Does anyone know what the Banks obligation is under the Soldiers & Sailors Relief Act if we receive a request from a customer covered by the Act requesting we "suspend" their obligation to make monthly payments until they are able to make the payment or until they're discharged from active duty whichever occurs first. Our question is; are we required by the Act to do this automatically if requested or does the creditor have to prove to us they can no longer meet the obligation or do they have to get a court order ordering us to suspend the payments. We know that we have to automatically reduce the interest rate on the loan to 6% but we're not sure about our requirement to suspend the payments.

There is no requirement that you suspend payments. That loan could be charged off a long before the borrower is ready to make payments.

You could assess their financial position and see if they are that severely harmed or if they are just asking because you may just do it for them. (The skeptic in me leans toward the latter, but if I went back to being an E-4, 6% wouldn't solve my potential cash flow problems.) You could then offer some other solution available to you or charge it off with an informed mind.

We had an individual request that we "suspend" payments while he was attending boot camp, which ended up being a period of about 4 months. We agreed to do this. However, here are some issues which we had to address by doing this. In our case, the loan was a residential real estate loan. His monthly payment contained escrow amounts for hazard insurance and taxes. We felt it important for the service person to understand that if he did not make payments during this 4 month period, his escrow accounts would be short. We offered him the option of making payments to only keep the escrow accounts current so there would be no issues regarding a lapse of insurance or non-payment of property taxes. Just something to consider.

We have allowed extensions for two of our consumer loan customers (not residential) until they return from boot camp training. These were customers in good standing and will not be paid during training.

I would recommend fully understanding the time frames involved. Boot camp may mean the basic training and advanced individual training. Someone learning a very difficult job, a new language for instance, may be in school for 12 or 18 months in addition to basic training.

Andy

I just receved a request from a loan customer who has joined the Marines and is requesting both interest rate reduction and suspension of payments (July 1 to Nov 15, 2002). The form he has used, looks like one that was provided to him by the military or some agency, as it is a "fill in the blank" form letter.

To quote:

"The Soldiers' and Sailors' Civil Relief Act of 1940 amended, Title 30, USC Appropriate sections 501-510 states: In matters such as this, only a court may resolve this issue when the service person's ability to comply with the terms of this obligation is materially affected by reason of military service. A delay or reduction in income by reason of military service is considered to be an appropriate cause to suspend or modify installment contracts."

I cannot find the last sentance that mentions "suspend or modify installment contracts" in the USC. Am I going blind? You stated previously that there is no requirement to suspend payments, but I wanted to track down the source of this document in my hands before I set my opinion in stone.

Thanks for anyone's comment.

Here is an update to my previous post. The person making the request for relief under the act is second on the vehicle loan. Dad is primary. If the loan was made on the strength of Dad's income and junior was added to the note to build his credit, I don't think junior qualifies under the Act.

Am I out in left field?

Like a bankruptcy stay, the Act applies to others on the debt and dad would be protected unless you go to court.

Payments don't get stayed. I am not a lawyer and if you want to challenge this (I would because it is an abuse) one should be consulted. I would suggest congratulating the Marine on their new profession and suggesting that even while their income now appears to be greater (if that is the case) you have no interest in any court actions. And while you will reduce the interest rate, you want a legal request from a JAG officer citing the payment stay.

This puts the burden on them and has no cost to you. While the burden of SSCRA compliance and proof is on you, this won't include fictitious "requirements".

If we have someone else who is aware of a payment stay requirement hidden in there somewhere, please correct me.

NewBanker, the situation I described in my earlier post was also for an individual in the Marines. I ended up speaking with a Sergeant located in California who negotiates SSCRA requests on behalf of enlisted Marines and he clearly stated to me that there is no requirement to suspend payments. We decided to do so, because in the long run we didn't want to end up being the bad guys in a situation with an individual who is in the armed services. However, you may not decide to take the same action.

If you would like the name and phone number of the Sergeant I worked with, send me an email and I'll see if I can locate it for you. I found it helpful (and interesting) to talk to someone in a position of authority on the "other side" of the situation.

In a safety and soundness exam, how do you justify this as a nonperforming loan? There is no requirement to do this and no real allowance. If a customer loses his/her job, you wouldn't do the same thing. It looks like charge-off avoidance. Have you stated a given time for the stay? Remember the SSCRA could be in effect 20+ years if the person makes this a career.

