ABA Banking Journal - September/October 2016 - (Page 54)

> ABA COMPLIANCE CENTER INBOX Must an Auto Loan Borrower Keep His Car Insured While on Active Military Duty? Q: 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 54 ABA BANKING JOURNAL | SEPTEMBER/OCTOBER 2016

Table of Contents for the Digital Edition of ABA Banking Journal - September/October 2016

PRESIDENT'S VIEW
UPFRONT
LEGAL BRIEFS
PICTURE THIS
COVER STORY
CECL FROM THE INSIDE: A CONVERSATION WITH FASB’S RUSSELL GOLDEN
WHERE ‘HABITS OF ECONOMY’ WERE SHAPED
HAT TIPS
CARD-LINKED REWARDS GIVE BANKS A COMPETITIVE EDGE
MARKETING
CYBERSECURITY
BANK-INSURANCE SALES
ABA COMPLIANCE CENTER INBOX
FROM THE STATES
CORPORATE SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS

ABA Banking Journal - September/October 2016

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