There is a brand new federal court case involving the application of the SSCRA which is being faxed to us this afternoon. It is being called precedent-setting, and it certainly sounds like it is from the details we have so far.

In the case, the reservist entered into a loan for two convenience stores. Shortly after (in May, 1996), he was called to active duty in Bosnia. The lender failed to cut interest rates on his loans and the reservist alleges his overpayments amounted to around $50,000. When he returned from active duty, he found that one store was closed and the second one was well on its way. He asked for his money back from the bank. The bank refused the request because the laon had been made to the corporation. However, the reservist had co-signed the loan, and as I've said in posts here and in my articles, that means the loan is covered by SSCRA.

The bank foreclosed on the stores.

We'll be posting an article this evening that gives full details, along with suggestions and insights.

We'll also be posting an SSCRA Actvity Checklist for you to use to ensure you are taking the proper steps.

And the latest question deals with how to record and report the losses you incur as a result of lowering the rate. We're gathering info from the regulators about this and will post it, too.

I would like to know if anyone has looked into re-amortizing a loan under the SSCRA? For example, say a soldier has an existing $25000 car loan with you for 5 years @ 9%. Her payments are appx. 500/month, and she has 3 years left on the loan when she applies for relief under the SSCRA. Do you:
1. recalculate the balance of the loan at 6% for the remaining three years, and then recalculate when she gets out? (this would result in a very small reduction in payment)
2. recalculate the balance of the loan at 6% for 5 years and then recalculate when she gets out?
2. Recalculate only the portion of the loan for the period stated in her orders (2 years, maybe) and then treat the loan like an ARM with the interest rate reverting to the contract rate afeter 24 months?

We are very confused on this. I know we only have to reduce the rate and not recalculate the loan, but we want any assistance we provide to make a difference.
Thanks
Leslie

There isn't a lot of guidance on this but I believe you're meeting the spirit and intent by simply reducing the rate to 6% and recalculating the payment remaining through the scheduled maturity.

There are so many things that could extend that persons active duty time, or decrease it. I wouldn't necessarily go by the discharge date you see on today's orders.

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

Our bank has adopted the method Andy Z describes. We notify the borrower that their rate has been adjusted to 6%, determine the new payment (based on the remaining schedule), and notify them that a new coupon book has been ordered. We also tell them that any payments received since the active order date will be recomputed and applied under the new schedule.

The OCC issued a Advisory Letter (AL-91-1) March 13, 1991 which states the following:

"Since then, we have been asked whether monthly paymetns must be reduced when the interest rate on credit extended to a person in miltary service is reduced to six percent. We believe the payment should be reduced to the amount needed to fully amortize the loan at six percent by its scheduled maturity date".

jon m

The OCC guidance, the conflict between Reg Z and SSCRA and other important issues are discussed in our SSCRA Q&A Part 2, which was posted very early this morning. You can access it here:

MORE BOL SSCRA Q&As

I have another SSCRA question.

Some of our consumer loan products have a repayment fee that is billed at the time the loan enters repayment (loan repayment is typically deferred for a period of time following disbursement of the loan).

If the borrower is scheduled to enter repayment during a time period they are protected by the SSCRA 6%, am I correct that we can not charge the repayment fee (which is based on a % of the balance) and the repayment fee can not be charged at a later date once SSCRA protection has ceased because the customer is no longer in active duty?

Tonya- Sounds like your repayment fee bites the dust if Sec. 526 is invoked before the fee is collected. Recoupment after the serviceperson is discharged MAY be possible, but you'd most likely have to prorate the amount in some fashion. Unless you have thousands of these cases, it's likely to be more trouble & cost to collect bits & pieces than simply eating the fees.

As an aside, what's the justification for this fee, or is it simply a junk fee? (Most lenders prefer that loans be repaid & don't discourage it by adding fees.)

Richard - Thanks for your input.

Regarding the repayment fee, you're right the goal is to get them to repay. However, since repayment of the loan is deferred for a period of time, the repayment fee was implemented to cover servicing costs during the deferred period of repayment.