Our bank is considering assessing a fee for situations in which a customer has made a loan payment with a check that is later returned NSF. Can anyone point me in the right direction in the IC that would address this? I assume we would need to contract for such a fee up front. Could it then be added to the loan balance?

IC 24 4.5 3 202 (1) (f)

Thanks for the direction Dan. So, the section states that these would need to be contracted for. I assume that it would not be acceptable to do a change in terms notice and begin charging on existing loans. Also, I do not see where the $25 is subject to any inflationary adjustments (and LSA #06-80 doesn't mention it), so I'm assuming $25 is it. Please let me know if I am off-base with either of my assumptions.

Also, it doesn't mention the method of charging the fee (adding to the loan balance or accruing the fee like a late charge), so I'm assuming that if you contracted that you would add it to the loan balance, that this would then be acceptable?

You are correct in that you can not do a change in term. It has to be contracted for, and you are also correct that it is not adjusted for inflation.

We don't contract for this fee, but if I recall, without researching, the fee can be added to the balance, or if it's a statement or revolving loan you would show it on the periodic statement.

BTW, don't confuse this NSF fee with one that can be charged against your borrower for writing a NSF check against a HELOC. That fee is not allowable under the IC. It can only be charged for a NSF payment to the account.

We are considering charging an NSF fee for returned Mortgage payments, will this also have to be contracted? At a roundtable I asked if banks in our area are doing this, the answer was YES. They didn't indicate any contractural agreement so I'm assuming they do not have one. Any guidance? Thanks.

IC 24-4.5-3-202: Additional Charges

(1) In addition to the loan finance charge permitted by IC 24-4.5-3-201 through IC 24-4.5-3-210, a lender may contract for and receive the following additional charges in connection with a consumer loan:

(f) A charge not to exceed twenty-five dollars ($25) for each return by a bank or other depository institution of a dishonored check, negotiable order of withdrawal, or share draft issued by the debtor.

Thanks for your help. I'm assuming for this purpose "Consumer Loan" and "Mortgage Loan" definations are falling into the same category?

Consumer loan is defined in IC 24-4.5-3-104 and IC 24-4.5-3-105. And a mortgage loan is defined at IC 24-4.5-1-301.