PRIA, Government Policy, Made Personal

Summary

Caps the interest rate on debts taken before a person goes on military active duty at 6% per year. If the debt is a mortgage or similar loan secured by property, the 6% limit applies during the time the service member is on duty and for one year after. For other pre-service debts, the 6% limit applies only while the person is on active duty. Any interest above 6% that would have been charged is forgiven. Regular payments must be lowered by the amount of forgiven interest so the loan’s principal is not sped up. To get the benefit, the service member must give the creditor written notice and a copy of the orders within 180 days after leaving service. A creditor can instead check the Defense Manpower Data Center for active-duty status and has a limited safe harbor when that check shows the member is not on active duty and no notice arrives within 180 days. A court can lift the 6% limit if military service clearly does not reduce the member’s ability to pay higher interest. “Interest” here includes fees and service charges. “Obligation or liability” includes mortgages. Knowingly breaking the rule can lead to fines, up to one year in jail, or both.

Title 50, §3937

War and National Defense, Source: USLM XML via OLRC

(a)Interest rate limitation

(1)Limitation to 6 percent

An obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember, or the servicemember and the servicemember’s spouse jointly, 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.

(2)Forgiveness of interest in excess of 6 percent

Interest at a rate in excess of 6 percent per year that would otherwise be incurred but for the prohibition in paragraph (1) is forgiven.

(3)Prevention of acceleration of principal

The amount of any periodic payment due from a servicemember under the terms of the instrument that created an obligation or liability covered by this section shall be reduced by the amount of the interest forgiven under paragraph (2) that is allocable to the period for which such payment is made.

(b)Implementation of limitation

(1)Proof of military service

(A)In general

Not later than 180 days after the date of a servicemember’s termination or release from military service, in order for an obligation or liability of the servicemember to be subject to the interest rate limitation in subsection (a), the servicemember shall provide to the creditor written notice and a copy of— (i)

(ii)any other appropriate indicator of military service, including a certified letter from a commanding officer.

(B)Independent verification by creditor

(i)In general

A creditor may use, in lieu of notice and documentation under subparagraph (A), information retrieved from the Defense Manpower Data Center through the creditor’s normal business reviews of such Center for purposes of obtaining information indicating that the servicemember is on active duty.

(ii)Safe harbor

A creditor that uses the information retrieved from the Defense Manpower Data Center under clause (i) with respect to a servicemember has not failed to treat the debt of the servicemember in accordance with subsection (a) if—

(I)such information indicates that, on the date the creditor retrieves such information, the servicemember is not on active duty; and

(II)the creditor has not, by the end of the 180-day period under subparagraph (A), received the written notice and documentation required under that subparagraph with respect to the servicemember.

(2)Limitation effective as of date of order to active duty

Upon receipt of written notice and a copy of orders calling a servicemember to military service, the creditor shall treat the debt in accordance with subsection (a), effective as of the date on which the servicemember is called to military service.

(c)Creditor protection

A court may grant a creditor relief from the limitations of this section if, in the opinion of the court, the ability of the servicemember to pay interest upon the obligation or liability at a rate in excess of 6 percent per year is not materially affected by reason of the servicemember’s military service.

(d)Definitions

In this section: (1) Interest

(2)Obligation or liability

The term “obligation or liability” includes an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage.

(e)Penalty

Whoever knowingly violates subsection (a) shall be fined as provided in title 18, imprisoned for not more than one year, or both.

Notes & Related Subsidiaries

Editorial Notes

Codification Section was formerly classified to section 527 of the former Appendix to this title prior to editorial reclassification and renumbering as this section.

Prior Provisions

A prior section 207 of act Oct. 17, 1940, ch. 888, art. II, as added Oct. 21, 1942, ch. 619, title V, § 507(b)(2)(B), 56 Stat. 964, related to limitations prescribed by internal revenue laws as affected by period of service, prior to the general amendment of this Act by Pub. L. 108–189. See section 3936 of this title.

Amendments

2018—Subsec. (b)(1). Pub. L. 115–232 amended par. (1) generally. Prior to amendment, text read as follows: “In order for an obligation or liability of a servicemember to be subject to the interest rate limitation in subsection (a), the servicemember shall provide to the creditor written notice and a copy of the military orders calling the servicemember to military service and any orders further extending military service, not later than 180 days after the date of the servicemember’s termination or release from military service.” 2010—Subsec. (f). Pub. L. 111–275 struck out subsec. (f). Text read as follows: “The penalties provided under subsection (e) are in addition to and do not preclude any other remedy available under law to a person claiming relief under this section, including any award for consequential or punitive damages.” 2008—Subsec. (a)(1). Pub. L. 110–289, § 2203(b)(1), substituted “in excess of 6 percent—” for “in excess of 6 percent per year during the period of military service.” and added subpars. (A) and (B). Subsec. (d). Pub. L. 110–289, § 2203(b)(2), added subsec. (d) and struck out former subsec. (d). Prior to amendment, text read as follows: “As used in this section, the term ‘interest’ includes service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability.” Subsecs. (e), (f). Pub. L. 110–389 added subsecs. (e) and (f).

Statutory Notes and Related Subsidiaries

Effective Date

Section applicable to any case not final before Dec. 19, 2003, see section 3 of Pub. L. 108–189, set out as a note under section 3901 of this title.

§3937 Maximum Rate of Interest on Debts Incurred Before Military Service