The Consumer Financial Protection Bureau (CFPB) alerted that members of the Army, Reserve and National Guard have been paying erroneously millions of dollars more in interest on the loans they request.
Through a statement, the agency noted that military personnel end up making unnecessary payments because the Servicemembers Civil Relief Act is not consistently applied to their Mortgage, car and other loans.
The Act, passed in 2003, entitles Reserve and National Guard members to a reduction in the interest rate on any obligation or liability of up to 6% once they transfer to active duty.
However, in a new study, the CFPB found that only 1 in 10 active duty service members received lower rates on your personal loans, credit cards, mortgages and auto loans between 2007 and 2018.
Additionally, only 6% of active members received lower rates on personal loans.
As a result, service members needlessly paid a total of $100 million dollars in additional interest charges during that period.
While the study didn’t explain why service members didn’t receive lower rates, Rachel Gittleman, financial services outreach manager at the Consumer Federation of America, noted that many “don’t have time to really understand when this consumer protection is activated or deactivated”.
Gittleman said service members must submit a request for lower interest rates to their lender in writingin addition to sending by certified mail a copy of the letter they received to go on active duty.
That requirement, and other steps in the process, are “a huge administrative burden” that prevents active duty service members from applying for interest rate reductions, he said.
The findings come when interest rates on loans reach their highest level in years.
The average interest rate on credit cards reached 19.3% at the end of November, according to CreditCards.com. The average rate for a used car loan ranges from 6% to 7.3%, while the typical rate for a new car loan is around 5.6%, according to Bankrate.
Mortgage rates fell to 6.41% this week, according to the Mortgage Bankers Association, but economists still expect rates to rise next yearas the Federal Reserve continues to raise its benchmark interest rate.
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Source: La Opinion