I need advice on setting up EFT authorizations for loan/line payments. I cover deposits, but being asked about Reg. E preauthorized transfers for lending. Normally, there is a set payment amount, but if the payment amount were to vary, how do others handle them? The sample forms I have seen are pretty standard and don't contain any information about varying amounts. Also, for a car loan, if the final payment is a balloon payment, how would this be handled? Do you put an expiration date on the EFT Transfer prior to the last payment? Then how does the customer find out about the amount of the final payment?

Reg E 1005.10(d) (1) Notice
1. Preexisting authorizations. A financial institution holding the consumer's account does not violate the regulation if the designated payee fails to provide notice of varying amounts.

10(d)(2) Range
1. Range. A financial institution or designated payee that elects to offer the consumer a specified range of amounts for debiting (in lieu of providing the notice of transfers varying in amount) must provide an acceptable range that could be anticipated by the consumer. For example, if the transfer is for payment of a gas bill, an appropriate range might be based on the highest bill in winter and the lowest bill in summer.

I would have a special authorization for balloon loans clearly indicating that the borrower is responsible for making the final payment on the loan no later than the maturity date and stop the auto-drafts after the last regular payment.

For loans with a variable rate, for example, we provide a notice with a range of amounts we will pull based on the terms of the note. For example, if the loan is a HELOC with a floor is 4% and the ceiling is 18%, we figure out the highest possible payment within those terms and disclose that range on the EFT form. If we needed to pull funds over the amount in the range (e.g. they exceeded their credit limit), we would send a notice 10 days prior to drawing the amount over the range initially disclosed.

Hope that helps!

On a HELOC, that amount is disclosed on the periodic payment, is it not? Not much need for a range in that case as you disclose the actual transfer amount prior to it being debited. Closed-end loans, if you are not sending statements, might be another story.

For HELOCs, can the customer just request the interest be paid monthly? Now I'm starting to wonder if the definition under 1005.3(c) exclusions for intra-institutional might apply? We would only set up transfers between our bank accounts and pay our loans.

Exclusions from Coverage. 12 CFR 1005.3(c) describes transfers that are not EFTs and
are therefore not covered by the EFTA and Regulation E
-Intra-institutional automatic transfers under an agreement between a consumer and a
financial institution;

transfers under an agreement between a consumer and a financial institution

You still need the agreement and I believe, that is what we are discussing?

Yes, the written agreement between the consumer and the bank. The forms vendor has a fairly generic AFT agreement the customer signs. There is no range of payment amounts, the customer states a payment amount or in some cases interest only for the amount. The customer gets the initial EFTA disclosure with their DDA with the bank, but if these are considered intra-institutional transfers, the reg reads like we don't need the range of payments. The regulation has the intra-institutional transfer as an exclusion to EFTA and Reg E.

It is still a contractual agreement with the consumer. If you are going to be processing transfers of variable amounts, how do you contract for that without mentioning it? I get what you are saying, just that there is more too this than Regulation E.