We've been sending an open end loan contract along with the letter offering a repayment plan for folks that have gone more than 30 days negative on their ODP (overdraft protection (aka courtesy pay)).

Wondering if I am over complicating this; is just a simple letter with amount overdrawn and monthly amount needed to repay enough?

concept being it's a loan but not really as it's at zero % interest. our right to collect is covered in the checking account agreement, so I am thinking I can hang my hat on that and avoid a 4 page complex loan contract.

Is anyone using just a letter and no loan contract?

How many payments in your repayment agreement?

Skittles is driving at whether or not it would be covered under Regulation Z. More than four payments and it is a full fledged consumer loan under Regulation Z regardless of the 0% interest rate.

P.S. - you are still charging these accounts off anyway - correct?

limited to 4 payments - never an exception to that. Although that very question came up just yesterday from one of our lenders

@ rlcarey--- If they request a repayment plan ODP is revoked, checking is brought to zero balance and the "loan" starts repayment. No charge off of either checking or loan at this point. However as I'm sure you are aware the washout rate is very high in the repayment plans. So once they miss 2 payments on the repayment plan it is charged off - against the allowance for ODP not the loan allowance.

Unless you thoroughly underwrite the loan at the time of inception, you cannot delay the charge-off to no later than 60 days from the date first overdrawn.

Putting them into a repayment plan does not impact your charge-off requirement.

appreciate feedback - that is why we c/o at 2 missed pmts (i.e. 60 days). if they do not accept the plan and are negative 45 days in the checking we also charge them off due to regulation. edit - i re-read your post - so how can i have 4 payments and meet the "must be positive within 60 days" rule?

back to my original question - are folks using letter or actual loan contract?

You can use what ever your legal department will approve. You are asking a contractual issue.

Back to my point.

Example:

The checking account goes OD on April 1st.

You set up the repayment plan on or after May 1st.

If you underwrote the consumer for a unsecured loan and they were approved under your normal underwriting criteria, the overdraft would be extinguished and the loan would be placed on the bank's books and treated like any other unsecured consumer loan for past due reporting and charge-off.

If you just set up the repayment plan without any credit underwriting, the negative balance is required to be charged-off on or soon after June 1st (60 days from the account originally going negative).

If you are not following these rules, prepare for a safety and soundness citation from your examiners, if they figure out what you are doing.

From an accounting perspective, to comply with the requirements Randy is citing, your repayment plan should go something like this:

1. Customer enters into repayment agreement. (Should be done prior to hitting the 60 day mark.)
2. Bank credits account the amount of the overdraft to bring the account to $0 and debits a G/L account to reflect the charge-off.
3. Bank allows customer to continue using the account under the repayment plan even though the bank has charged off the overdraft.
4. Customer payments either auto-debited from the account or paid via check should be recorded to the G/L as recoveries.

Excellent point of clarification BrianC. I think I can make our system do that - and no we were NOT doing it right ---eek