June 12, 2019 at 12:23 pm #15619
If a consumer agrees to an extended repayment plan after their overdrawn checking account amount has been charged off, can a charge off maintenance fee be added to the overall charge off amount balance without it being considered a finance charge? It is noted that a charge off maintenance fee is listed on the fee schedule. To provide an example of this scenario, I have an overdrawn charged off amount of $500. The bank utilizes a TILA disclosure that includes repayment terms, etc. and includes the APR, Finance Charge, Amount Financed and Total of Payments. Again, in this example, the APR is 0%, Finance Charge is $0, Amount Financed and Total of Payments are both $525. The repayment terms also includes the $25 fee.
My initial thought is that it should be treated as a finance charged but wanted to get other thoughts and opinions. My analysis is based on the following:
First, the payment terms are more than 4 installments and payable to the bank so we would meet the Creditor tests under TILA Commentary at 1026.2(a)(17)(i)-Comment 1(i)-(ii). Second, I don’t necessarily think it meets the criteria under TILA Commentary 1026.4(b)(2)-Comment 1 and checking account charges because the overdrawn checking account amount has since been charged off to both the allowance and overdraft fee general ledgers. Once it is charged off, again, I opine we become a creditor under 1026.2(a)(17)-Comment 1(i)-(ii) and any charge for “origination” of this loan would be considered a finance charge under possibly 1026.4(b)(2) – Transaction Charge or 1026.4(b)(3) – Loan Fees.June 13, 2019 at 11:17 pm #15631
I agree with your analysis and think it is the safest approach.
Trying to understand this a little better and also trying to consider the other side…is the same charge-off maintenance fee added to every ODP charged off amount or just those with the extended repayment plan? If it is added to every charge off amount before it becomes a loan, could it still qualify as a checking fee that is charged on all accounts not just associated with credit?
If I’m misunderstanding something let me know.June 14, 2019 at 1:13 pm #15635
Not misunderstanding at all and yes, the same fee is assessed to every account that is charged off. If we are able to coordinate with the consumer and implement an extended repayment plan, which will generally be paid in 4 or more installments, then a TILA disclosure will be utilized because we would be considered a creditor as mentioned above. Since we are considered a creditor and must abide by TILA, I was leaning towards it being an “origination” fee using the citation above rather than a “checking” fee. In looking at Truth in Savings again, I believe I could also garner an opinion that the charge off maintenance fee could apply to 1030.04(b)(4), specifically in the Commentary at (b)(4)(1)(iv). The fee is assessed to the checking account because our recourse is to charge it off according to regulatory guidance. I see similarities between this charge off maintenance fee and an overdraft fee because the fee was the result of an action by the consumer. As long as we are disclosing the fee accordingly, then I believe I may be able to keep it in the TIS bucket.
Thoughts?June 17, 2019 at 6:24 am #15640
I agree. And 1026.4(b)(2): (2) Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account (except a prepaid account as defined in § 1026.61) to the extent that the charge exceeds the charge for a similar account without a credit feature.
I am not familiar with charge-off fees, but it seems technically it is being charged to all deposit accounts as part of the deposit function; then, a credit feature is being set up for some accounts. My other question is how often you recover a charge-off fee if it is not incorporated into the balance on an Extended Repayment Plan (credit agreement)? Is it essentially a credit fee because that is the only time you recover it?
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