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If a service member enters into a new loan during his full time service, is that loan subject to the SCRA 6% rate? Does the lower rate only apply to loans which were entered into before the service member was called to full time service? – IBA Compliance Connection

IBA Compliance Connection

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If a service member enters into a new loan during his full time service, is that loan subject to the SCRA 6% rate? Does the lower rate only apply to loans which were entered into before the service member was called to full time service?

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No. We believe a loan that the service member has entered into during a period of active service would not be subject to the Servicemember Civil Relief Act (SCRA) 6% interest rate limitation. The SCRA interest rate limitation applies only to obligations or liabilities entered into before the service member enters military service. The relevant portion of the SCRA states

“an obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember… before the servicemember enters military service shall not bear interest at a rate in excess of 6 percent (A) during the period of military service and one year thereafter, in the case of an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage; or (B) during the period of military service, in the case of any other obligation or liability.” 50 USC 527(a).

Similarly, the Illinois Interest Act’s 6% limitation on interest rates charged to military personnel applies only to obligations entered into “prior to a service member’s period of military service.” 815 ILCS 205/4.05(b).

For more information on the SCRA, please see our SCRA Page on the IBA Compliance Connection website.