SCRA

Question 1

Who does SCRA protect/apply to?

Answer 1

Members of the military that are on active duty, Officers of the Public Health Service, and NOAA in active service. And some spouses, dependents.

Question 2

What does SCRA apply to?

Answer 2

Individual servicemember debt or joint debt with a spouse.

Question 3

What is the purpose of SCRA?

Answer 3

To protect active service members by requiring creditors to apply maximum interest rates on loans when service member provides proof of service.

Question 4

What is considered proof of service?

Answer 4

-Written notice and copy of servicemember’s military orders or certified letter from commanding officer
-Independent verification by creditor

Question 5

What must creditors do upon receiving proof of service?

Answer 5

Before entering into service, reduce the interest rate of debts for the servicemember or spouse to no more than 6% annually for the duration of the military service.

Question 6

How is interest defined under SCRA?

Answer 6

Interest rate to include service and renewal charges and any other fees or charges.

Except charges for bona fide insurance.

Question 7

True or false: Creditors can schedule benefits to terminate automatically prior to end of service and can require servicemembers to periodically reapply/recertify eligibility.

Answer 7

False.

Question 8

True or false: Creditors can accepts borrowers’ request for any form of military deferment or forbearance as written notice of eligibility

Answer 8

True

Question 9

When must creditors reduce the interest rate?

Answer 9

Prior to start of service. This includes retroactively back to the day the servicemember received their orders, if applicable.

Question 10

What are the rate reduction requirements for mortgages?

Answer 10

Creditors must extend the rate reduction for one year after the end of the borrowers service.

Question 11

What happens to the interest in excess of 6 percent after it is reduced? What happens to the payment?

Answer 11

Creditors must forgive interest in excess of 6% and recalculate the amortization of the remaining monthly payments to reflect the interest rate change.

Question 12

What are the termination requirements for vehicle leases under SCRA?

Answer 12

Leases my be terminated at the request of the service member if the servicemember enters service for a period of 180 days or more or receives a permanent change of station. Automobiles must be returned within 15 days after delivery of notice of termination.

RV leases may be terminated upon request from the servicemember.

Question 13

What are the termination benefits for pre-service residential, professional, or agricultural leases?

Answer 13

Termination is permitted where servicemember receives orders for a PCS or deployment for 90 days or more.

Question 14

Can a creditor foreclose on real or personal property owned by a servicemember?

Answer 14

NO! Real or personal property owned by a servicemember before the servicemember’s military service that secures a mortgage, trust deed, or similar security interest cannot be sold, foreclosed upon, or seized based on a breach of such a secured
obligation during the period of military service or one year thereafter without a court order.

Question 15

What protections are offered to servicemembers from their landlords (bank owned property)?

Answer 15

A landlord may not evict a servicemember or dependents from primary residences with rents of $3,991.90 (2020) during a period of military service except through court order.

Question 16

What benefits are afforded to servicemembers when they apply for a loan?

Answer 16

For servicemembers who receives stay, postponement, or suspension of obligations under SCRA and apply for a loan/insurance, a creditor cannot:

-Determine the servicemember is unable to pay
-Deny or revoke credit, change terms, refuse to grant credit based on terms requested
-adversely report on credit report
-refuse to insure
-annotate the servicemembers military status in a file
-change terms or conditions requires for issuance of insurance.

Question 17

When should a creditor make the interest rate reduction effective?

Answer 17

As of the date the servicemember was called to military service.

Question 18

What should examiners verify regarding the interest rate reduction?

Answer 18

-interest calculation includes all service and renewal charges, bona fide fees
-Effective date is day borrower received orders
-Monthly payments were corrected to reflect reduced interest rate
-For mortgages, reduction
maintained for 1 yr after service.

Question 19

Who is considered a dependent under SCRA?

Answer 19

Spouse, Child, individual who servicemember provided more than one-half support for 180 days preceding application for relief.

Question 20

When can a bank pursue foreclosure, sale or seizure of property under SCRA?

Answer 20

If they receive a court order or if they pursue 1 year after the period of military service ends.

Question 21

What protections are afforded in cases where insurance is assigned as security for a loan?

exceptions?

Answer 21

Bank cannot exercise any rights or options for Life insurance policy assigned before military service as security for loan, until 1 year after military service ends.

Exceptions:
-consent from the insured service member
-when premiums are due and unpaid
-upon death of insured.

Question 22

What two methods can a bank use to recalculate the monthly payment after rate reduction?

Answer 22

Standard amortization method and payments

Interest subsidy Amortization method and Payments

Question 23

How are payments calculated using the interest subsidy Amortization method?

Answer 23

Outstanding Principal balance prior to applicable due date (UPB) x .06/period = monthly interest + original amort schedule principal payment

Question 24

Are safe deposit box rentals covered under SCRA?

Answer 24

Yes, this rental is generally considered a lease of property that is covered by the regulation.

Under this provision, the bank cannot rescind or terminate the lease of the box while the member is covered under SCRA, even if a payment is missed.

Question 25

Should late fees be included in the calculation of interest for a covered borrower?

Answer 25

Yes, late fees are included in the definition of interest as they are considered “other fees and charges”.

Therefore a bank cannot charge a servicemember a late fee for any late payments due in the SCRA eligibility period if the fee + interest charges = more than 6%

Question 26

Can a creditor report a late payment on a reduced rate obligation under SCRA?

Answer 26

Yes, as long as the creditor is reporting just the late payment, and is not taking an adverse action simply because the servicemember exercised a right under the Act.

Question 27

Does SCRA apply to business credit?

ex: business loans under individual borrower names, business loans to the business owned/guaranteed by the servicemember

Answer 27

Yes, SCRA applies to all pre-service obligations or liabilities with no distinction between business and personal credit.

Any business loans where the servicemember is obligated would be subject to the rate reduction.

Question 28

Evaluate the following scenario and provide corrective action.

a service member has an 18% loan that qualifies for the reduction of interest to 6% upon active duty

the loan was originated on January 1, 20XX

the service member presented the military orders to the bank on July 1, 20XX

the military orders stated an active duty date of March 1, 20XX

the bank reduces the interest on the loan from 18% to 6% effective as of July 1, 20XX but neglects to make any adjustments for the period from March 1, 20XX to July 1, 20XX

assume the difference in interest of 18% to 6% from March 1 to July 1 is $500

assume the examiner identifies this error on December 1, 20XX

Answer 28

This is a violation that may warrant a citation in the ROE.

Corrective action should include recalculating the loan for the total effective period (from active duty date of March 1, 20XX to the termination or release from military service)

The bank should also reimburse the borrower either through direct cash payment or applying to current or future payments. (reduction in principal is not allowed unless approved by borrower after presented multiple options.)