Our Overdraft Line of Credit product calls for minimum advances of $50.00, and an Advance Fee of $5 for each advance taken. Are such line of credit "advance fees" included in the MAPR calculation?

Thank you.

On page 43584 of the Federal Register, the 4th full paragraph 1st column:

To illustrate, assume a $4 transaction fee and a $100 draw made at the beginning of the month on an overdraft line of credit. This would translate to a minimum 48 percent MAPR-before interest is included. The MAPR could be much higher, depending on when the line was used and when the balance paid.

This section might be a good place to start. It sounds like your Advanced Fee is a transaction fee.

I'm going to piggy-back on this question using two resources.

Here's a Q&A from the ABA's Staff Analysis from July 2015 followed by an excerpt from the Federal Register. Based on these, it sounds like we could exclude an annual fee from the MAPR if the line of credit had a zero balance but not if the line had a balance outstanding at the time the annual fee was assessed. Furthermore, if we waited until the line had a high outstanding balance before assessing the fee, we might get a MAPR under 36% (which, I'm sure, would be a UDAAP violation). I don't see how this makes sense. Am I misunderstanding the rule?

Q: How does a bank calculate the MAPR of an open-end account if an annual or participation fee is imposed during a billing cycle, but there is no balance for that billing cycle?
A: If an MAPR cannot be calculated because there is no balance, the creditor may not impose any fee or charge during that billing period except for a participation fee or annual fee that is $100 or less. The $100 limit does not apply if the participation fee is “bona fide” as provided in §232(d).6 In other words, if it is a “bona fide” annual fee, it may be excluded from the MAPR calculation.


This is from the Federal Register:

For example, suppose a creditor offers a line of credit to a covered borrower primarily for personal, family, or household purposes (commonly referred to as a “personal line of credit”), and permits the borrower to repay on a monthly basis. Upon establishing the personal line of credit, the covered borrower borrows $500. The creditor charges a periodic rate of 0.006875 (which corresponds to an annual rate of 8.25 percent), plus a fee of $25, charged when the account is established and annually thereafter. Under these circumstances, pursuant to § 1026.14(c)(2) of Regulation Z the creditor would calculate the MAPR as follows: “dividing the total amount of the finance charge for the billing cycle”—which is $3.44 (corresponding to (0.006875) × ($500)), plus $25—“by the amount of the balance to which it is applicable”—$500—and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year”—12 (since the creditor allows the borrower to repay monthly), which is 68.26 percent. In this example, even though the periodic rate (0.006875) would comply with the interest-rate limit under § 232.4(b), the resultant MAPR would be in excess of that limit because the amount borrowed is low at the time the annual fee is imposed. If the covered borrower instead borrows a higher amount, then the creditor still could impose the $25 annual fee and comply with § 232.4(b); for example, if the amount initially borrowed is $1,400, then the resultant MAPR would be 24.73, well below the 36 percent limit.

When calculating the MAPR during the statement cycle, do you use the principal balance outstanding on the statement cycle date or an average balance? Which balance should we be looking at? If the borrower starts out the month with a principal balance of $500, incurs $50 worth of advance fees, but pays the principal off at the end of the month so that the balance on the cycle date is $0, does that mean we waive the $50 worth of advance fees (but can charge the accrued interest on the $500 as long as it does not exceed 36%)? It would not seem that we have to waive the interest as well if a $0 balance, right?

Bump

Hi Tarhe - Refer to §1026.14(d), I think it answers your question:

d. Calculations where daily periodic rate applied.
If the provisions of paragraph (c)(1)(ii) or (c)(2) of this section apply and all or a portion of the finance charge is determined by the application of one or more daily periodic rates, the annual percentage rate may be determined either:

1. By dividing the total finance charge by the average of the daily balances and multiplying the quotient by the number of billing cycles in a year; or

2. By dividing the total finance charge by the sum of the daily balances and multiplying the quotient by 365.

I have a question with regard to the references Karen B. made above.

We offer a consumer overdraft line of credit product with a $15.00 annual fee. Based on the example given in the Federal Register that Karen referenced, I was thinking that there would be times when we would not be able to charge all or part of our annual fee depending on whether the MAPR limit is exceeded during that billing cycle.

However, now I am seeing several references (including one from our documentation software vendor, as well as, the ABA reference Karen provided) that seem to carve out an exception for my annual fee based on §232.4(c)(2)(ii)(B).

The two references seem contradictory to me. Can anyone provide clarification as to how I can treat my annual fee?

maybe it is just early but I can't figure out if we include just the monthly cost of the ancillary products in the MAPR calculation or if we include the entire cost assuming the borrower maintains the ancillary product throughout the entire loan term.

example: credit life is $25 a month so just include $25 in the MAPR calcuation or $25 x 24 month term loan so we include $600 in the MAPR calculation.

eek.

It all depends on whether or not the line of credit has a zero balance.

- If it is at $0, then the exception for an annual fee of $100 or less at 232.4(c)(2)(ii)(B) would apply, since there would be no balance upon which to do the MAPR calculation.

- However, if there is any balance, then the MAPR calculation can be made and the exception cannot apply.

In effect, this will disallow virtually any annual fee on an MLA covered overdraft LOC with a balance, because the MAPR will be blown out of the water. But if the LOC isn't being used and is at $0 -- good to go for an annual fee!

Isn't that dumb?!

That's our gov'ment at work.

That's my interpretation as well. Thanks for your input and glad to know I'm not going crazy!