I have a couple of questions I am hoping someone can help me with. For the requirements in TILA (taking effect 1/10/14) regarding the prompt crediting of payments (12 CFR 1026.36(c)(1)(i)), in addition to the new requirements dealing with partial payments, the CFPB has now defined what constitutes a “periodic payment”. That is: “an amount sufficient to cover principal, interest, and escrow (if applicable) for a given billing cycle”. The CFPB has also stated that a “payment qualifies as a periodic payment even if it does not include amounts required to cover late fees, other fees, or non-escrow payments a servicer has advanced on a consumer's behalf”. The CFPB has also modified the official commentary to this section of TILA by noting that “the method by which periodic payments shall be credited is based on the legal obligation between the creditor and consumer, subject to applicable law.”

While the commentary language would seem to be saying that the loan documents control how payments are applied when received (subject to state law), the requirement to credit principal, interest and escrow seems like it could override the loan documents at times.

So, first question. Does the new definition of a ‘periodic payment’ mean that no matter what, when I receive a payment from a consumer I need to apply the payment to principal, interest and escrow (not necessarily in that order) before anything else (like late fees)? Even if (for the sake of argument) my loan contract were to dictate that I am supposed to apply payments in the order of interest, then principal, then late fees, and then escrows? This would have the effect of the CFPB requirements overriding the loan documents in that case, which I know is not the CFPB’s intent but may be an unhappy side-effect.

Next question. If the consumer makes no payments at all for several months, then makes a lump-sum payment to try to bring the loan current, but the lump-sum payment does not fully cover all of the outstanding principal, interest, escrow and late fees owed, how do the payments need to be applied? Would I have to apply the payment to all of the principal, interest, and escrow owed until they are fully paid before I could apply any of it to the late fees? (So, basically the late fees in this example would always be the last thing to get paid, no matter what order the loan documents dictate they be paid.)

Any thoughts from our illustrious gurus are appreciated.

Start reading on the bottom of Page 191:

http://files.consumerfinance.gov/f/201301_cfpb_final-rule_servicing-tila.pdf

I may be slow because it is Monday, but while I see the CFPB going out of its way to note that contractual requirements aren't changed, and to say that a late fee is still permissable, it doesn't seem to modify the fact that I must now apply payments equalling principal, interest and escrow immediately when received, regardless of amounts owed for late fees, etc. While the requirement to promptly apply payments is not new, the limitation to P,I and E is.

This is obviously not an issue in most instances, I'm just concerned when the borrower is past-due for several months, then makes a lump sum payment that is less than the amount owed. Seems to me like I need to apply that payment to as many P,I and E payments first before I can apply it to late fees, etc.

No, it does not modify how you apply a payment. That remains subject to your contract. What it is saying, that you can't suspend the application of the payment if it equals P+I+E.

Personally, I have never seen late fees ahead of P+I+E. If you have that in place, I surely hope you are not pyramiding late charges.

Thanks, rlcarey. I don't have late fees ahead of P, I & E, but I have seen it done that way before, hence my question.

So... (still thinking about this one), what's the point of identifying a "periodic payment" in Reg. Z as being an amount sufficient to cover P, I and E? If I don't have to promptly apply amounts received to those items first, why specify them sepertaely in the reg?

You need to read the preamble to the regulation on that section to get a feel as to their rationale.