Notification of Rate Increase After Active Duty

Posted By: ItsJustMe

Notification of Rate Increase After Active Duty - 04/08/19 02:27 PM

I couldn't find this specific situation addressed in earlier posts.

SCRA does not talk about what notices need to sent to a servicemember who is no longer on active duty and as a result, his or her interest rate is going to be increased above the 6%.

Reg. Z's 1026.9 covers notice requirements for open end credit. But since closed end credit technically isn't supposed to be changed there isn't notification requirements for these loans. 1026.20 covers ARMs but that's it.

What do you use for notification for closed end credit and how far in advance of increasing the rate do you send the notice? Do you send a special notice for mortgages?
Posted By: ItsJustMe

Re: Notification of Rate Increase After Active Duty - 04/08/19 05:27 PM

Any takers?
Posted By: Andy_Z

Re: Notification of Rate Increase After Active Duty - 04/12/19 10:20 PM

No Reg Z disclosures are required and even the CARD Act confirms this. But it's always a good idea to communicate the payments, perhaps the rate, and when payments are due. It may also be worth verifying the date the protections ended, i.e. "here is when we show you were discharged and the protections ended based on the (consumer) / (mortgage) loan.

Because the bank was legally required to make these changes, you had no choice. But it doesn't say you don't have to anywhere, nor does it say you do.
Posted By: Stephen McCall

Re: Notification of Rate Increase After Active Duty - 11/18/19 10:28 PM

Piggybacking off the initial post + Andy's response.

What I'm gathering is there is no explicit requirements in terms of notice provided to the borrower. My question is related to timing, i.e. when should a borrower be notified their rate/payment is reverting back to the original amount upon expiration of SCRA benefits?

I'm having trouble finding any requirements related to when SCRA benefits expire, but it seems like common sense to notify the borrower in some capacity that their interest rate will be reverting back to the original amount from 6%. Should this be done 30 days prior to expiration of SCRA benefits? 45 days? Is the initial notification communicating the reduction in interest rate/payment sufficient if it includes the date in which the rate/payment will revert back to the original amount?
Posted By: Stephen McCall

Re: Notification of Rate Increase After Active Duty - 11/18/19 10:29 PM

Trouble finding any **notification** requirements related to when SCRA benefits expire, I meant.
Posted By: Andy_Z

Re: Notification of Rate Increase After Active Duty - 11/25/19 08:18 PM

It is not addressed in the regs.

Common sense tells the bank that if it wants a full payment in a timely manner it will notify the borrower what that amount is in advance of the due date. This does two things, it helps ensure your borrower is informed and can stay current, and if the bank adjusted the rate and payment too soon the borrower can inform you.

Is there any violation by not sending a notice no, but it's still an SCRA risk if the bank allowed late fees to pile up or took collection actions without ever reminding the borrower about the current situation.
Posted By: Stephen McCall

Re: Notification of Rate Increase After Active Duty - 11/27/19 07:20 PM

Awesome - that definitely makes sense. Thank you, Andy!