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#200347 - 06/15/04 03:26 PM
Order of application of a payment
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Are there any regulations that cover how a loan payment on a consumer loan is applied? We generally apply first to principal then to interest and late charges. There is a move afoot to now begin taking late charges first. Is this legal and proper?
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#200348 - 06/15/04 03:35 PM
Re: Order of application of a payment
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You may not pyramid late charges (charge late charges on late charges) - so most banks post interest first, then principal, then late charges. That usually ensures that the payment due date is advanced, keeping your system from charging another late charge on the portion not paid.
Have you checked your system to see how it will handle situations where the borrower pays the whole payment amount, but not the amount of the late charges?
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#200349 - 06/15/04 03:48 PM
Re: Order of application of a payment
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Under our current system, if a payment is not sufficient to cover the late fee, the late fee is just accrued until a payment larger than a regular installment is paid. The idea behind the change is to increase fee income in the short-term. If a payment was not sufficient to cover the late charge addition, the change would result in partial payments still being due and late fees being assessed on those as well.
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#200352 - 06/15/04 04:02 PM
Re: Order of application of a payment
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I may have misspoke: A late fee is accessed only once and only against the regular installment payment-not against other unpaid installments that may be due.
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#200353 - 06/15/04 04:09 PM
Re: Order of application of a payment
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Check your note forms. It should be disclosed there how you apply funds. As noted above it may well say, interest, principal and fees, in that order. If so, that is your contractual agreement to date.
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#200357 - 06/16/04 02:02 PM
Re: Order of application of a payment
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Experience is a wonderful tool.
I recall hearing too about banks that changed interest accrual methods to increase earnings. It is easy on the systems, but hard when you realize they were stated in the contract, and you can't just do a unilateral change on that.
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AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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