Free credit monitoring, medical debt credit reporting restrictions, and mortgage protections for those recently back from active duty
In May 2018, new protections for servicemembers and veterans were . The Federal Trade Commission (FTC) and the Bureau previously highlighted the new federal law that went into effect on September 21, 2018 requiring free security freezes and one year fraud alerts at the three nationwide credit reporting agencies (CRAs).
In addition, this law also addresses a number of key financial issues for the military, including:
- Holding lenders to more stringent requirements when they participate in VA’s refinance programs
- Ensuring continued foreclosure protections for servicemembers up to one year after they leave active duty
- Prohibiting medical debt that should have been paid by the VA to be reported as part of a veteran’s credit history
- Providing free credit monitoring for active duty military, including the national guard
Here’s what to look for in the new laws and when they go into effect:
Refinancing VA home loans
If you are a veteran with a VA home loan then you have probably received regular advertisements offering you the opportunity to refinance your loan with terms that may sound too good to be true. Marketing phrases such as “Extremely low interest rates!”, “No mortgage payment for months!”, or “Thousands in cash back!” can be warning signs that you may pay more in the long run for something that looks like a good deal up-front. We have previously highlighted how some offers are designed to get you to refinance without adequately disclosing the costs.
Previously, lenders did not have meaningful incentives to ensure that refinancing a VA loan would be beneficial to the veteran. Lenders will now be held to more stringent requirements in order for the loan to be guaranteed or insured by the VA. These requirements include:
- Net tangible benefit test: In order to refinance a VA loan, a lender must be able to provide the borrower with a net tangible benefit test that shows the interest rate for a new fixed loan is at least 0.5 percent less than the previous loan or 2 percent less than an adjustable rate loan, and can demonstrate that the rate drop is not solely due to the effect of upfront discount points.
- Minimum time between loans: A lender cannot offer VA loan refinancing unless at least 210 days have passed since the first payment has been made on the current loan or the date on which the sixth monthly payment has been made on the loan, whichever is later.
- Fee recoupment: Lenders must show that the savings from the refinance will exceed all the fees and costs associated with the refinance within 36 months of getting the new loan. In other words, the veteran must “break even” on the transaction within 36 months, even after considering the fees and costs paid in connection with the refinance.
This law became effective in May 2018.
Continued foreclosure protection for one year after active duty
We’ve heard from servicemembers who are concerned about staying on top of their mortgage payments when they received Permanent Change of Station (PCS) orders or deployed to active duty. The Servicemembers Civil Relief Act (SCRA) provides active duty servicemembers with some foreclosure protections for mortgages they took out before serving on active duty.
Specifically, the SCRA requires creditors to get a court order before foreclosing on active-duty servicemembers and up to a year after a servicemember separates from active duty.
However, that “additional year” of foreclosure protections after separation was originally a temporary protection added to the SCRA. While extensions have been granted several times, there was uncertainty about whether this protection would remain available. Under this new law, those foreclosure protections for recently separated servicemembers are now permanent.
This permanent protection became effective in May 2018.
Medical debt credit reporting changes
We recently found that about one in three consumers have been contacted by a creditor or debt collector in the past year, and more than half of those contacted cited medical debt as the reason for the contact. Regardless of income level, age range, and credit scores, medical debt is consistently the category most cited for having past-due bill issues by all consumers.
This new law gives veterans greater credit reporting protections on certain medical debts owed to private medical providers when the VA has authorized payment for those services. The new law also grants credit reporting protections when the VA is wrongly charging a veteran for medical services.
With the passing of the VA Mission Act in June 2018, veterans will have increased access to private sector health care options available to them, which will likely increase the volume of veterans relying on the VA to pay their private medical bills on time. The OSA will continue to monitor how these new changes will impact medical debt complaints from veterans
Upon the effective date, the nationwide credit reporting agencies (CRAs) will be prohibited from reporting certain veterans’ medical debts incurred within one year of the care or services if they know that the information relates to veterans’ medical debt.
If CRAs continue to report medical debts that should be excluded, veterans will be allowed to dispute these medical debts with the CRA provided that they send the CRAs either a VA notification that the VA has assumed liability for the debt, proof of the VA’s liability for payment, or documentation that the VA is in the process of paying the debt. Upon receiving this information, the CRAs must delete all information related to the debt in question from the veteran’s credit report and notify the furnisher of the information and veteran of that deletion.
Finally, the VA must establish a database that will allow nationwide CRAs to easily verify a veteran’s medical debt to determine whether they must exclude it from the veteran’s credit report.
These provisions will become effective on May 24, 2019.
The new law provides active duty servicemembers, including members of the National Guard, free electronic credit monitoring. If you are active duty, you can enroll in the credit monitoring service by submitting proof of service and contact information to the nationwide CRAs. This credit monitoring, at a minimum, will notify you of any material additions or modifications to your credit file.
The FTC is responsible for writing the new rules about free credit monitoring for servicemembers. The FTC just closed the comment period on its . The FTC rules will be effective no later than May 24, 2019, at which point active duty servicemembers will be able to obtain free electronic credit monitoring.