Navy lawyer warns about debt advice for active duty, calls it fraud
By William Cole | The Honolulu Star-Advertiser | Published: February 16, 2014
A tactic to reduce credit card balances and other debt that's making its way around the Internet is being called fraud by a Navy lawyer at Pearl Harbor, who advised in an email that sailors steer clear.
The problem: the interest-reduction program applies only to debt incurred before joining the military, not before the service member's most recent re-enlistment.
The Feb. 6 warning by Lt. Elizabeth K. Buff, staff judge advocate, wasn't helped by an online article Wednesday in All Hands, the official magazine of the Navy, which extols the money-saving advantages of the activity that Buff sought to debunk.
"OMG!!! (Oh, my God)," Petty Officer 2nd Class Meaghan Biery was quoted as posting on Facebook. "Just got notification from (my credit card and auto loan company) that all but 6 percent of the interest from all accounts is being credited back to my account."
The article, which follows other similar Internet advice, discusses using a re-enlistment to take advantage of the 2003 Servicemembers Civil Relief Act to lower interest rates on credit cards and loans.
The All Hands article quotes sailors saying they're saving thousands of dollars.
The law is intended to ease financial burdens on service members as they enter the military on active duty, or are called up to active duty from the reserves for more than 30 days.
According to the U.S. Justice Department, military members have the right to request that interest rates, including all fees, paid on credit cards, mortgages, student loans and other loans "obtained prior to entering into military service" be reduced to 6 percent per year during that military service.
The fad going around now is to use re-enlistments to trigger debt reduction.
"Sailors who re-enlist have been poorly advised to attempt to lower interest rates they incurred during prior enlistments using the SCRA," Buff said in the email, which was distributed by the Region Legal Service Office Hawaii to Pearl Harbor commands.
The intent was for the recipients of the email to further distribute the informa- tion to their personnel as appropriate, said Navy Region Hawaii spokeswoman Agnes Tauyan.
The SCRA "provides a means to lower interest rates on debts incurred ‘prior to service,'" Buff notes. "It is not intended to apply to rates incurred prior to this ‘current enlistment,' nor is it written that way."
"If a sailor calls a financial institution and sends them their current enlistment, but is not forthcoming about their prior enlistment, they may trick the financial institution, and we have seen this happen," Buff wrote. "However, this is fraudulent activity. Furthermore, if the financial institution comes back after them later for the money, the financial institution is on the right side of the legal argument and will likely win any case."
The All Hands article, with a headline of, "Show Me the Money," highlights the efforts of Pearl Harbor-based Chief Petty Officer Athena Allen, a command career counselor, to spread the word.
"I had heard about the ability to use the Servicemembers Civil Relief Act when you join the military, to help reduce interest rates on debt incurred before you entered the service," Allen is quoted as saying. "But until recently, I didn't know that you could actually use your re-enlistment contract to bring your accounts down to 6 percent interest if they were established before re-enlisting or deploying."
She faxed her current re-enlistment contract along with a memo to her credit union's SCRA department, and 10 days later saw an interest charge credit adjustment in her account of $3,065.99, All Hands said.
She took to Facebook and encouraged others to do the same, the article states.
Neither All Hands magazine nor Allen could be reached for comment.
Tauyan, the Navy spokeswoman, said Allen, along with leadership at Joint Base Pearl Harbor-Hickam, have been provided with the information in Buff's email. Asked what Navy Region Hawaii wanted to say to clear up confusion, the command chose to leave the door open a crack.
"The SCRA only mandates the interest rate reduction for debt incurred by active-duty personnel before their entry into the military service," the command said. "However, some financial institutions may choose to apply the interest rate reduction/forgiveness more liberally than the SCRA mandates, and opt to lower interest rates from debt incurred during a previous enlistment when provided a sailor's re-enlistment paperwork."