We are adding a number of articles to provide guidance on banking issues in the wake of the tragedy relating to:

-- the Soldier's & Sailor's Civil Relief Act Understanding the SSCRA It includes a link to the full text of the statutory provisions, as well as related links.
-- the impact of the midnight deadline under the UCC in times of emergency, AND the application of the Reg CC emergency hold. Can you use it? Should you? What are the implications? See Tragedies & the Midnight Deadline

-- What do you need to keep in mind with powers of attorney? See
Who's Got the Power?

and for fundraising/donations accounts, be sure to read:

-- Disaster Accounts

View our Tragedy Issuances page for details about the FBI's request (that it transmitted through the FDIC and the FRB) for financial institutions to transmit information about any financial information, then check our constantly updated list for names, photos, and other identifying information on the suspects.

There are many other issues. If you have specific questions, please send them. We'll be putting up information and guidance as quickly as possible.

[This message has been edited by Mary Beth Guard (edited 10-01-2001).]

How liberal do you think the examiners will be on waivers of the right of rescission by people who are afraid we're going to war and want to pull money out of the equity in their houses? Do you think that qualifies as a "bona fide personal financial emergency?"

As tragic as these events were, as a general rule I would not believe that cashing out equity would have to be faster because of it.

If the borrower was actually effected by the event that would be different. If it was a borrower in mid-America, I don't see the connection.

I believe to do otherwise is to endorse the artificial shortages that some people tried to create, on gas prices as an example.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

I agree with Andy. Rescission is only appropriately waived when the funds are needed immediately to protect property. Fears don't meet this test. However, it is useful to remind customers that any deposits in the bank are insured -- unlike the stock market.

As Mary Beth points out, there are a whole lot of issues, including Soldiers and Sailors (trust a lawyer to remember that one!) and OFAC, BSA and more. This might be an opportunity to get CRA credits for providing information to small business customers about cash and suspicious transactions.

I also think that discrimination issues should get close attention. We already have seen too many hate crimes in "retaliation."

I'm working on a list for "Compliance Action" and the list is getting longer and longer. However, it doesn't include either Reg Z or RESPA -- yet.

Does the Soldier's & Sailor's Civil Relief Act apply to consumer leases? I have not been able to find anything that specifically addresses this.

Thanks

Terry,

Yes, it does.

As our lengthy article on SSCRA notes,

"If a deposit or installment has been paid on a contract for the purchase of either real or personal property, or on a lease or bailment arrangement with a view toward purchase of the property, and the person who made the deposit or installment subsequently has entered military service, the person who received the payment cannot exercise any right or option under the contract to rescind or terminate the contract or resume possession of the property for nonpayment of any installment due or for any other breach of the terms occurring prior to or during the period of such military service, except by court action."

You can link to the article here:

Understanding the SSCRA

Thanks. I guess I should have read your article first.

Your statement says ". . . on a lease or bailment arrangement with a view toward purchase of the property . . ." I interpret this to mean that the Act covers such things as consumer vehicle leases that contain an option for the customer to purchase the vehicle at the end of the lease term, but that it doesn't cover vehicle leases that don't contain the purchase option? Am I correct?

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All statements & opinions are mine and not necessarily those of my employer.

The Soldiers' & Sailors' Relief Act applies at all times? If this is true, would all active military never pay more than 6% on loans even during peace times? I'm confused on this because we only hear about the Act during war time (such as Gulf War). Also, I'd like to verify that this applies to overdraft checking plans and credit cards.

It's true! It applies at all times. HOWEVER, it applies only to pre-service debt. So, in answer to your question, no, all military personnel do not always get the 6% rate.

Let's look at some examples:

Joe enlists in the Navy, runs up a lot of credit card debit at 21% interest. Wants to invoke the protections under the SSCRA to get his interest rate lowered. Doesn't help him, since the debt was incurred AFTER he enlisted.

Tom ran up lots of debt while in college. He sees no way out. He enlists in the Army. He then notifies his financial institutions of his military status and they must lower his interest rate on pre-service obligations.

Harry is in the reserves. He borrows money to buy a car and a house. He gets called up on active duty. The obligations he incurred prior to active duty are eligible for the interest rate reduction.

Doesn't matter whether we're at war or at peace. What matters is when the obligation was incurred in relation to when the person entered military service (or, in the case of a reservist was called up to active duty).

Many of the other parts of the SSCRA, such as the prohibition against default judgments, apply regardless of whether the obligation they involve was pre-service or during the service.

