Maximum Late Fee for Delinquent Loans - David Dickinson and Jay Bruce

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Maximum Late Fee for Delinquent Loans
by David Dickinson and Jay Bruce, BOL Gurus

Question: I am the internal auditor at our bank and am currently reviewing lending operations. I am seeking to determine if there are any regulations or statutes that limit or prescribe amounts that can be charged borrowers as late fees for delinquent loan payments.

Answer by David Dickinson:
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Typically, this is a state law issue. You may want to contact your State Department of Banking, your state banking association or post your question in the State Specific forums found at BOL.

Answer by Jay Bruce:
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One federal rule might come into play. In the context of a first lien, residential manufactured home loan, if the bank takes advantage of the federal preemption rule of 12 C.F.R. 590.4 and charges an interest rate higher than the state usury law permits, then the consumer protection rules of 12 C.F.R. 590.4 will be applicable. Those rules provide (among other things) that, to the extent that applicable state law does not provide for a lower charge or a longer grace period, the lender must provide at least a 15-day grace period and cap late fees at 5% of the unpaid amount of the installment. Although this regulation was adopted by the OTS, I believe that it applies to every creditor wanting to assert the federal preemption.

First published on BankersOnline.com 9/2/03

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