Okay, we had a client on activty duty and we reverted his loan back to 6%. Well, he came in back in May of 2012 and told the loan officer he was no longer on active duty. The loan officer asked for a copy of his discharge papers and they were not received until 11/12. Don't ask me why staff are just now asking me about this.......I've asked the same question. The discharge papers show a release date of 12/2011.

In regards to changing the 6% rate back to the original rate, do we make it effective when he was discharged, when he told us about it, or when he gave us the papers?

Second, if this were secured by a dwelling, would this qualify to say you couldn't do anything until 1 year after the release of 12/2011?

Third, if his father were on the loan with him, would we have had to reduce the rate at all, since I don't believe the father would qualify for the protectios, correct?

Lastly, what if the home securing the loan was that of the fathers residence? Does that make any difference?

His eligibility for the rate reduction ended with the effective date of his discharge. You can technically retro the rate increase if you want.

It doesn't matter if there are other signers on the loan with the servicemember. They are eligible for the rate reduction and other protections regardless.

The loan is secured by a mortgage therefore it's eligible for the SCRA protections.

Thanks so much Dan.....I really appreciate your sharp and quick response!

So does SCRA apply to all loans for the 6% cap or only just home loans? I thought it applied to all loans? Does it apply to credit cards?

The 6% rate limitation and other SCRA protections apply to all pre-active duty loans the servicemember is obligated on.

On the credit cards, pre-active duty charges apply to the rate reduction. Charges after being on active duty are seen as new debt and the 6% protection would not apply.

Charges after being on active duty are seen as new debt and the 6% protection would not apply.

Just be sure your system has the capability to track the balances and properly split the rates.

We granted relief on a credit card and lowered the rate to 6%. Is the balance "protected" after the servicemember is no longer on active duty? In other words, if we increase the rate back to the note rate does the 6% continue to apply for the balance at the time relief was granted and the note rate apply for charges made after relief ended? Thanks.

Once the servicemember is discharged from active duty the rate can revert back to the original rate for the entire balance.

Thank you Dan!

On a credit card, pre active duty charges could go back many years. How far back do you have to go?

You would base it on the current balance at the time they request relief.

Do you have the time to walk through this with me?

If the servicemember goes on active duty today and his current balance is $10,000, he has paid late charges of $500 over the course of the relationship and his rate is 21%, we would take his $10,000 balance and apply the 6% rate or would we take the $10,000 + $500 and then apply the 6%?

The balance owed is what you review, any past due amount is moot. It is still owed, but the rate on charges pre-service drops to 6% and bear in mind the definition of "interest" as it will include most fees you may have added.

So we don't have to refund late charges paid. Just look to total balance outstanding. Thanks.

Depends on when those charges were accrued. If they fall under the definition of "interest" for a period of military service, you can't have earned them if you're also charging 6%.

Right. So how do you do the calculation? Using my example above and assuming the late charges were charged during the period of military service, would you take his outstanding balance and add the late charges and then take that sum and make sure the interest charged doesn't exceed 6%? I know I am simplifying this, but for a credit card this is quite complicated.

The late fees would not be added to the balance such that you charge interest on them. The balance is the principal owed on all the loans I've reviewed. Add-on interest isn't used.

If the person was in the military on Jan. 1 and you charge a late fee on Jan. 2 in addition to a 6% rate, that would be usurious.

If they had a $1,000 balance plus $10 in late fees when they went active, you could still be owed the late fees, but your daily interest accrual is (1000x6%)/365, assuming a 365 day year.

We just got our first request for rate relief on a credit card and aren't quite sure what to do with the research end of it. The customer entered the service in 2006. How far back do we go in researching this account? Or do we just take the current balance owed, adjust it to 6%, and go forward?

You would need to ensure that the consumer wasn't charged more than 6% on any debt that was incurred prior to them entering the service in 2006. Any new debt that they incurred on the card after entering active duty is not subject to the 6% rule- although many banks will just honor the 6% on all of the debt during the time of service.

So if he entered the service in February '06 and didn't get the card until May '06, the 6% does not apply at all, right?

ETA: We're getting all of this from the spouse, including "We've done this on all of our cards and none of the others have asked for anything like you have."

What we asked for was a copy of his orders and a written request (she originally just called our Loan Ops dept. and asked them to lower her card rate, the rest of this came up when somebody said, "Why?").

I would agree that the 6% doesn't apply to them since the debt was incurred after they entered active duty. I know some banks will allow the benefits if they receive requests- even if the regulation doesn't require it so that may be why the spouse is stating that other banks are lowering the rate. Also, the credit on those other bank accounts may have been incurred before they entered active duty.

More to the story: turns out this card is in the spouse's name only (still in her maiden name, in fact!). Management wants to make a gesture, though, so I think we are going to honor the request as of the noitification date and grant the reduced rate going forward. There shouldn't be any problems with that, should there?

If the credit card is in her name only she is not eligible for the rate reduction under the SCRA. If you do this for her then you will have to do it for all such future requests from other spouses of active servicemembers.

They are aware of that, Dan, but thank you for the reminder. I think they aren't really worried about having a sudden flood of requests.