On the pre-printed form that the new recruit filled out, he has hand-written, "Stop payments from July 1st to Nov 15th". I don't think that changes anything. The question in my mind, does SSCA reach back to secure Dad? I don't think so. So while we may not be REQUIRED to do anything, we may CHOOSE to do something to keep the relationship. Fortunately, I don't have to make that decision.


Thanks to all that have replied to this question. I'll be discussing this with staff later today. I'm glad to have so many talking points.

The Act does not give the service member the right to automatically suspend payments. The Act does reach out to individuals that are co-applicants, regardless of the relationship.

You may want to refer to the following website - I have found it helpful and the following is from that site:

The Soldiers & Sailors Civil Relief Act, Simplified

"Sections 103(1) and 103(2) provide those persons who are either primarily or secondarily liable with a service member on an obligation or liability with the same rights to delay actions and vacate judgments available to service members."

I don't believe the request for suspension of payment until after boot camp has anything to do with SSRA. Having gone through Marine Corp boot camp, I can say that Marine recruits do not have access to anything civilian in nature, and that includes checkbooks. During the strip search, everything civilian is confiscated from the recruit and trashed or sent home. Nor is any time available or allotted for any civilian activities like paying bills, or listening to a radio, reading a magazine or watching TV. There is very limited and supervised communication with the outside world. Its all Marine All the time 24/7.

In addition they are not paid during this phase of training. A small amount usually in "Chit" form is provide to pay for necessities like shoe polish, soap, scrub brushes and the like. No one has any cash (No cigarettes, candy, gum, or soda either) Upon graduation they receive pay for the 12 weeks. At that point they have the ability to take care of personal matters.

Being asked to suspend payment is a form letter request, as the Marine Corps knows a recruit has no opportunity to take care of it, durning this phase of training.

Don, the pay systems are different between branches of the service. In the Army, I was paid during basic and AIT. Are you sure the Marines are not. This seems unusual, especially if they have dependants.

Could you point me to an internet source for the quotation from "Sections 103(1)...."

Just got off phone with S/Sgt Benevidos at the Marine Corps Recruit Depot here in San Diego. Sgt Beneviods is in recruit adminstration and confirms that all items such as check books are taken from the recruit upon entering.

Its pretty much the same as when I went through, except pay is deposited into an account at a bank on base. The recruit has an ATM/Debit card and can charge items at the PX on the debit card. Due to the restrictions placed on recruits, they don't get to go to the bank's on base ATM to draw cash, as they don't need it.

S/Sgt Benevidos stated that the suspension request is not part of SSRA, but the fact that the recruit does not have the ability to write checks and pay bills.

The only way he can make payments on anything is to set up an allotment. Believe me, asking a DI for permission to go to recruit admin to do that is not something any recruit wants to do. Everything is done as a platoon and no recruit is free to come and go. There are no off duty hours as a recruit.

If a recruit is married the normal allotment is mailed and if lucky the first allotment check will arrive about the time the recruit graduates.

Andy,

Its not that they are not paid, recruits just don't have a chance to access and spend it. Marine Corps recruit training is like being locked up in solitary confinment, except there are 40 others locked up in the same room with you.

Found the reference, I guess I didn't go far enough through that site reference. Thanks to all who have commented.

While this thread has kept me riveted in anticipation of the next post, I think that several of you may have missed one important point. That is, the father appears to be the primary borrower and regardless of whether the son has access to a checkbook during boot camp, I'm sure that his father does not have two broken arms. While I fully support and have always tried to do the right thing when at comes to compliance with SSCRA, I don't normally let individuals take liberties to which they are not entitled. It has to do with the evaporation of that "personal responsibility" thing that seems to be lacking in today's society.

I believe that is an excellent point.

I would also be interested in AR's or any ex-regulators opinion on a bank purposely making the loan (or a batch of loans as the case may be) a non-performer because the person doesn't have time to pay their bills. I know that simplifies the scenario to much, but does military service get preference over someone who started a new job, is going to school, etc. or should this be addressed in some extension program addressing the number of payments allowed delayed or extended?

There is no legal requirement to grant a suspension of payment for anyone in the military going through boot camp, and the bank has no obligation to do so. The reality is, that unless the person has made arrangements for someone else to make the payments for them during that period of training, the bank is going to have a loan going 90 days past due, as a recruit is not free to communicate or handle personal matters of this nature.

