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#2195753 - 10/17/18 10:03 PM Employee Loan
Reg Warrior Offline
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Posts: 191
Senior management has made the decision to lower all employee auto loans to a specific rate (IRS AFR Floor Rate). Depending on what the original APR was, the new APR is .50% - 2.00% lower than the original APR. My compliance mind thinks that the employees affected should have signed a modification agreement to acknowledging the lower the rate and payment change Senior management said no.

Should the employees sign a modification and received notice of the new rate and payment?

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Lending Compliance
#2195758 - 10/17/18 10:18 PM Re: Employee Loan Reg Warrior
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 78,958
Galveston, TX
What happens if they leave?
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2195759 - 10/17/18 10:19 PM Re: Employee Loan Reg Warrior
Reg Warrior Offline
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Joined: Jan 2017
Posts: 191
Procedures indicated that the original APR will be reinstated. The email announcement for this reduction indicates that the rate will not return to the original APR if the employee leaves the company.
Last edited by Reg Warrior; 10/17/18 10:23 PM.
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#2195761 - 10/17/18 10:25 PM Re: Employee Loan Reg Warrior
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 78,958
Galveston, TX
I think the bank is free to lower the interest rate on an existing loan for any period of time without an actual modification then raise the rate back up to the contract rate if they leave, as long as you are not going to retro the higher rate. New loans will have to be treated as preferred rate loans and disclosed as such however.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2195763 - 10/17/18 10:27 PM Re: Employee Loan Reg Warrior
Reg Warrior Offline
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Thanks Randy!

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#2195767 - 10/17/18 10:34 PM Re: Employee Loan Reg Warrior
Richard Insley Offline
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Richard Insley
Joined: Oct 2000
Posts: 10,049
Toano, VA
Would the waived interest be income (reportable and taxable) to the affected employees?
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#2195770 - 10/17/18 10:40 PM Re: Employee Loan Reg Warrior
Reg Warrior Offline
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Joined: Jan 2017
Posts: 191
If the new APR was below the IRS AFR, then it would be reportable and taxable. All new loans will an APR that is not lower than the IRS AFR that is in effect of the date of the loan.

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