Topic: Servicemembers Civil Relief Act (SCRA)
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Are there any laws or regulations that would prevent us from raising the default rate on our commercial loans from 18% to 22%? Also, is there a maximum default rate we can charge on consumer loans? We are not aware of any prohibitions other than the Military Lending Act’s annual percentage rate (APR) cap of 36% for active-duty service members and their dependents.
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No, we do not believe there is any law or regulation that would prevent you from charging a 22% default rate on a commercial loan, provided your customer agreed to the rate in your loan agreement. Additionally, Illinois does not impose a maximum default rate charged on consumer loans, but courts have held that default…
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Does Illinois have a maximum default interest rate that we can charge on our loans? We have an out-of-state division that is subject to a maximum default interest rate.
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No, we do not believe that Illinois law imposes a maximum default interest rate that can be charged on loans. However, if your loan agreements have set a maximum default interest rate, your bank should not charge more than the contracted-for default interest rate. There are very few limitations on interest rates charged by banks…
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We have a safe deposit box that has been unpaid for the last five years, and we are preparing to drill the box and remit the contents to the Illinois Treasurer as unclaimed property. However, we learned that the sole owner of the safe deposit box is on active duty military service. Would this customer fall under the protection of the Servicemembers Civil Relief Act (SCRA)?
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We do not believe that the SCRA would prevent your bank from fulfilling its obligation to remit abandoned property in a safe deposit box to the Illinois Treasurer in accordance with the Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA). While the SCRA would prevent the foreclosure or enforcement of a lien on items contained…
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Is there a maximum late fee or default rate that we can charge non-consumer loan customers? Also, are we required to send non-consumer loan customers notice when there is a change in the interest rate due to a default?
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There are very few limitations on loan late fees and default interest rates under Illinois law, whether for consumer or commercial loans, provided that your customers have agreed to such fees and rates in your loan agreements. However, default rates may be subject to court scrutiny if they are not considered “reasonable.” Further, we are…
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Does the 36% maximum APR for consumer loans only apply if the borrower is a servicemember?
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Yes, to be eligible for the Military Lending Act’s (MLA) 36% rate cap on consumer credit, a borrower must be an active servicemember or the dependent of an active servicemember at the time that the borrower enters into the credit transaction. The MLA regulations set forth a Military Annual Percentage Rate (MAPR), which caps the…
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Where can I find the rules on when to send Servicemembers Civil Relief Act (SCRA) notices to consumers who are delinquent on their mortgages? Do we need to send an SCRA notice if our system indicates that the customer is not in the military? Do SCRA notices only need to be sent for consumer purpose loans or should they also be sent for business purpose loans? Also, where can we find the most up to date SCRA notice?
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The rules governing the SCRA notice requirements are found in the Homeownership Counseling Act provisions of the Housing and Urban Development Act of 1968, and we link to the relevant provisions in the resources below. We believe that your bank must send this notice to all eligible borrowers who become delinquent, even if your system…
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Is it permissible to charge off an unsecured loan for a delinquent borrower who is protected by the Servicemembers Civil Relief Act (SCRA)? We also have a delinquent auto loan with the same borrower. What are our collection options?
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Yes, we believe it is permissible to charge off an unsecured debt for a delinquent borrower who is entitled to the protections of the SCRA. Charging off a debt is an internal accounting procedure, and we are not aware of any provisions of the SCRA that would prohibit this. Nor does the SCRA prohibit a…
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May we charge a fee or higher interest rate on a matured loan that is in between its maturity date and renewal date? We have many customers with matured loans who take quite some time to complete the steps needed to renew their loans.
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Yes, we believe you may charge a fee for renewing a matured loan if the customer agrees to it as part of a renewal or modification agreement. Likewise, we believe you may impose an increased interest rate (or default rate) on a matured loan if it is agreed to by your customers in your loan…
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I have a question about increasing the post maturity rate on a home equity line of credit (HELOC). I have seen the term “default rate” referenced in relation to increasing a HELOC’s rate when the loan is “terminated” or “accelerated.” When a HELOC is terminated or accelerated, does that mean it has matured? We would like to impose a post-maturity interest rate increase, but we will not impose a default rate during the loan term. Is that permissible?
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Yes, we believe that your bank may impose an increased post-maturity rate for HELOCs that have matured, provided that your customers have agreed to the increase in their loan agreements. The terms “default rate,” “terminated,” “accelerated,” and the imposition of interest rate increases all should be defined by your bank’s HELOC loan agreement. Typically, the…
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Have the SCRA’s foreclosure protections been permanently extended from ninety days to one year? Can you clarify whether the stay of proceedings and adjustment of obligation were permanently extended as well? Our policy provides that the extension to one year is set to expire on December 31, 2019.
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Yes, the recent Economic Growth Act permanently extended the Servicemember Civil Relief Act (SCRA)’s foreclosure protections to one year following the servicemember’s military service. This extension applies to the “sale, foreclosure, or seizure of property for a breach” of a servicemember’s mortgage loan obligation, as well as a court’s authority to stay such proceedings or…