The options are not grant the extension, and repo the car and all that goes with that. Or, see if there is a way to work it out. The bank may also be confronted with the loan being dealer paper with a LLR requireing the car be delivered back on the dealers lot within a certain number of days past due, or the bank takes any loss incurred.

The letter requesting "suspension" while official sounding, is an item prepared by military professionals who have absolutely no idea of the world of finance. Its something they would like to see happen, as they don't want the recruit distracted because he got word the bank sent a letter demanding the money or the car, and has no way to personally resolve the matter.

I agree not discussing this with the bank prior to leaving home shows a great lack of responsibility on the borrowers part, and it's time for dad to make some payments. Lets us hope that 12 weeks of boot camp will engage the responsibility gene.

In a small town, having the local bank repossess the car while a native son is off serving the country, may not be an ideal PR situation.

Repo'g it while protected by the SSCRA would be more time consuming and costly than waiting for the payment.

In this case, I wouldn't waive the payment requirements, but I'd be asking dad for my money. He should be happy the rate went down to 6%.

Thought I would tie up the loose ends of this thread......

All your input was great! When I presented my opinion to the loan officer, she made the business decision to reduce the interest rate and defer the payments for the period in question. (In his favor, the new recruit's account already had posted another payment.)

I think the PR issue was a factor. Small community branch in rural America......

Remember, if you reduced the interest rate to 6% you can not charge any late fees.

Hey Denny, our fighting men and women are putting their lives on the line for your security and you're worrying about collecting a payment? Give them forbearance!

We're all firmly behind our troops, and want to help out in any way we can. The reality, however, is that we still have to comply with the law, keep our past dues under control, and answer to Boards, regulators and shareholders regarding our performance. Unfortunately, we can't just not worry about someone not making payments.

This is a confusing issue. I for one appreciate hearing how people across the country are handling these situations so that the service men and women benefit as intended, but the bank is not harmed.

The situation can be different from case to case. Some folks are activated and served in the US and even at home, at a local military post or airport, as examples. And some may go overseas to serve. Some will be paid more than before, and some less. Some have intentions of paying what they can, when they can, and some hide behind this as a shield.

RANT AHEAD: Would you propose unilateral extensions to keep it off the past dues and to not be reported derogatory? What if you had 100 of these loans? How much forbearance should the bank accept and for how long, 1 year, 2 years, more?

I apologize if it sounds like I am attacking, I am not. I am patriotic as is my bank. But I feel that the intent of the law was to act as an equalizer when someone gave up a good civilian living to serve their country at a lower pay.

But I see abuses where someone actually improves their income and living conditions and thumbs their nose at the creditor. It is those cases I dislike.

Hear, Hear! And unless I'm mistaken, you've served in the military, and know whereof you speak! Thanks for sharing that knowledge.

I am one of the "lucky" ones that have had the borrower thumb his nose at us. He refuses to pay the debt that is due. We have decided to wait until he is out of the service and then pursue the matter.

I would suggest that you contact his base and find his CO and let him know that this soldier is shirking his responsibility. They frown on that big time and I had one CO tell a solder to pay-up or he was going to throw him in the brig. While the Armed Services fully supports the troops in their rights under SSCRA, I'll bet you top dollar if you get a hold of his CO, you'll see a different attitude.

A search here will reveal my cite of an Army regulation that all but requires them to pay just debts and I believe it was Don who gave some info about the Marines (I didn't say jarheads, Don) that would be helpful. But honestly, it does depend largely on the chain of command.

Having had to collect loans from navy/marine corp personnel, I found a little boost from the right source often solved the problem. Most 1st Sgts and Co's are very helpful, and a very few are not.

Sending a "Letter of Indebtedness" to a CO is useful. A "Letter of Indebtedness" is a letter to the CO that states your customer has a obligation which is currently $xxx past due. While you appreciate the customers contribution to our national security, there is a responsibility on his part to pay the obligation he contracted for. You will appreciate any help in getting xxxx to establish a mutually satisfactory arrangement for payment.

Having these types of letters in a personel file will prevent someone from getting a security clearance, possible promotion to an NCO rank, and are not taken lightly.

