Two years ago our bank changed its core system, causing issues with loan customers with escrow who make payments more often than monthly. These loans were set up to accept and credit partial payments, and until the change the payments were being credited correctly. Now when a partial payment is made, escrow may be credited twice for that month, with little or no payment going to principal and interest. And this also causes late charges that must be corrected.

Those affected customers have been watched and manually corrected each month, but the list has grown and more customers with this problem have been discovered. Management does not wish to change posting order, which was never a problem until the core system was changed.

With the blessing of our internal auditor, we are notifying all existing customers with escrow that as of a certain date all partial payments will be placed in a separate account until full payment is made, and then applied. Is this sufficient, or should we consider this an adverse action and include those required disclosures, also? One of the Reg B definitions of adverse action is a termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts. This does affect all consumer real estate who escrow.

Thank you for any advice on this!

With the blessing of our internal auditor

You need the blessing of your attorney which should in turn fully examine your legal agreement between the bank and the borrower before rendering an opinion.

Legally changing posting order or how partial payments are handled on a closed-end contract could be tricky and if not done properly will most likely result in the bank breaching its contract with the borrower.

With the blessing of our internal auditor??

The blessing you need is from your legal counsel and not an auditor. You cannot unilateral change the terms of the closed-end credit. The contract is the contract unless both parties agree to modify.

At least Dan and I are consistent.

Y'all copied each other. No fair

Thank you for your advice. I will run this past our attorney before we do anything.