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#2243868 - 10/09/20 05:04 PM Fee for a change in terms
Kristi Offline
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Kristi
Joined: Feb 2005
Posts: 85
We are going away from loan modifications and only doing change in term agreements if needed. These would extend the maturity on a loan for a year or two. Is there anything preventing us from charging a process fee for these? Knowing that fee would be a finance charge has me questioning if we can charge it because it would change the APR that was originally disclosed. Any thoughts from anyone?

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#2243872 - 10/09/20 05:38 PM Re: Fee for a change in terms Kristi
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,216
Galveston, TX
going away from loan modifications and only doing change in term agreements

I have no idea what this means - a change in terms agreement is usually associated with an open-end account in which the lender reserves the right to change the terms on the account with proper notice. A closed-end loan has to be modified through a loan modification agreement signed by the borrower.

Whether you can charge is a State law issue.
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#2243886 - 10/09/20 07:59 PM Re: Fee for a change in terms Kristi
Richard Insley Offline
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Richard Insley
Joined: Oct 2000
Posts: 9,995
Toano, VA
Originally Posted by Kristi
loan modifications...change in term agreements
Webster defines "modification" as "the making of a limited change in something." Unless some law or regulation assigns different meanings to these terms, they are 6 of one and half a dozen of the other. As Randy advises, restrictions or prohibitions of fees are matters of state law.

When you are dealing with closed-end credit, there is a single disclosure of the terms of the loan agreements. Subsequent events and charges have no impact on the APR or FC. In accordance with Section 1026.17(c)(1), the disclosable FC and APR must be based on information that appears in the loan agreements or is otherwise known by the lender at the moment when the disclosures must be given. Closed-end loan notes can have delayed features...which would be disclosable up front...but what's described here is not a delayed feature. It is a new feature that could not have been known at consummation.
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#2244051 - 10/14/20 08:29 PM Re: Fee for a change in terms Kristi
John Burnett Offline
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John Burnett
Joined: Oct 2000
Posts: 39,333
Cape Cod
I think the question related to "change in term" (not "change in terms") agreement, and refers to the term of the loan being changed (AKA an extension). Nonetheless, it would still be a form of modification agreement.

Changing the term (in other words postponing the maturity date) of a loan clearly has some costs. The most obvious, if the loan carries interest in arrears, is the added interest to be paid during the extended term of the loan. If it's a single payment loan with prepaid interest (FKA a discounted note), the lender would expect to get its interest for the extension term either with a prepayment or at the extended maturity.

In addition to the expected interest, many lenders impose a modification fee (or, if you prefer, a loan extension fee) for the paperwork and time involved.

As Richard said earlier, this would be a post-closing event and would not make the earlier disclosures on the loan inaccurate.

Take a look at Regulation Z section 1026.20(a) to see information on when you might creating a refinancing with what you think is a modification or change in term. Those are actions you need to avoid when consumer credit is involved and you don't want to go the full refinancing route.
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