Hello All
I am wondering if I can get some insight on how banks are setting up the repayment plans for their customers that need one. I also would like to know how others are treating the 60 day intital overdrawn balance to chargeoff. My bank offers the repayment plan to their ODP customers once they need help clearing their negative balance on a six month interest free repayment plan. Any insight would greatly be appreciated.

We havehad a similar plan at my previous bank, however is was payable in no more than 4 installments as to avoid Reg Z requirements.

Some pointers I've picked up on this topic:

1. If the loans are not fully underwritten, the bank should charge off the overdraft balance at the normally-prescribed time (60 days) and post any repayments as credits to the charged-off amount.

2. If the repayment plan is reduced to writing, and calls for 6 payments, and the obligor is a consumer, the plan is subject to Regulation Z and requires disclosures, whether or not any finance charge is imposed.

So John
Your saying if we are a bank that does (2) which we are. We give Reg Z disclosures, does the (60) day charge off amount go away. Or am I missing something. I have read "the existence of the repayment plan would not extend the charge off determination period beyond 60 days as measured from the date of the overdraft." I believe our program is pulling from both (1) & (2) examples you have listed. Insight please

There are two ways to handle OD repayment programs. One way is to get an application from the depositor and underwrite the application just as you would any similar-sized credit. If the depositor qualifies for the loan to repay the overdraft, and you close the loan, use it to pay off the overdraft balance and then you have a loan asset on your books (at least until it goes delinquent, if it does).

The other way is to simply offer the repayment plan without underwriting (at least it stops the fee bleeding). If the overdraft goes to 60 days, you charge it off (you may have a shorter time frame in your loan policy), and the repayment plan isn't a loan asset: it's a series of payments that (hopefully) get applied to the charged-off balance, working it to zero.

Either way, if it's reduced to writing, it gets disclosures.

John
Thank you so much. I am trying to ensure we are handling these repayment plans correctly as in regards to a safety and soundness issue. Of course, we all know there is risk in offering such programs. Have a great week.

With a repayment plan, how do you provide the TIL disclosure? Do you book as a loan and provide a note & TIL or do you somehow incorporate a TIL into the repayment agreement?

I have the same question, any help would be appreciated.

How you do it is between you and your legal counsel, as with all contracts. Most are an integrated note and disclosure.

Whether and how you book the loan will depend on your systems and whether it will be an actual loan (fully underwritten) or payments being booked to your loan recovery account.

Is it acceptable to offer a Reg Z repayment plan without underwriting, fund the customer's overdrawn account by booking a loan on the system, allow the customer continued access to their account without overdraft protection, and only charge the overdrawn balance off if the repayment plan is not repaid?

Not if they have already been overdrawn for 60 days. Start reading at the bottom of page 7:

https://www.federalreserve.gov/boarddocs/press/bcreg/2005/20050218/attachment.pdf

Would the practice described in my prior post be acceptable if the repayment plan is offered and made before 60 days?

Not unless it was underwritten to current bank standards for unsecured credit - which is probably hopeless if they can't cover an overdraft. You cannot delay recognizing the loan loss by turning a current OD into a loan to a non-qualified borrower.