I have a new director that wants us to impose a early closure fee on our HELOC loans. He knows he can't charge them for pre payment on the loan, but if they close it he wants to charge them $200. I don't think it's allowed...can anyone help me? I appreciate any assistance anyone can provide!!(This would be on new ones only, and I am in WI if that makes a difference)

That still would be a pre-payment penalty regardless what he calls it. State law will govern pre-payment penalties. You also cannot charge it to the existing accounts because it has not been contracted for.

There is a technicality here.

It is clearly a pre-payment fee if the bank charges a fee when the HELOC is paid to $0.00. However, is it still a pre-payment fee if the bank does not charge a fee for paying the balance off, but only upon closure of the line within a set time period?

Example: Balance goes to $0 at month two and line is closed - fee charged; However, balance goes to $0 at month two, line closed 3 years later - no fee charged.

That is still going to be a state law issue. In IN you could not contract for such a fee. It is not an allowable charge under the IC. You could contract for a pre-payment fee, but using your technicality, you could not contract for a "closure" fee.

I'm not a WI expert by any means, but the statutes do not specifically define "prepayment penalty" and just use the term "penalty" very liberally. I would be looking for a legal opinion prior to engaging in this type of practice.