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#29080 - 08/23/02 02:06 PM Fees Charged for Change in Collateral

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.

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Lending Compliance
#29081 - 08/23/02 02:45 PM Re: Fees Charged for Change in Collateral
Bartman Offline
Diamond Poster
Joined: Oct 2000
Posts: 1,191
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.
Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#29082 - 08/23/02 02:50 PM Re: Fees Charged for Change in Collateral
Al Miller Offline
Diamond Poster
Al Miller
Joined: Oct 2000
Posts: 2,416
Pleasanton CA USA
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.
Al Miller, CRCM
Opinions expressed are my own and not necessarily shared by my employer.

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