Compliance to service members civil relief act (SCRA)

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Compliance to service members civil relief act (SCRA)

The Service Members Civil Relief Act (SCRA), formerly called the Solders' and Sailors' Civil Relief Act is a United States federal law to protect the rights of service members while they are serving in the war. Some of the provisions relevant to CL Loan include:

  • Six percent cap on interest rates -Borrowers can ask lenders to reduce or cap interest rates on loans, federally guaranteed student loans, credit cards, or mortgages, they or their spouses may have obtained before they entered active duty to 6 percent per year for the period they remain on active duty. The borrower must establish that active duty assignment materially affects their ability to pay the loan (for instance, if going on active duty requires a substantial pay cut). These reduced rates do not apply to loans you obtained or new credit charges you made while on active duty.
  • Credit Rating Protection - Lenders cannot deny or revoke credit, change the terms of an existing loan, or refuse to grant credit because the  borrower sought SCRA protections.

CL Loan enables lenders to comply with SCRA guidelines using the process enforcement feature. You can create and apply process enforcements at the contact or account level, to apply the provisions of the process enforcement to all the contracts owned by the contact or account. At the time of revocation or expiry of the block code, the loan is rescheduled to the original rate of interest and terms, if there has been no reschedule after SCRA is applied.

Supported SCRA PE actions in CL loan

The following actions are triggered when the Service Member Relief Act (SCRA) process enforcement is applied for a contact or account:

  • Interest Rate Change - Change Payment - When the PE is applied, the payment schedule of all the loan contracts of the contact or account as follows:
    • If current interest rate >6%, the schedules are regenerated as per a 6% rate of interest, keeping the current maturity date same, while changing the payment amount.
    • If current interest rate is <=6%, no change is made to the loan' rate of interest and schedule. 
  • Interest Rate Change - Change Tenure - This action is applicable only with Financial Calculator version 3.0 and above. For all the loan contracts of the contact or account, where current interest rate is more than 6%, the interest rate is changed to 6% and schedule is regenerated keeping the current payment amount (Principal + Interest ) same. Maturity date is not modified in this case, therefore, interest is recovered only up to the maturity date. 
  • Suspend Charges - This action suspends all the charges on the contact or account's loan contracts from the PE start date till the PE expiry date.
  • Suppress Credit Reporting - This action suspends the reporting to Credit Bureau for all the contracts of the contact or account.

Once the process enforcement expires or is revoked, the following actions are triggered:

  • Revert Interest Rate - Change Payment - This action is similar to the 'Interest Rate Change - Change Payment’ action. It reverts the interest rate to the value that was present before the PE was applied, However, if any reschedule action has been performed on the contract  after PE Application, no change of interest rate occurs.

  • Revert Interest Rate - Change Tenure - This action is applicable only with Financial Calculator version 3.0 and above. This action is similar to the 'Interest Rate Change - Change Tenure’ action. It reverts the interest rate to the value that was present before the PE was applied. However, if any reschedule action has been performed on the contracts after PE Application, no change of interest rate occurs.

  • Enable Charges - This action re-enables application of charges to loan contract from the PE expiry date onward.

  • Resume Credit Reporting - This action resumes the reporting of credit details to credit bureaus for all the contracts of the contact or account from the PE expiry date onward.

    Note:

    Even if credit bureau reporting was already suspended before PE application, the revoke and expiry actions revert the ‘Include in credit reporting’ check box selection to True. For such contracts, users needs to manually deselect the check box after the revocation or expiry of PE.

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