The Servicemembers Civil Relief Act is intended to protect civilians and military reservists who take out a loan and later get ordered to active duty in the military, Leonhardt said. The underlying concept is that active duty can limit service members’ ability to pay their bills in full and on time, and they shouldn’t be penalized for going on active duty.
Leonhardt said the legal roots of the act date to before World War II. It was formerly known as the Soldiers’ and Sailors’ Civil Relief Act.
The Servicemembers Civil Relief Act protects service members two ways.
1. It imposes a 6 percent interest rate cap on loans, including mortgages and auto loans.
2. It requires lenders to get a court order before foreclosing on a mortgage or repossessing a vehicle from someone who’s covered by the act.
To take advantage of the 6 percent rate cap, the borrower must notify the lender that he or she is on active duty and provide appropriate documentation, Leonhardt said.
But with regard to defaults or repos, the lender must verify whether the borrower is protected by the act before taking action.