Skip a Payment-Loans

Posted By: DCollins

Skip a Payment-Loans - 05/30/01 11:59 AM

Does anyone have information on the Skip a Payment program a lot of banks offer? I know there are requirements such as limiting the number of times you can offer this on one loan, but I'm not sure where to find guidance. We are a national bank, so I wasn't sure if the limits per year or life of loan apply.
Posted By: Richard Insley

Re: Skip a Payment-Loans - 05/30/01 12:48 PM

Other than state laws (if any) and a general concern that excessive skips may conceal and postpone losses, I'm unaware of any limits on the number of skips you can allow. The best example of this service is the "school teacher loan" & that's been around for decades.

Your biggest limitation may be calculation support. Since these are probably closed end consumer credits, you need to be able to compute an accurate payment schedule, FC, and APR. Skipping due dates rarely entitles the consumer to skip the accrual of interest. Accordingly, the TOP, FC, payment schedule & APR (usually) will change when you schedule "skips."

Entitlement is the controlling factor here. If the note says the teacher doesn't have to make payments during June, July and August, then you must compute & disclose accordingly. If, on the other hand, the note permits the consumer to skip payments optionally, then the skips should be ignored unless there is some kind of side agreement.

Posted By: Summer101

Re: Skip a Payment-Loans - 11/01/01 05:19 AM

If you have an existing loan and you want to offer a "Christmas extension" to customers who have a good repayment history, are there any compliance concerns? (The Chistmas extension will defer the December payment until the end of the loan - extending the maturity for one month). It appears that Reg Z allows this and does not require additional disclosures since it would not qualify as a refinancing (226.20(a)). Is there any restrictions on the fees that can be charged for this or the number of times it can be offered on the same loan?

[This message has been edited by SG (edited 10-31-2001).]

Posted By: Way Out West

Re: Skip a Payment-Loans - 10/31/01 06:27 PM

"Deferral fees" are a matter of state law. Several states either limit the fee you can charge, prohibit them altogether or have overly complicated rules and hoops you must jump through. I am not aware of any limitation on the number of times a deferral may be offered. You may also want to check your contracts to determine if they contain any conflicting language or requirements.

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The opinions expressed are mine and not those of my employer

Posted By: David Dickinson

Re: Skip a Payment-Loans - 10/31/01 07:46 PM

Federal laws (TIL, HMDA, CRA, RESPA) all say that if you modify a loan, then no new disclosures are required. If you refinance a loan (new contract that SATIFIES AND REPLACES) then you must give new disclosures. There is nothing more about fees, types of modifications, etc. that is in the federal regulations. Jeffrey and Richard are both correct to review state and contract situations.
Posted By: sammylou

Re: Skip a Payment-Loans - 11/06/01 04:07 AM

Another item of note on the Christmas skip a payment offerings where you add time on to the maturity of hte loan. It's not entirely compliance, but interesting nonetheless. We started really thinking about these and thought about credit life and disability insurance. If you add a few months on to the end of the term of the loan (let's say a skipped payt each December for 3-4 year loan), when you reach the original maturity date, the credit life/disability insurance will mature. If the person happens to have a claim in the last few months of the extended term, the insurance would not pay.

Probably not a huge issue for a few months of leftovers, but something to think about either way. We have chosen to make these offers as a "balloon" to the end of the loan since most don't go all the way to maturity anyway.

Food for thought.

Posted By: David Dickinson

Re: Skip a Payment-Loans - 11/07/01 05:34 AM

Good point Kim. I suggest you address this issue by including the following in your agreement if you want to extend the maturity.

I understand interest will accrue through the extended time period and the loan maturity date will be extended by one month. Any credit insurance product now in effect may not provide insurance protection beyond the original maturity date.

Posted By: Anonymous

Re: Skip a Payment-Loans - 10/17/03 04:38 PM

Do you make the customer sign a change in terms notice for skip-a-payment promos?
Posted By: Andy_Z

Re: Skip a Payment-Loans - 10/17/03 08:40 PM

Not a change in terms per se, but a notice explaining what was being done and what the effects were, maturity extended, insurance not extended, etc.