Rate Relief Retroactive

We have a reservist requesting rate relief. He was called to duty in January so we need to figure the interest refund retroactively. We are having a difference of opinion on how to accomplish that. Do we need to recalculate the principal AND interest payments back to January or is it as simple as calculating the difference between paid interest and the 6% allowed? I'm probably overthinking this but we really want to make sure this is done correctly.

Most likely your loan is simple interest, I haven't seen a Rule of 78s loan in years. The interest earned will be based on when the payment was paid so one month he may have paid 28 days of interest on balance X and the next month he may have paid 32 days of interest on balance Y. IMO you need to reconstruct the payments.

PS. Don't forget to include any late charges that may have been paid during that period. For SCRA purposes they would be considered a finance charge.

Thanks Dan!

XL would do this for you pretty easily. Also, don't just credit the loan and assume the SM is now prepaid. I'd offer a refund between what was owed and what was paid. (Assuming it was paid as agreed.) Also, as a reservist called up you should be looking at the date they got orders, not when they reported for active duty.

Thanks Andy. I'll double check the dates. Our core system allows us to effective date a rate change and we were able to reverse existing payments and reprocess them without any problems.

Also, don't just credit the loan and assume the SM is now prepaid. I'd offer a refund between what was owed and what was paid.

Under 527(a)(3) I don't think you have the option to apply any credits to the loan without the express written consent of the servicemember. Applying the credits to the loan would be accelerating the principal.

I agree, Dan. Banks tried that in the past and while I never saw an examiner write up, it was discussed as a poor practice outside of the intent of the law, just as some banks used to bring down the rate but leave the payment the same.

is there a de minimus threshold for refund?

None that I'm aware of in the SCRA.