Determining Reduced Payment Amount under SCRA

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Question:

SCRA Section 207a(3) indicates that the amount of a periodic payment shall be reduced by the amount of the interest forgiven in excess of 6%. Is this contemplated in the actual rate reduction to 6%, or should this be a separate calculation reducing the minimum payment due by the forgiven interest amount in that pay period?

Answer:

The law actually says that you will forgive the amount of interest in each payment in excess of 6%. The bottom line is that you reduce the interest rate to 6%. The corresponding payment drops based on this. The actual amortizations could be different between reducing the rate in general (in which case you would be in the majority) and forgiving the interest in each payment. I personally don't think the law was written in a practical manner. Nor have I heard it as being interpreted that way.

The SSCRA was clear on the intent, interest forgivness, but it didn't specifically say so and some lenders failed to change the payment. This defeated the purpose of the law. The SCRA is more clear, but still confusing

You also need to review what the SCRA includes as interest. Late fees would be. So if you go to 6%, cancel out late fees that may accrue, as this would be usurious if any accrue.

First published on BankersOnline.com 2/13/06