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Differences between the account agreement and the core system

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Our account agreement states that the balance to which the finance charge is applied is determined using the daily balance method. Our core system calculates the balance suing the average daily balance method. Which one is correct?

The account agreement represents the legal contract between your institution and the consumer. Everything else, including the core accounting system, has to be in agreement with the terms of the contract. General in the set-up section of the core system you can choose either a daily balance method or an average daily balance methods. So, this probably an easy fix going forward. But all existing accounts should be reviewed to determine if any overcharges have occurred. Generally the difference between the daily balance and average daily balance methods is small; it is typical just rounding differences; so, the restitution paid to borrowers should be modest.


Learn more about Jack Holzknecht’s Regulation Z Rules for Home Equity Lines of Credit webinar.

First published on 08/29/2021

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