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Disclosure Requirements: Variable-rate Commercial Loans

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Question: 
On variable rate business and commercial loans are we required to send notification each time the rate changes if the loan documents specify that the rate may change and the index to which it is linked?
Answer: 

Unlike consumer loans, which have very specific disclosure requirements under federal statutes and regulations, commercial loans are governed almost exclusively by the terms of the loan agreement and, in some instances, state law. If your contract doesn't specify that you must provide notice of the rate adjustment and no law in your state requires such a notice, it's unlikely that you would be required to send notification. If you don't send notification, however, and the rate increases, your customer is going to have a nasty surprise after he thinks he's made all the payments he needs to make, so it's prudent to send the notification, along with an explanation of how the rate change affects payments or total amount owed.

First published on BankersOnline.com 5/7/01

First published on 05/07/2001

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