ABA Banking Journal - September/October 2016 - (Page 54)
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Must an Auto Loan
Borrower Keep His
Car Insured While on
Active Military Duty?
We have a customer who is going on
temporary active duty for four to six
months for training, so the provisions of the
Servicemembers Civil Relief Act apply since it
is over 30 days. This customer has an auto loan with us. Our
loan agreements require that a borrower maintain adequate
insurance on the vehicle. Are there any stipulations that
say the customer must maintain insurance coverage on the
vehicle while on active duty?
A: The short answer is that there is nothing in the SCRA that specifically
addresses your question. However, since your loan agreement already specifies
that the borrower must maintain adequate insurance, the service member must
keep that insurance in place. Sometimes, when a service member is deployed
and no one will be driving the car while he or she is away and the car is in
storage, insurance can be suspended. However, since your loan agreement
requires the insurance, the service member is bound by the contract.
The next question is what happens if the insurance lapses. Hopefully, the
service member will have made arrangements to keep the insurance payments
current while he or she is away. However, for any number of reasons, the
insurance might lapse and most car loan agreements include a clause to
address situations when a borrower fails to maintain adequate insurance. First,
the bank may have the option to force-place insurance. In that case, you
would follow the standard procedures you use for force-placing insurance.
One word of caution, though: if you force-place insurance, make sure you
don't exceed the SCRA's 6 percent interest rate cap in the process.
Another common outcome when a borrower fails to maintain adequate insurance
on a car loan is that this causes the loan to be in default. Here, protections
do apply under the SCRA. If the loan is in default because the borrower failed
ABA BANKING JOURNAL | SEPTEMBER/OCTOBER 2016
Table of Contents for the Digital Edition of ABA Banking Journal - September/October 2016
CECL FROM THE INSIDE: A CONVERSATION WITH FASB’S RUSSELL GOLDEN
WHERE ‘HABITS OF ECONOMY’ WERE SHAPED
CARD-LINKED REWARDS GIVE BANKS A COMPETITIVE EDGE
ABA COMPLIANCE CENTER INBOX
FROM THE STATES
CORPORATE SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS
ABA Banking Journal - September/October 2016
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