Under the Servicemembers Civil Relief Act (SCRA), lenders must provide certain lending-related accommodations for members of the armed forces. The law’s primary provisions are:
Failing to include a loan’s service charges, renewal charges and fees when calculating the maximum rate of 6 percent is a common SCRA error. In addition, banks need to remember to forgive rather than defer interest above the 6 percent threshold. Although many banks reduce the interest rate, they often fail to reduce the corresponding periodic payment amount by the amount of the forgiven interest.
An institution can protect itself from violating the SCRA’s foreclosure limitations by conﬁrming prior to initiating foreclosure proceedings that the borrower is not on active military duty. The Department of Defense’s Manpower Data Center provides a website that ﬁnancial institutions can use for conﬁrming a borrower’s current military status. Access the data center here.
The bottom line for lenders: Appropriate controls and procedures are critical for ensuring compliance with SCRA’s requirements given the rule’s complexities.
We encourage you to review the following additional SCRA-related guidance: