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Can we Add NSF Check Amount to Loan Balance?

Answered by: 
Richard Insley

Question: 
If a customer wrote a check to a 3rd party and it was returned to us as NSF, does Reg Z bar us from adding the amount of that item to the balance owed on their loan? This wouldn't be an overdraft line of credit type, but a signature loan.
Answer: 

Reg Z and your note prohibit this indirectly, I believe. (Other views are welcome and any direct experience would by most helpful.)

If the loan is closed end, then your note won't allow unrelated advances without becoming openend credit. Making these advances for matters unrelated to the terms of the note will violate the contract.

Because you've called this closedend credit and given closedend disclosures, then you can't allow unrelated advances without invalidating the closedend disclosures and violating Reg Z by not giving openend disclosures.

First published on BankersOnline.com 9/15/03

First published on 09/15/2003

Filed under: 
Compliance
Filed under compliance as: 
Disclosures
IT
NSF

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