The Loan Department at my bank is wanting to charge a fee to customers who change collateral, i.e. vehicles, on existing loans. Evidently they have several customers who buy and sell vehicles quite frequently and this requires a change in collateral. If the charge is made to all customers changing collateral on this type of loan, I assume we do not have a Fair Lending issue; however, shouldn't this potential charge be disclosed on the initial loan agreement? Any assistance would be greatly appreciated. Thank you.

You may or may not have a fair lending issue. Look to the discussions on disparate impact and ask yourself if the effect of this change will adversely impact protected classes in either your applicant pool or your market population as a whole. On the surface, it probably won't - but since I just sat through 3 days of fair lending training, I'm not taking anything to chance.

I agree that you should include this in your initial loan contract. State law will govern whether you can make it a retroactive change (I doubt it), and if so, how you'd go about it.

Fair lending aside, you shouldn't have any problem with this on a going-forward basis - provided that kind of fee is allowable in your state.

You don't say whether these are consumer or business credits. Not a problem on business credits, charge the fee. On consumer, this sound like an unexpected subsequent event. Reg Z would not prevent a fee in that case, either.

If you are not sure, check with your Department of Motor Vehicles. I believe CA has a requirement that if you sell more than a nominal number (maybe 5) in a year, you may be subject to dealer licensing requirements. That might pre prima facie evidence that this is a business purpose credit.