Reg Z - When does interest begin?

Posted By: COMPLIcated

Reg Z - When does interest begin? - 01/03/13 02:37 PM

For a Reg Z loan subject to Right of Rescission, when does interest begin - at consummation or at funding? Where can I find this answer in the regulation?
Posted By: Jerod Moyer

Re: Reg Z - When does interest begin? - 01/03/13 02:47 PM

It's your choice. The Commentary to 1026.23(c) #3 does not prevent the creditor from taking other steps during the delay, short of beginning actual performance. The creditor may:

1. Prepare the loan check.
2. Perfect the security interest.
3. Prepare to discount or assign the contract to a third party.
4. Accrue finance charges during the delay period.
Posted By: Dan Persfull

Re: Reg Z - When does interest begin? - 01/03/13 02:59 PM

4. Accrue finance charges during the delay period.

Before you begin accruing interest during the rescission period check your state law. IN does not allow interest accrual during the rescission period.
Posted By: swiggles

Re: Reg Z - When does interest begin? - 01/03/13 03:07 PM

I'm assuming Texas doesn't allow it either....'cause our legal counsel said not to do it.
Posted By: RR Joker

Re: Reg Z - When does interest begin? - 01/03/13 03:20 PM

Most definitely a state law issue. FWIW, last time I checked, GA didn't care...acrue on old loan, new loan or both during rescission period.
Posted By: COMPLIcated

Re: Reg Z - When does interest begin? - 01/03/13 03:31 PM

I'm checking on OK state law to see.
Posted By: Richard Insley

Re: Reg Z - When does interest begin? - 01/04/13 01:23 AM

And don't forget UDAAP and your ethics policy. For banks in states that don't prohibit the practice, the question is not "can I?" but rather "should I?".
Posted By: waldensouth

Re: Reg Z - When does interest begin? - 01/04/13 01:45 PM

Your loan system may prevent it as well. We converted to a different loan origination system because Rembrandt went away 12-31-12. New system won't calculate during the rescission period. Won't let us do interest only -floating daily with prime construction loans. Love these little surprises - NOT!
Posted By: RR Joker

Re: Reg Z - When does interest begin? - 01/04/13 02:00 PM

My preferred method is to calculate on old loan through rescission then start new loan (FWIW). I've seen it done both ways...I've not heard of anyone around here doing both (agree on the ethics issue).
Posted By: Rdy2Retire

Re: Reg Z - When does interest begin? - 04/02/13 08:21 PM

For those of you whose state won't allow you to charge interest during the rescission period, and you have the borrower sign the ROR that they have not rescinded, which date do you use to book the loan by? The next business date after the rescission period ends (which is the date listed in the note and the date used to calculate the APR) or the date that the borrower signs that they have not rescinded if it is a date later than the 4th business day?
Posted By: Dan Persfull

Re: Reg Z - When does interest begin? - 04/03/13 01:20 PM

What does your state law allow? Ours allow us to begin accruing interest the first calendar day immediately after the right to rescind expires. As a matter of policy we do not begin the accrual until the first business day after the right to rescind expires.
Posted By: rlcarey

Re: Reg Z - When does interest begin? - 04/03/13 03:51 PM

I never understood these games. Why not just start charging the borrower when you disburse the funds, like on any other loan?
Posted By: Rdy2Retire

Re: Reg Z - When does interest begin? - 04/03/13 04:56 PM

We are located in 3 states and while GA does allow and we do charge interest during the rescission period, NC and TN do not.

Dan, do you require the borrower to sign stating they have not rescinded?

Randy, honestly, we are not playing games. We are just trying to be fair to both the borrower and the bank. For instance, if a borrower fails to come in to sign that they have not rescinded until day 8, that's not the bank's fault and don't think that we should be penalized in not being able to charge interest when our contract states we can.

What do you see in your consulting? Do most banks have the borrower sign that they have not rescinded? If we forego this requirement there would be no issue with which date to begin charging interest. We rarely have anyone rescind.

Thanks to both of you for responding! Sometimes I think my questions must be really dumb because no one responds right away.
Posted By: Dan Persfull

Re: Reg Z - When does interest begin? - 04/03/13 05:03 PM

Dan, do you require the borrower to sign stating they have not rescinded?

We haven't required that for years.
Posted By: rlcarey

Re: Reg Z - When does interest begin? - 04/03/13 06:05 PM

Do most banks have the borrower sign that they have not rescinded?

No. That creates all sorts of problems, like loan officers getting the form pre-signed so the customer doesn't have to come back in.

Whether state law addresses this or not, charging a customer interest on a loan unless your loan agreement is very-very clear that interest is going to begin on a certain date whether funds are disbursed or not, is going to be fodder for a UDAAP citation from the regulators.