Several days prior the last Tuesday's terrorist attack, our bank had received a request for rate reduction from a young man that had enlisted and was leaving for basic training. He has a loan secured with a certificate of deposit (CD is in his wife's name only and the loan is in his name only). The CD rate is 4/11% and the loan rate is 8.00%. Our initial reaction was that the loan rate is truly only 2.89% (when taking into account the CD rate being earned), so we determined he did not qualify for a rate reduction. However, now I'm questioning that decision. What is your opinion on this type of loan rate structure?

Another question came up regarding a borrower who is called to active duty and currently is delinquent on his vehicle loan. When the borrower is delinquent prior to being called to active duty, is the bank permitted to reposses and sale of a vehicle if the loan is not brought current, without first obtaining court approval to do so?

I really wonder if all the banks in the US have done what they can in regards to identifying individuals. There have been so many changes in the industry since I entered. The tools to monitor now are tremendous, OFAC, SAR Reports, Know Your Customer, etc. Could we all as bankers helped to identify some of the funds that these individuals were receiving? Also what lies ahead for us? I would bet our tools will become tighter and evaluated more closely.

These are my opinions and not my employer.

Case,

I know of nothing in the SSCRA that would allow you to arrive at a "net" interest rate on a CD-secured loan. Yes, you are paying him interest -- but you have his funds on deposit, so you are deriving a benefit and he is merely receiving a contract rate of interest on that deposit. That does not diminish or affect the interest rate he is paying to you on the loan and the rate on the loan is what is affected by the SSCRA. He is entitled to the rate reduction from 8% to 6%.

As stated in my article, you cannot engage in self-help remedies (such as repossession) with respect to property of a serviceperson. You must get a court order first. [There is an exception described in the article for action taken under a special written agreement.]

I agree with MBG. You can't net the rates as they are independent products of one another.

Remember that the spirit and intent of this law boils down to someone who incurrs a reduced income because they are serving their country, not having to worry about their family being put on the street or sleeping on the floor because a bill was late.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

Terry,

As to your follow-up questions, there are two provisions in the Act that relate to leases: one (which was referred to in the quote from my article) relates to those that are really in the nature of installment contracts, where the lease contains an option to purchase.

The other is in Section 534 of the Act (use this link then scroll down once you get there). It deals with any lease covering premises occupied for dwelling, professional, business, agricultural, or similar purposes

JEEZZ PEOPLE! CASE, I CAN'T BELIEVE YOU ARE WORRIED ABOUT REPOSSESSING A SERVICEMANS CAR, WHEN HE COULD POSSIBLY BE GIVING UP HIS LIFE FOR YOU AND ME IN THE VERY NEAR FUTURE. BUT BY GOD, LETS GET THAT CAR BACK!!!!!NO WONDER THEY CALL US CAPITALIST PIGS! YES I AM MAD, VERY MAD. IF WHAT HAPPENED IN NEW YORK IS NOT A WAKE UP CALL IN GETTING OUR PRIORITIES STRAIGHT, TELL ME WHAT IS!THE MONEY THAT FUNDED THESE ACTIONS CAME THRU THE FRONT DOOR JUST LIKE THE TERRORIST THEMSELVES AND WE AS A COMMUNITY OF BANKERS SHOULD FEEL RESPONSIBLE. SOMEBODY WAS ASLEEP AT THE WHEEL!

THANKS FOR LETTING ME SOUND OFF, AND NOW I WILL GET TO WORK MAKING SURE NOBODY'S PRECIOUS PRIVACY GETS VIOLATED TODAY.

Oh my...I really was not suggesting that the bank not do everything they can to assist our service men and women during time of war. I am proud of our men and women in uniform. My husband and father both served in the military. I pray no one really thinks that I am suggesting the bank not do all they can to easy the financial burden of those who are fighting to keep us safe. Our bank will do what is right!

I was simply inquiring about a situation where the loan customer was not performing as agreed prior to being called to active duty and the bank was already in the repossesion process.

As for the other situation...like I said, that request was received several days PRIOR to last Tuesday's attack. We had not received a request for rate reduction before. Obviously we incorrectly considered the net rate. But, I think that you can tell by reading my question that I was "doubting that decision" and was simply asking for advice from an expert.

Thank you Mary Beth for your advice.

Susan, why don't you tell us how you really feel?

I don't think anyone is advocating repossing a serviceman's car while he is off risking his life and fighting terrorists. Sometimes trying to crack all of the possible nuances of a particular regulation serves as stress relief for people of our bent.

In putting together a quick presentation for our lending personnel on SSCRA, I did discover another prohibited basis for loan discrimination other than those set forth in Reg B and the Fair Housing Act. Buried deep in SSCRA is a provision that prohibits denial of loans or other adverse action on loans on the basis of prior assertion of rights under SSCRA. Interesting little nugget.

