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Tuesday 15 November 2011

Interest Rates and UK Servicemen

There’s something very odd about interest rates. I had great difficulty believing the content of an article in the Daily Telegraph on 11th November (very appropriate for Armistice Day). In fact the article confuses two separate situations.  It did however alert me to something quite extraordinary.


At a time when interest rates are historically very low, there seem to be some amazing variations.


Even more astounding is the attitudes of the US and UK governments towards their troops. If you’re confused as to how these two items go together, read on.


The U.S. have a bill, the Servicemembers Civil Relief Act (SCRA) which, amongst many other things, limits the interest rate that may be charged on loans to servicemen, which were taken out before they are on active duty. The exact wording is that “interest in excess of 6% on pre-service debts is forgiven and not deferred”.  It is also illegal to affect the credit rating of the serviceman as a result of the application of this provision.


For the avoidance of doubt, the 6% is per year… the reason for the perhaps pedantic clarification will become clear in a moment. This is the situation for loans which were taken out before active duty commenced. If the UK has any similar provision, I challenge you to find it.


After deployment, the rules are different. It is illegal to charge a US Serviceman more than 36% pa interest on a loan (again enacted in the SCRA). There is no similar protection for UK service personnel. Very cursory research on the looking for  ‘Loans for Members of HM Forces’ found interest rates of 1,410%, 1,737%, even 2,222.46% (obviously, not on the first page of the site). These are not typographical errors; they are the annual percentage amounts being charged.


Back in 2006 a certain gentleman by the name of Gordon Brown signed a statutory order limiting to 2% (admittedly per month) the rate of interest that could be charged by Industrial and Provident Societies (The Credit Unions (Maximum Interest Rate on Loans) Order



If I were a UK serviceman, I would find it difficult to justify putting my life on the line for such shysters.


Is there a current, or past, UK serviceman out there who would like to add an e-petition to limit the interest rate charged on loans to UK servicemen to 36% p.a.? I would be pleased to help with the drafting.

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