Topic: Servicemembers Civil Relief Act (SCRA)
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We have a customer with loans in collection who is on active duty military service according to the Servicemembers Civil Relief Act (SCRA) website. The customer has an unsecured loan and an auto loan. At the time the loans were made the customer was a sergeant working on an air force base, but she was not on active duty. When the loans came due for collection, we ran an SCRA search and determined that the customer was on active duty status. Were we required by law to cease collection? Can I request the customer’s active duty orders to document her status for our files?
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No, the law does not require that a creditor cease collection efforts when a debtor is on active duty military service if the loan was made before the servicemember went on active duty. However, it may be a prudent business decision for a bank to cease collection efforts when a debtor is on active duty…
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What is the maximum interest rate allowed on a home equity line of credit (HELOC) in Illinois?
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There are very few limitations on interest rates charged by banks under Illinois law for HELOCs. The Illinois Banking Act permits banks to charge any “interest, fees, and other charges . . . subject only to the provisions of [subsection 4(1)] of the Interest Act” and any laws applicable to “credit secured by residential real…
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What are the Illinois usury rates that apply to banks for commercial loans, agricultural loans, and consumer loans (whether unsecured or secured by a home or vehicle)? We believe that the Illinois Interest Act sets a 9% maximum interest rate.
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There are very few limitations on interest rates charged by banks under Illinois law, whether for consumer or commercial loans, and whether secured or unsecured. Of course, any interest rates and fees must be agreed to by your customers in your loan agreements, and some other limitations will apply only in certain situations, such as…
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We would like to raise the post-maturity rate that we charge on consumer loans. This rate is charged after the consumer defaults on a loan. Is there a maximum post-maturity rate we can charge in Illinois?
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No, we are not aware of a maximum post-maturity rate set by Illinois law. There are very few limitations on interest rates and fees charged by banks under Illinois law, whether for consumer or commercial loans. Post-maturity rates (also known as default rates) must be agreed to by your customers in your loan agreements, and…
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We made a loan to an active duty military member to purchase a car. He entered active duty before we made the loan, and he left active duty about nine months ago. We used the Department of Defense’s database to confirm that he no longer has active duty status. Under the Servicemembers Civil Relief Act (SCRA), can we repossess his vehicle, or do we have to wait a year from the end of his active duty status?
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You do not need to wait a year after the borrower’s active duty military status ends to repossess his car. Although the SCRA extends certain protections to service members after the termination of their active duty status — such as protections against a mortgage foreclosure or a storage lien enforcement — this extension does not…
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We service student loans made by trusts for which our trust department serves as trustee. If the student borrowers meet certain conditions, such as finding employment in their field of study, then the loan is forgiven (it becomes a “scholarship”). If not, the student must pay back the loan to the trust. The loan terms are longer than a year, and they are unsecured. Is our bank considered a servicing agent for these loans? If so, what regulations apply? What disclosures are required?
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Do any of the trusts make more than twenty-five unsecured loans in a calendar year? If not, all of their student loans likely are exempt from Regulation Z. Regulation Z exempts creditors that make fewer than twenty-five unsecured loans annually, and its Official Interpretations treat these trusts as “separate entities” when counting their loans. But…
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Does the Servicemembers Civil Relief Act (SCRA) apply to a servicemember’s rental property, or does it apply only to a primary residence? We have a loan secured by residential property owned by a servicemember but rented out to a non-servicemember.
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Yes, the SCRA’s mortgage foreclosure protections apply to rental properties. The SCRA’s stay of foreclosure proceedings and other mortgagor protections apply to “an obligation on real or personal property owned by a servicemember” that is secured by a mortgage and was originated before the servicemember entered into military service. These protections are not limited to…
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Does the Department of Defense (DoD) Interpretive Rule #18 regarding Section 232.8(e) of the Military Lending Act (MLA) mean that we can still use a right of setoff on covered transactions?
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The DoD’s rule and interpretive guidance are subject to multiple interpretations on this point. In our view, the more reasonable interpretation is that the rule does not prohibit a bank’s right of setoff. Section 232.8(e) prohibits a creditor from using “a check or other method of access to a deposit, savings, or other financial account…
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Does the Department of Defense (DoD) Interpretive Rule #17 regarding Section 232.8(e) of the Military Lending Act (MLA) prohibit a lender from taking a security interest in funds deposited prior to the extension of credit in an account not established in connection with the credit transaction? What if the account was established in connection with the credit transaction?
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The DoD’s rule and interpretive guidance are subject to multiple interpretations on this point. In our view, the more reasonable interpretation is that the MLA permits a lender to take a security interest in an account that is established prior to an extension of credit and that is unrelated to the transaction. We understand that…
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What is the Military Annual Percentage Rate (MAPR) in Illinois? Is it greater than 36% for covered transactions?
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Illinois does not have a “military annual percentage rate” (MAPR), because that term is specific to “consumer credit” loans covered under the federal Military Lending Act (MLA). The MAPR is a broad term used in federal MLA regulations to refer to the total cost of “consumer credit.” The MAPR applies to all loans incurred by…