Servicemembers Civil Relief Act
Sean Taylor v. Bank of America
Date: Feb.17, 2026
Issue: Whether Bank of America (BofA) violated the Servicemembers Civil Relief Act (SCRA), Military Lending Act (MLA), Truth in Lending Act (TILA), and Credit CARD Act of 2009 (CARD Act) by charging servicemembers more than the allowed 6% interest rate cap.
Case Summary: A North Carolina federal court recommended dismissing a proposed class action accusing BofA of overcharging servicemembers by improperly calculating interest above the SCRA’s six percent cap and increasing rates after active duty.
Congress enacted the SCRA to protect the domestic affairs of active duty servicemembers and to ease their civil burdens. The SCRA bars practices such as default judgments and foreclosures and requires banks to cap interest on pre-service credit card balances at six percent during active duty.
In September 2024, servicemembers Sean Taylor, Rick Hawthorne and Robert Uyematsu (Plaintiffs) sued BofA, alleging it charged excessive interest and fees, inflated their principal balances, and applied compound interest to those amounts. Although BofA offered a reduced rate, according to Plaintiffs, it did not honor the six percent cap because it used compound interest rather than simple interest. Plaintiffs further alleged BofA violated the SCRA, MLA, TILA, and the CARD Act, along with related state-law claims for breach of contract, unfair and deceptive trade practices, negligence, negligent misrepresentation, and breach of fiduciary duty. BofA moved to dismiss, and the motion was referred to U.S. Magistrate Judge Robert B. Jones Jr. of the Eastern District of North Carolina for memorandum and recommendation.
First, Judge Jones recommended dismissing Plaintiffs’ SCRA claim, concluding they failed to plead a plausible violation. Judge Jones rejected Plaintiffs’ argument that the SCRA requires simple interest and prohibits BofA’s use of compound interest and the average daily balance method, emphasizing the SCRA does not mandate a specific calculation method and that Congress declined to limit “interest” to simple interest. Judge Jones also concluded that Plaintiffs’ allegations that BofA’s calculation method inflated balances above the 6 percent cap were speculative and unsupported. Judge Jones also rejected Plaintiffs’ challenge to the post-active duty interest rate increase, holding that the SCRA’s six percent cap applies only during the period of military service and does not prohibit a bank from restoring the pre-service rate once active duty ends.
Judge Jones also recommended dismissing Plaintiffs’ TILA claim, concluding the complaint failed to plead a plausible disclosure violation. Plaintiffs alleged BofA’s monthly statements misreported the interest rate and finance charges required under TILA and that it used a formula charging more than the rate allowed under the SCRA and its Military Benefits Program. Plaintiffs relied on statements showing a 6% APR and argued the disclosed rate was inaccurate. Judge Jones explained, however, that these allegations were speculative and conclusory because the billing statements clearly disclosed a 6% APR, and the complaint failed to allege specific facts showing that the disclosed rate or finance charge was incorrect or miscalculated.
Finally, Judge Jones recommended dismissing Plaintiffs’ CARD Act and MLA claims. Plaintiffs alleged BofA violated the CARD Act by increasing interest rates on balances incurred before, during, and after active duty. Rejecting this claim, Judge Jones explained that Regulation Z includes an SCRA exception, allowing a creditor to restore pre-active-duty rates once SCRA protections end. Judge Jones determined BofA’s rate reductions expressly relied on the SCRA, that the exception applied to both required and voluntary reductions under the Military Benefits Program, and that Plaintiffs failed to allege any unlawful rate increase. Plaintiffs also alleged the regulatory exception was void under TILA and preempted by the MLA. Judge Jones concluded TILA shields creditors who act in good faith reliance on governing regulations, and that the MLA does not preempt the Regulation Z exception because it applies in circumstances where creditors provide additional protections to servicemembers, not fewer.
Additionally, Judge Jones recommended dismissing Plaintiffs’ state law and related claims. Plaintiffs alleged breach of contract and breach of the implied covenant based on the Military Benefits Program, arguing BofA promised a lasting six percent rate and permanent forgiveness of excess interest and fees. Judge Jones concluded the credit card agreement limited the six percent cap to the period of active duty and did not require a permanent reduction, and that Plaintiffs’ allegations of excess interest were speculative. Judge Jones also recommended dismissing the unfair and deceptive trade practices claims, finding no substantial aggravating conduct, no independent legal duty beyond the contract, and no plausible misrepresentation or fiduciary relationship.
Bottom Line: The presiding district judge must conduct their own review of Judge Jones’ recommendation. Separately, ABA filed an amicus brief in a SCRA lawsuit supporting Citibank.
Document: Opinion