Better yet, call the units 1st Sgt. Express that you have tried to work with customer XX and even reduced payments under SSRA but receive no cooperation. Ask if customer xx is a good soldier, salior, marine etc. If the answer is yes say you would hate to write the CO and perhaps jeprodize this persons military career, could the 1st Sgt recommend a course of action that would keep this person out of trouble, as you are just looking for a mutually satisfactory solution for payment of the obligation.

If the answer is no he isn't, your home free as the 1st SGT is looking for ways to make his life miserable. anyway.

Collection methods are limited, so use what is available.

Make sure you flag the credit bureaus.

Don - would a letter of indebtedness pass GLB and FCRA? It appears to me that the CO would be a nonaffiliated third party (non-CRA) to whom we would be reporting nonpublic personal information.

I feel like I'm tap dancing in a minefield to question your response, but I don't see how that SSCRA procedure is compatible with newer regs. Help?

Rclary is correct, I use to do collections on Fort Leonardwood, MO (back in the early 70's) and the CO can be of great help, especially if their rank was E-7 or higher.

complyguy
I'm not qualified to give a legal opinion and its something you would have to obtain. My opinion is that the letter could be worded in such a way that no violation of GLB would occur.

You could always write the customer and indicate you do not want to have to contact his CO in order to obtain arangements for past due payment. Sometime the mention of that possibility to the customer will get them to act.

There are not a lot of options available to collect from someone in the service. I found the best one to be a willingness to work with the customer. This is good guy collection as opposed to being bad guy collector. Stress that they have an obligation to contact you, and not for you to contact them.

Try and work out having an allotment check sent to the bank each month.

Most just need some kind of a kick to get started paying, and a sense that someone at the bank will help, as long as they hold up their end of what ever arrangements are made.

Good points, Don. We haven't had negative SSCRA experience so far, but we'll file your suggestions for future reference, just in case.

I need some help!! We have a loan at 8% and we are lowering the rate to 6%. What should we do with the 2% reduction? Deferred until the borrower is not in active duty and add back to principal? Make a new note? Write the interest off? Please advise!!! Thanks.

You get the "opportunity" to forgive that interest in exchange for the soldier fighting for your country!

I think it was RL who believed "Greetings" would be a cheery way to soften the blow that many young men were being given the "opportunity" to serve their country.

And he is correct. 8% - 6% = 2 less than you were going to get. There is no adding it back and you can't show it as a charge off against the service member. You also should look at the definitions so that you are not going after late fees, as that is interest and would exceed your cap if you are already there.

I agree with RL and Andy, but would add that strict accounting procedures may dictate that you book some form of write-down of the asset's value.

Although it does not apply directly, the Federal TIL reimbursement guidelines offer concepts for adjusting loans in order to correct rate disclosure errors. The lump sum calculation in your case would be the present value of the difference between the original payments at 8% and payments at the reduced 6% rate. You would only apply this calculation for the number of payments you expect the GI to be on active duty (which could be the remaining term of your loan.) Accompanied by corresponding reductions in the GI's interest rate and payment amounts, this lump sum would be the amount you would need to write down in order to mark the loan to "market."

In no way should this write down reflect badly on the GI.

Richard - How do you "write down" a simple interest loan?

Andy

You mentioned that late charges were considered finance charges under SSCRA. If we charge a 6 percent rate, we cannot assess late charges? Basically, we need to "turn off" the assessment for the time they are on active duty. What about annual fees on HELOC's or collections charges (atty, court cost, etc)?

Thanks!

Sec. 526 makes it pretty clear that additional charges are prohibited.
"As used in this section the term "interest" includes service charges, renewal charges, fees, or any other charges (except bona fide insurance) in respect of such obligation or liability.

Sorry for the delay, I am out of town. Dean has the straight scoop.

If you need to look the act up, it is correctly known as the Soldiers' and Sailors' Civil Relief Act of 1940, as amended.

A bank customer is asking for relief under SSCRA. When she applied for a moble home loan she was not married and was the only signer on the note. Since than she has married and relies on her husband's income to make payments. (He is not on the note) Her husband has been called to active duty. Can we honor her request?

Can you honor her request? Yes you can. Are you obligated to do so? No, if he's not obligated on the loan. It's my understanding the SSCRA only applies to loans that the military person has a contractual obligation on.