I know that for open-end loans, payments are to be credited on the day they are received to prevent a loan from being considered late by any means.

My question is this - Can we just apply the payment on the next day if no late charge will be assessed? Do we need to be concerned about that additional day of interest that has accrued on the loan by not applying the payment on the day received?

I guess to simplify my question, does the definition of "finance or other charge" in 226.10(a) include interest?

I'm getting confused because the OSC to 226.10(d) states that imposing a finance charge due to a periodic interest rate does not constitute treating a payment as late.

Maybe they are two seperate concepts and I shouldn't be putting them together.

I'm interested in the answer as well. I have been grappling with this too.

I heard from a fellow colleague who said that his FDIC examiner told him this only applied to payments made on the due date. For example, if the person made a payment up until 5:00 pm on the due date, the payment must be applied that day -no late charge.

On the other hand, I've had a consultant indicate that all payments must be applied when recieved to prevent another day's interest (finance charge).

If they make a payment prior to your specified cut-off time, they have to be credited on that date. It doesn't matter when in the due date cycle they make the payment.

Our normal business day cut-off time is 2:00 PM, but we extend that to 5:00 PM for payments made on open-end loans. So if we receive an open-end loan payment at 4:00 PM, we've been holding it out and processing it the next day - manually effective dating the payment to the prior day and reversing one day's accrued interest.

It sounds like we're doing what we have to do and nothing unnecessary.

The more I read 226.10 and the preamble, the more it appears to only apply the 5:00 PM cut-off to payments made on the due date.

If we disclose 2:00 PM cut-off times in our lobby and a customer makes a payment on his open-end loan on Monday at 3:30 PM, we could credit the loan on the next business day (Tuesday) UNLESS Monday was the payment due date. If that was the case we'd have to credit the loan that same day if made before 5:00 PM to prevent a late charge.

Any thoughts, agreement, disagreement??

While the preamble does focus on examples involving due dates, that is not how the regulation reads. There is no mention of the prompt crediting of payments only being effective on the due date. The preamble states the general requirement at the beginning of 226.10:

Section 226.10 Prompt Crediting of Payments

Section 226.10, which implements TILA Section 164, generally requires a creditor to credit to a consumer’s account a payment that conforms to the creditor’s instructions (also known as a conforming payment) as of the date of receipt, except when a delay in crediting the account will not result in a finance or other charge.

Here is what we are doing:

In person payments are credited on the date received during business hours (our cutoff is closing time M-Th 4pm, F 6pm).

Mail, night drop, and ATM payments are credited on the date received. If the line is past the due date and the late charge was assessed the day before, we waive the fee. Reasoning--we don't know what time the payment was put in the mailbox, night drop, ATM. We don't have penalty rates, so we didn't address that.

Internet payments to lines are credited on the transaction date scheduled if the transaction was initiated prior to 5pm on that date. This includes Saturdays and Sundays. Our end of day runs at 4pm M-Th so we have to manually reverse and reapply payments initiated and scheduled for those days between 4 & 5 pm.

I was just curious what everyone is doing if they have a customer makes a deposit on Saturday. The customer also makes a loan payment on Saturday but does not have enough funds in his account and was relying on the funds from the deposit to cover his loan payment but the deposit won't be available until Monday. So, now they are overdrawn and get charged an overdraft fee. Should we just refund the fee?

AuditorK, that's how I interpret this section, too. As long as the loan will not be assessed a finance or other charge, the payment would not have to be credited as of the date of receipt. On the due date, we have to credit the payment as of the date received if it's received before 5:00 p.m.

The reg says
(emphasis mine)

The Supplementary Information published with the final reg said (emphasis mine)

Regardless of the emphasis placed on the payment due date in the preamble (which is for discussion purposes), the regulation says nothing about only on the payment due date (see your quote of 226.10(a)). All payments have to be treated the same way regardless of when the payment happens within the payment cycle.

Randy, I respectfully disagree. The way I read what I quoted from the reg is that if a delay in crediting doesn't cause a late fee or finance charge to be assessed (which would only happen if the payment was made after the due date or the end of the grace period), the payment does not have to be credited as of the date of receipt. In my opinion, if my payment is due on 9/1 and I will be charged a late fee if I make my payment after that date, if I make my payment on Sat. 8/28 and you don't credit it until Mon. 8/30, that's ok because you're not going to assess any "finance or other charge." I just don't see where it says the payment has to be credited as of the date of receipt no matter what. I see a clear exception if no late charge will be assessed.

Deena:

But doesn't applying the payment a day or two later cause interest to be accrued on the higher (pre-payment) loan balance, therefore resulting in an additional finance charge to the customer than would have occurred if the payment was applied on the actual day received?

AuditorK is exactly correct. If this is a simple interest loan, the delay in crediting the payment does cause additional finance charges to be assessed.

It does, but the Fed's interpretation of 226.10(f) - and I realize that's not the specific section we're discussing - says "5. Finance charge due to periodic interest rate. When an account is not eligible for a grace period, imposing a finance charge due to a periodic interest rate does not constitute imposition of a finance charge for a late payment for purposes of § 226.10(f)." I would apply the same logic to 226.10(a). I could be wrong, but that's how I read it.

I read that section as well, but did not apply it to the section in question. I used the general definition of "finance charge" in Reg Z, which does include interest. I don't know which is the correct definition to apply, but I would think they would have referenced all sections for which that narrower definiton applies.

Deena - I think you are mixing apples and oranges.

I'd like to tag on this,k please. I was asked a question about payments made via our Internet Banking. If someone made a payment, say at 6:00 p.m., which is after our cut-off time - are we required to credit the payment as of that date? Our notes do have our payment cut-off times, but don't mention Internet payments.

Thanks!

I believe unless you explicitly disclose a reasonable cut-off time specifically for internet payments (i.e. - on your website so the customer can see it prior to submitting the payment), then the same-day payment crediting rules must apply. Payments made up until midnight must be credited that same day.

Thanks. What I thought, but confirmation is always helpful - and sometimes necessary.