For some reason, I can not locate the stinking reg that states that we can not charge interest to a customer prior to disbursing the funds.

Anyone? My mind is just shot today!

Thanks!

Might this be a state law issue?

Possibly, but I thought for sure that there was some regulatory rule that would state that we can't charge interest prior to the loan being disbursed.

I can't imagine that it's ok, but can't find what I am looking for. Ugh

Not federal that I know of. Quit looking.

Where is Mr. Carey when we need him?

Thanks Regs and swiggles! I have been combing the state regs but not finding anything there either.

SOOO, that leads the question..... Is it ok to charge a borrower interest for 5 days on funds that have not been disbursed? If borrower #1 signs documents dated Jan 1 then borrower #2 signed on Jan 4 and the funds are disbursed on Jan 4, is it possible to charge interest from Jan 1?

I just can't wrap my brain around the fact that this process is ok. Thoughts?

Not in my state....would constitute a usury violation...at least that's what the bank's legal counsel conveyed to me. AND...my state regs are not "combable" They are like rocket science unless you're Randy Carey. LOL. UDAAP might also be a consideration.

Anyone else have an opinion on this?

Ohhh to be Randy!! LOL

I had considered UDAAP, doesn't pass my sniff test!

Rocket science - no that is my wife, she is the scientist

A little tough to opine without knowing the State we are talking about, but I am in the UDAAP camp also. Why do you think they need to pay you interest before you disburse the funds?? Do you plan to charge only borrower #1?? Does your note support such an act?

I don't think you will find any federal regulation directly on point. It's always been my position that this practice is unconscionable in consumer lending. You can cite the UDAAP regulation, Ten Commandments, or the Golden Rule.

In my state you can begin accruing on a refinance, date of note and continue accruing on the loan being paid off until paid. THIS, I have a problem with. However, the bank has 'set aside' the money to be disbursed, so I really don't see it as a problem, to be honest. Our TRID system is interesting, however. If the refinance is a same bank refinance, it will not begin accruing on the new money until disbursement. However, if the loan is to pay off another bank, or no bank, it begins accruing date of loan. There is no controlling this, the language sets itself based on the facts of the transaction.

However, the bank has 'set aside' the money to be disbursed,

In this day and age of instant liquidity, who are you kidding.

In my state you can begin accruing on a refinance, date of note

In IN you cannot accrue interest on the new loan during the rescission period.

The OP will have to research their state law to get their answer.

To answer the original question, the citation is in the Official Interpretation of Regulation Z, part 1026.223(c):

3. Actions during the delay period. Section 1026.23(c) does not prevent the creditor from taking other steps during the delay, short of beginning actual performance. Unless otherwise prohibited, such as by state law, the creditor may, for example:

i. Prepare the loan check.

ii. Perfect the security interest.

iii. Prepare to discount or assign the contract to a third party.

iv. Accrue finance charges during the delay period.

[emphases mine]

I agree it is rather shocking that this is permitted. I would never do it; it's just not right.

There are a lot of things allowed under the regulations that the regulators have since determined doing so would be a UDAAP. I would be sure that if you are going to do it that is clearly and succinctly disclosed in your loan agreement.

Thank you everyone for your replies. I agree with all of you and will happily take your advice!!

Happy Friday!