Although SSCRA does apply at all times, it really only receives publicity at times like this when there is a mass call-up of reserve and National Guard troops to active duty.

There is an ability to refute the claim for interest rate relief on pre-service debt. However, the burden of proof is on the bank to prove that the service member's ability to repay has not been materially impaired by going on active duty. This may be easier to prove in some circumstances than others. Keep in mind, though, that you also must consider reputation risk in this equation. Right now, reputation risk is probably a bigger threat than compliance risk when it comes to the SSCRA. Picture this - front page of the financial section of your paper - "Your Bank Accused of Cheating Departing Soldier".

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Jim Bedsole, CRCM, CBA, CFSA

Opinions expressed are my own, and do not necessarily reflect those of my employer.

In response to kcarter: This Act did not contemplate many of the financial products offered today. Regulation Z (§226.5b(iv)(D)provides that a creditor may prohibit additional extensions of credit or reduce the credit limit on a loan when we are precluded by government action from imposing the APR provided by the loan agreement. This wording is contained in our Equity Line and Overdraft LOC contracts.
Leslie

After the Gulf War, there was a newspaper story about a soldier who was serving in the Gulf who had come home to discover that his bank had foreclosed on his home and farm and repossessed his farm equipment. His wife had been staying with relatives and evidently the notices of the actions had not been received, or she was too stressed out to open the mail, I'm not sure which.

In any event, she discovered the foreclosure and repossessions had taken place when she traveled back to their home state to just "check on things". The news caused her to have a nervous breakdown.

The scene the soldier came home to was not a pretty one, and the news stories that detailed the bank's actions were as awful as you might expect.

Don't let it happen to you.

Leslie, you are correct in your Reg Z citation. But SSCRA says in §518:

Application by a person in the military service for, or receipt by a person in the military of, a stay, postponement, or suspension pursuant to the provisions of this Act (sections 501 to 593 of this Appendix) in the payment of any tax, fine, penalty, insurance premium, or other civil obligation or liability of that person shall not itself (without regard to other considerations) provide the basis for any of the following:
(1) A determination by any lender of other person that such person in military service is unable to pay such civil obligation or liability in accordance with its terms.
(2) With respect to a credit transaction between a creditor and such person in military service--
(A) a denial or revocation of credit by the creditor;
(B) a change by the creditor in the terms of an existing credit arrangement, or
(C) a refusal by the creditor to grant credit to such person in substantially the amount or substantially the terms requested.
(3) An adverse report relating to the creditworthiness of such person in military service by or to any person or entity engaged in the practice of assembling or evaluating consumer credit information.
(4) A refusal by an insurer to insure such person.

So, you have Reg Z that says you can prohibit additional extensions because government actions prevent you from charging the disclosed APR and SSCRA §518(2)(A) saying you can't revoke credit because the borrower claims relief under SSCRA. Which one prevails? I can tell you that in today's climate in the court of public opinion, SSCRA prevails. Check with legal counsel well versed in SSCRA before making any decisions to curtail lines of credit for those claiming relief under SSCRA.

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Jim Bedsole, CRCM, CBA, CFSA

Opinions expressed are my own, and do not necessarily reflect those of my employer.

Jim is absolutely correct. Even if you won the battle, you would lose the (public relations) war. You would be excoriated in the press for treating one of people in uniform so shabbily.

Besides, I don't even think you can win the battle on this one.

If a person in the reserves is called to active duty will their business accounts qualify for the 6%? This person owns and runs the business with no assistance.

If the business is a sole proprietorship, I believe the protections of the act would apply because a sole proprietorship is not a separate entity. It is considered synonymous with the individual sole proprietor and it is the individual to whom the benefits are extended.

If it is a corporation, partnership, limited liability company, etc., I see no basis for protection. Those are separate legal entities and I don't believe they are covered by the SSCRA provisions.

TO jbedsole,
You may be correct , but my understanding is that the reduction in interest rate only applies to obligations incurred prior to being called to active duty. Therefore, if someone has, for example a equity line at prime plus 3, giving them a rate of 9, the bank could not charge more than 6% for obligations incurred prior, but could charge the contract rate for any obligations incurred after, correct? In other words, you might have a tiered rate if the service person kept using their line?

Leslie, that's a difficult question to answer. SSCRA was put in place before credit lines were a mainstream banking product, so the law does not provide any clarity. I would say that in theory, the credit limit and rate were established prior to the military obligation and were based on the person's pre-military income. Since that income may now be impaired as a result of the military service, you could make an argument that the relief should apply to any credit extended under the line. This is a call I think you'll have to make in consultation with your legal counsel.

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Jim Bedsole, CRCM, CBA, CFSA

Opinions expressed are my own, and do not necessarily reflect those of my employer.