ABA Banking Journal - May 2013 - (Page 51A)

ABA COMPLIANCE CENTER | inbox Does SCRA guard servicemembers’ safe-deposit contents? Q. Does the Servicemembers Civil Relief Act (SCRA) extend protections to active-duty servicemembers with past-due safe deposit box leases? A. Although safe deposit boxes are not specifically mentioned, we believe the protections applicable to storage liens would apply to safe deposit boxes. Section 537 of SCRA states that a servicemember with property or effects subject to a lien, including liens for storage, repair, or cleaning of property, is protected from foreclosure or enforcement of the lien during the period of military service, plus three months. The exception is that a court may find that the servicemember’s ability to meet the obligation is not materially affected by military service. A court can also stay the proceedings in these types of enforcement actions or order some other disposition of the case that it deems equitable to the parties. Anyone who knowingly takes any action contrary to the provisions is punishable by imprisonment up to one year, a fine as provided by Title 18 of the U.S. Code, or both. There does not appear to be any obligation under this section for the bank to determine the military status of a customer. However, a bank should not ignore facts that may indicate that the customer is in the service. For example, if the servicemember has requested a rate reduction to 6% on pre-service debt, that fact should be reflected in the bank’s safe deposit records. As with most of SCRA, this appears to apply to pre-service contracts. Nevertheless, selling any customer’s property for non-payment of rent is a harsh and drastic measure. Most banks would not consider the amount of rent collected on one safe deposit box worth the potential damage to its reputation. Consider having to explain to the servicemember or the press that a servicemember’s property was sold while they were away from home, defending our country. (Response provided February 2013.) Autopay discounts: Can you get back if customer steps back? Q. It’s been our practice to offer a discount prior to loan closing if the applicant opts for automatic payment. Our loan department is interested in offering the discount to applicants after loan closing. Can we discount the rate by 0.25% for autopay on a fixed-rate closed-end loan after the loan has closed and still reserve the right to raise the rate should the consumer decide to discontinue the autopay feature? A. Probably not. Although Regulation Z allows you to modify a fixedrate loan after consummation to lower the rate, adding the ability to raise the rate again effectively adds a variable-rate feature to a fixed-rate loan. Your truth in lending disclosure has to reflect the legal obligation, so you cannot add a variablerate feature to a closed-end loan without refinancing it. See the commentary to Section 1026.19(b)(5), which states in its examples that a variable-rate transaction includes a preferred-rate loan where the terms of the legal obligation provide that the initial underlying rate is fixed—but will increase upon the occurrence of some event, such as an employee leaving the employ of the creditor, and the note reflects the preferred rate. For an adjustable-rate loan, the bank could offer a discount after the loan was closed as long as the parameters of the discount and the ability to do so are spelled out in your contract. This would be more of a state law issue. In addition, if you were to modify the loan after the loan was booked, then according to the Commentary to 20(a)-3.ii, “Even if it is not accomplished by the cancellation of the old obligation and substitution of a new one, a new transaction subject to new disclosures results if the creditor either. “A. Increases the rate based on a variable-rate feature that was not previously disclosed; or “B. Adds a variable-rate feature to the obligation. A creditor does not add a variable-rate feature by changing the index of a variablerate transaction to a comparable index, whether the change replaces the existing index or substitutes an index for one that no longer exists.” The Commentary to 20(a)-3.iii adds “If either of the events in paragraph 20(a)-3.ii.A or ii.B occurs in a transaction secured by a principal dwelling with a term longer than one year, the disclosures required under Section 1026.19(b) also must be given at that time.” (Response provided February 2013.) When commercial loans creep into consumer compliance-land Q. Our bank has a commercial loan that is past due. The guarantor has been given an opportunity to pay and has not. We plan to report the guarantor’s delinquency to our Leslie Callaway, CRCM, ABA Compliance Project Manager, and Mark Kruhm, CRCM, ABA Senior Compliance Analyst, and other ABA experts, answer ABA member questions here and in the online edition of Inbox at ababj.com. Member banks may submit questions to: compliance@aba. com. Disclaimer: Our answers do not provide, nor are they intended to substitute for, professional legal advice. Answers were current as of date shown at the end of each item. May 2013 | ABA BANKING JOURNAL | 51A http://www.ababj.com

Table of Contents for the Digital Edition of ABA Banking Journal - May 2013

ABA Banking Journal - May 2013
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
Picture This
ABA Community Banking
Pass the Aspirin
Tech Topics
Looking for leaders
Top-performing mid-size banks
New world of appraisals
Compliance Clinic
Compliance Inbox
ABA At Your Service
First Person

ABA Banking Journal - May 2013

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