Written By Eliott C. Ponte, Law Clerk
Obama Higlights the SCRA
Last month President Obama announced a partnership with lenders across the country that will help deliver important financial protections to our military community. The partnership voluntarily commits certain lending institutions to check the Defense Manpower Database Center on a regular basis to determine if any servicemember who has not invoked their Servicemenber Civil Relief Act (SCRA) rights is entitle to a lower interest rate because they have entered active military duty. Essentially, instead of waiting for a service member to identify themselves as entering active military duty (a reactive approach), some lenders will identify members using the DOD database who have not requested SCRA relief and automatically give them the relief they are entitled to receive under the SCRA (a proactive approach). Such a partnership will likely help any servicemember who is entitled to relief under the SCRA, but has not formally requested SCRA relief.
While the SCRA has protected servicemembers for many years, because of President Obama’s announcement, I thought I would blog about the some of the most frequently asked compliance questions regarding the SCRA, in case your credit union starts to receive questions about the SCRA. Two frequent questions NAFCU receives about the SCRA are (1) when does the SCRA require the credit union to lower the servicemeber’s interest rate, and (2) does the SCRA relief include fees that are associated with the loans (e.g., late fees).
When does the SCRA require the credit union to lower the servicemeber’s interest rate?
The language from the SCRA places a 6% interest rate cap on an obligation incurred “before the servicemember enters military service.” See 50 U.S.C. § 527(a). The key phrase from the SCRA is “enters military service.” This term does not distinguish between a new enlistee and an existing reserve member that is called into active military duty. Thus, a credit union is required to lower the servicemember’s interest rate when the service member is placed into active military service.
When dealing with this type of question, it is best to remember the logic behind the SCRA: If the servicemember was on active duty when the loan was made, the servicemember should have known his/her budget and planned accordingly. Thus, relief is not mandatory when a servicemember enters into a loan during his/her active duty. On the other hand, if the loan was made before entering into active duty, then the service member could not have properly budgeted to make his/her loan payments (you must presume a loss of income to the member when they enter active duty). Therefore, in the latter hypothetical, the SCRA grants him/her relief by lowering their interest rate to 6%.
Does the SCRA relief include fees that are associated with the loan?
The SCRA has defined the term “interest” broadly, which includes fees and service charges. According to 50 U.S.C. § 527(d), “the term "interest" includes service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability.” (emphasis added).
NCUA Hosting Merger Best Practices Webinar
The NCUA announced that it would be hosting a Merger Best Practices Webinar on Wednesday, September 17, 2014. The webinar will include discussions on (1) when to consider merging, (2) merger structure and negotiations, (3) cardinal characteristics of a credit union heading towards merger, and (4) how to maximize benefits for credit union members and staff.
Credit unions who are interested can register for the free webinar at the following NCUA website. Participants have been asked to submit questions in advance to [email protected]. The NCUA has requested that teh subject line of the email read, “Merger Best Practices.”
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