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#420668 - 09/09/05 05:09 PM Late charges vs. prepayment penalties
Nanwa Offline
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Nanwa
Joined: Oct 2001
Posts: 5,564
Clintonville, WI, USA
I was wondering if anyone else was dinged on this and what you did to fix it.

We are arguing with state examiners about charging late fees on loans that paid down their principal earlier in the loan. For example, if we have a $10,000 instalment loan and the customer pays down $2,000 on principal, then if a year from now he stops making payments, they say cannot charge a late fee. When I asked them to cite a specific regulation, they said there wasn't any, that this was an "interpretation" of the regs handed down from the Madison office.

When I called the Madison office, I was told that the late charges would be considered prepayment penalties, and would fall under WI Consumer Act Part 422.208.

Anyone else run into this? If we gotta fix it, we gotta fix it, I just don't know how at this point. I am not that well versed on how the bookeeping part of payments are handled, but one of my co-workers said this would reek havoc with our coupon book loans.

I am foreseening watch list and delinquency list problems, if we advance the payment due dates. Someone could pay a lump sum early, then go bankrupt, and wouldn't show up on the delinquency list and therefore not be put on the watch list.

Opinions, comments, suggestions?
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#420669 - 09/09/05 08:04 PM Re: Late charges vs. prepayment penalties
Anonymous
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Did the $2,000.00 principal payment advance the payment schedule? If not, they may be saying that the note is still prepaid. If it did advance the schedule, I've never run into it.

Nemoomen

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#420670 - 09/14/05 05:08 PM Re: Late charges vs. prepayment penalties
Nanwa Offline
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Nanwa
Joined: Oct 2001
Posts: 5,564
Clintonville, WI, USA
At this time, the due date was not advanced. But what if the customer makes a big principal payment, the due date is advanced, then they stop paying? They don't show up as delinquent for many months, and when they do, and we try to collect, well, collections are much harder the older the delinquency.

Wouldn't interest be delinquent? Couldn't we charge a late charge on delinquent interest?

This just doesn't make sense to me.
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#420671 - 09/15/05 06:26 PM Re: Late charges vs. prepayment penalties
Angel Eyes Offline
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Angel Eyes
Joined: May 2001
Posts: 4,599
This seems all wrong. Did you find out any more? If not I will be researching this right now....

I would argue that the "contract" note that they signed clearly states that intallment payments of such and such amount are due on the first day of each month and the same day of each month thereafter. Just because the borrower prepays doesn't change the terms of the contract. The borrower has the right and ability to pay as much as he wants this month, but the contact reads that he will pay again next month and each month thereafter.

Please tell me you got this resolved!
Last edited by Jennifer; 09/15/05 06:39 PM.
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#420672 - 09/16/05 12:54 PM Re: Late charges vs. prepayment penalties
Beagles22 Offline
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Joined: Jan 2004
Posts: 3,626
State of confusion
Does your note specifically say they have to makes a payment every 30 days? Some of ours (Freddie Mac) say that, but we would have the same issue on most installment loans. Unless they made a big payment and we ran it as a regular payment (that would bump the due date multiple times), we usually run it as a principal reduction in that case and then the computer won't bump the date. What did they end up saying Nawna?
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#420673 - 09/16/05 04:31 PM Re: Late charges vs. prepayment penalties
Nanwa Offline
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Nanwa
Joined: Oct 2001
Posts: 5,564
Clintonville, WI, USA
I will PM you.
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