST ON AN ACCOUNT Benefit and Protection No. 1 The six percent interest rate cap. 50 U.S.C. 3937 The SCRA limits the amount of interest that may be charged on certain financial obligations that were incurred prior to military service to no more than six percent per year, including most fees. 50 U.S.C. 3937 ( a ) ( 1 ) & ( d ) ( 1 ). In order to have the interest rate on a financial obligation such as a credit card or a mortgage capped at six percent per year, a servicemember must provide the creditor with written notice and a copy of his or her military orders or other appropriate indicator of military service ( such as a letter from a commanding officer ). Id. at 3937 ( b ) ( 1 ). The written notice and proof of military service must be provided to the creditor within 180 days of the end of the servicemembers military service. Id. 

In response, a creditor must forgive not defer interest greater than six percent per year. See 50 U.S.C. 3937 ( a ) ( 2 ). The creditor must forgive this interest retroactively. See id. at 3937 ( a ) ( 1 ) & ( b ) ( 2 ). The creditor is also prohibited from accelerating the payment of principal in response to a properly made request for a six percent interest rate cap. Id. at 3937 ( a ) ( 3 ).

For mortgages, interest is capped at six percent during the entire period of military service and for one year after the period of military service. 50 U.S.C. 3937 ( a ) ( 1 ) ( A ). For all other obligations, interest is capped at six percent only for the duration of the period of military service. Id. at 3937 ( a ) ( 1 ) ( B ).

A hypothetical under Section 3937 of the SCRA, 50 U.S.C. 3937 :
John Doe takes out a mortgage and then enters military service. Captain John Doe is in military service continuously for 20 years. Captain Doe retires from military service and on the 179th day of his retirement asks that the interest rate on his mortgage be lowered to six percent per year. Captain Doe provides his creditor with a written notice and a copy of all of his military orders. The creditor must forgive the entire 20 years of interest that was at a rate greater than six percent inclusive of fees and an additional year of interest going forward. See, generally, 50 U.S.C. 3937.

The following types of financial obligations, among others, are currently eligible for the six percent SCRA interest rate benefit : credit cards ; automobile, ATV, boat and other vehicle loans ; mortgages ; home equity loans ; and student loans. See, e.g., 50 U.S.C. 3937 ( d ) ( 2 ).

On August 14, 2008, President Bush signed into law the Higher Education Opportunity Act, P.L. 110-315, that, among other things, amended 20 U.S.C. 1078 ( d ) to make federally guaranteed student loans protected under the SCRA. That means that prior to August 14, 2008, the SCRA did not cover federally guaranteed student loans. So, for federally guaranteed student loans that originated before August 14, 2008, such as student loans that originated under the Federal Family Education Loan ( FFEL ) Program and Direct Loans from the Department of Education, the servicemember borrower is not covered by the SCRA.

A student loan hypothetical under Section 3937 of the SCRA, 50 U.S.C. 3937 : John Doe takes out five private student loans prior to entering into military service. After entering military service, Servicemember Doe consolidates his five loans into one loan. Six months later, he hears about the SCRAs six percent interest rate cap and requests that the interest rate on his loan be lowered to six percent per year. He sends in a written notice and a copy of his military orders.

Question : Is Servicemember Doe entitled to the six percent interest rate cap?

Answer : Only for the period of time between when he entered military service and when he consolidated his private student loans. Servicemember Does existing student loan originated during a period of military service. See 50 U.S.C. 3937 ( a ) ( 1 ).

Company public response: Company believes it acted appropriately as authorized by contract or law
Company response to consumer: Closed with explanation