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#1170499 - 04/27/09 03:25 PM Delay in Loan Funding on Vehicle Loan
Will B Offline
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Are there any regulatory compliance issues to address on vehicle loans if we only fund the amount needed to pay the sales tax and title application and hold the rest of the funds for the vehicle purchase until we have proof that the title application has beed submitted and paid?

If we do this, we'll be accruing interest on the full loan amount during that waiting period even though we've only funded the amount needed to pay the sales tax.
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Lending Compliance
#1170946 - 04/27/09 09:33 PM Re: Delay in Loan Funding on Vehicle Loan Will B
Mint Julep Offline
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Does the language in your note allow for multiple advances?

Why are you doing this? And how are car dealers reacting?
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#1170955 - 04/27/09 09:43 PM Re: Delay in Loan Funding on Vehicle Loan Mint Julep
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Why would you be accruing interest on the full loan amount if you are only advancing TT&L items. It seems to me that you should also be calculating interest based on multiple advances also.
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#1171000 - 04/27/09 10:20 PM Re: Delay in Loan Funding on Vehicle Loan HRH Okie Banker
Will B Offline
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These aren't designed to be multiple advance loans. This is just something we want to do in situations outside our regular dealer lending program in cases where we sometimes have difficulty getting the title in our name because we're not in direct contact with the dealer. I think system limitations won't let us accure interest on just a portion of the loan without making manual interest adjustments once we know the actual funding date of the rest of the loan. If we do that, our TIL Disclosures will be overstated.

While I agree that this isn't the best approach, even for infrequent exceptions, does anyone think I have any compliance problems with this?
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#1171008 - 04/27/09 10:46 PM Re: Delay in Loan Funding on Vehicle Loan Will B
Richard Insley Offline
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Originally Posted By: Will B
does anyone think I have any compliance problems with this?

Yes. Your TIL disclosures must reflect the legal agreement between the parties. If you have agreed to multiple fundings, then your APR calculation must reflect the multiple advances. Of greater concern, you may be violating your state's usury (or similar "fair credit practices") law by charging interest on money that has not been disbursed to the borrower or to a third party on the borrower's behalf. Assuming it's illegal to charge interest on the full commitment amount, then you must adjust your interest, monthly payment, and FC calculations to reflect the delayed funding.
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#1171149 - 04/28/09 02:03 PM Re: Delay in Loan Funding on Vehicle Loan Richard Insley
ahanna Offline
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Will B -

When we have situations like this, we tell the borrower to write a check for the TT&L and then reimburse them when we get the title application receipt and fund the loan (if it is a private seller).

If the vehicle is being purchased from a dealer, we require submission of the application receipt prior to funding any of the loan proceeds. We have never had a dealer ask for the TT&L funds up-front, we simly call or send a fax to confirm the note has been signed and $XX will be submitted to the dealer upon our receipt of (a satisfactory) title application receipt.
Last edited by ahanna; 04/28/09 02:07 PM.
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#1171456 - 04/28/09 05:47 PM Re: Delay in Loan Funding on Vehicle Loan Richard Insley
Will B Offline
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Originally Posted By: Richard Insley
Yes. Your TIL disclosures must reflect the legal agreement between the parties. If you have agreed to multiple fundings, then your APR calculation must reflect the multiple advances. Of greater concern, you may be violating your state's usury (or similar "fair credit practices") law by charging interest on money that has not been disbursed to the borrower or to a third party on the borrower's behalf. Assuming it's illegal to charge interest on the full commitment amount, then you must adjust your interest, monthly payment, and FC calculations to reflect the delayed funding.


The legal agreement is our standard contract for secured consumer loans. So the TIL will reflect the contract because neither addresses multiple fundings. If the concern is that our actual practice doesn't match the legal contract I'll raise the issue with legal counsel. Do I have any potential compliance violations? Or is this more of an issue that someone may claim as an unfair or deceptive practice?

Also, we're checking for specific state laws that may prohibit charging interest on funds before they're disbursed.
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#1171478 - 04/28/09 05:58 PM Re: Delay in Loan Funding on Vehicle Loan Will B
Dan Persfull Offline
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I think you miss the point Richard was making. If you are disclosing based on your standard contract then you are disclosing based on a single disbursement therefore you are in violation of the legal contract in making multiple disbursements and your TIL disclosure will be inaccurate.

FWIW I think you have a class action law suit in waiting as soon as your borrowers find out about your practice.

If you insist on doing this then you will have to contract for and disclose multiple disbursements.
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#1171521 - 04/28/09 06:23 PM Re: Delay in Loan Funding on Vehicle Loan Dan Persfull
Mint Julep Offline
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Will,

Has your bank had a substantial loss based on dealers failing to make you the lienholder on a title?

Doesn't your security agreement state that the borrower must deliver the title with the lien to you? If he doesn't, isn't he in default?

Enforce the existing language, don't dig a new hole!
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#1172077 - 04/29/09 02:34 PM Re: Delay in Loan Funding on Vehicle Loan Will B
ahanna Offline
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Texas
Originally Posted By: Will B
This is just something we want to do in situations outside our regular dealer lending program in cases where we sometimes have difficulty getting the title in our name because we're not in direct contact with the dealer.


I agree. If your TIL disclosure does not include a multiple advance feature and terms, you cannot make multiple advances without being in violation of Reg Z.

Get in contact with the dealer, they should not be asking you for TT&L funds prior to submitting the application receipt. They should incur that cost until the receipt is submitted and the loan is funded.
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#1172908 - 04/29/09 10:59 PM Re: Delay in Loan Funding on Vehicle Loan ahanna
Will B Offline
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Thanks everyone. Sounds like I need to raise these concerns. The general idea made me a little uncomfortable, but I couldn't really pinpoint a regulatory concern.
While the main issue is probably the violation of our own contract, I want to make sure I understand the compliance impact from Richard & Dan's comment. If our contract only allows a single advance of funds I understand that we'll be in violation of our contract if we disburse over two advances. But if our TIL is based on a single advance it would reflect the legal obligation. So why would we have a disclosure violation?
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#1173014 - 04/30/09 12:28 PM Re: Delay in Loan Funding on Vehicle Loan Will B
Richard Insley Offline
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Your two issues of concern are:
1. are you violating your contract, or
2. does your contract violate state law.

If your business practice is legal (state law doesn't prohibit the delayed funding or interest on the full commitment), then it must be spelled out in the contract to be enforceable. Failure to do so may expose you to lawsuits for breach of contract. Until you revise your contract documents, the TIL disclosures should reflect the terms of the current contract. Going forward, they should reflect the delayed funding and reduced interest.

If your business practice is not legal, then you have a breach of contract, violation of state law, and TIL violation. (Reg. Z requires you to disclose the legal obligation between the parties, not the contract - which, in this scenario, is not legal.) In order to cure the contract problems, you would most likely need to recalculate the payment schedule & remove the illegal interest. Curing the contract problems will probably cure the worst of the TIL violations (understated APR & FC.) Since the business practice would have to revert to a single advance, then you would need no changes to your TIL disclosure calculations going forward.
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