Are examiners testing for this complex & obscure prohibition in Reg AA? I don't ever recall a thread indicating that any BOLer ran into questions or criticism from examiners on this topic.

Haven't had it tested in 10+ years by the OCC.

Richard, it was not tested for by the FDIC in our exam in 2001, but our state examiners tested for it in our 2002 state exam.

I think OTS is with the OCC, I haven't seen it. They didn't even look at that. BSA
was the big thing. I did review it myself though, for peace of mind.

I used to test for it pretty regularly, esp. on training jobs. The biggest thing to watch out for is how the computer allocates payments - we ran into a string of banks whose computer system paid fees & late charges first, which ended up shorting the principal and making it "late", thereby generating another late charge.

They don't test for it, but I do. In a risk-based approach, they can see what I did and systemically know that it is correct across the board.

Haven't seen anything on testing on this on a federal level. But SC has a slightly different take on multiple late charges as explained in this thread. We have had SC examiners now testing for this.

What exactly is pyramiding late charges?

Sec. 227.15 Unfair late charges.

(a) In connection with collecting a debt arising out of an extension of credit to a consumer, it is an unfair act or practice for a bank to levy or collect any delinquency charge on a payment, when the only delinquency is attributable to late fees or delinquency charges assessed on earlier installments, and the payment is otherwise a full payment for the applicable period and is paid on its due date or within an applicable grace period.

If you pay this months payment late I add a late fee as being owed.

Next month, you send the exact same payment amount and I first deduct the late fee, then apply the rest. The rest isn't a full payment, so I add another late fee. And so on, and so on.

So if the payment is due on the 15th, a late fee assesses on the 25th, and the payment made on the 26th, would it be ok to assess another late fee the next month if payment is not received until after the 25th of that month as well?

Yes, if that payment is in fact late.

What you can't do is say it was late because it wasn't enough, and it wasn't enough because we first took out last month's late fee. One late fee can't cause the next one. But being late is exactly why the fee is imposed.

Last question, I think!

The difference with South Carolina in the link above would be if payment due on the 15th, late fee assesses on the 25th, and the payment is made on the 10th of the following month only one late fee could be charged for the 1st month's late payment and a late fee for the 2nd month could not be assessed even if the payment were not paid until the 26th because the payment was received in that payment period?

Thank you for the help. I have never tested for this and I now live & work in Louisiana. I think Louisiana has a similar requirement as South Carolina.

Laws on this can vary state to state. That could be the allowance of a late fee as well as when it can be accrued.

I can't speak to all states in particular. State "rooms" are seen near the bottom on the index page of forums. But generally, when a payment due for that month is late, as defined in the contract, a late fee may be added.

In Texas, as an example, If you pay a Jan. 15 payment on the 27th, it is late and a fee can be assessed. If you are late again in Feb. another fee can be added.

If you skipped Jan. and paid on Feb. 15th that payment goes to the Jan. bill and Feb. would accrue another fee after the 10 day grace period. Some states would allow that the payment is for Feb. and Jan. is still owed, with one late fee, meaning that Feb. was paid on time and no late fee is owed. Again, check state laws and your contract.

Thanks again Andy! You're great!

Andy,

Quote:

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Some states would allow that the payment is for Feb. and Jan. is still owed, with one late fee, meaning that Feb. was paid on time and no late fee is owed. Again, check state laws and your contract.

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If I live in a state that has this type of anti-pyramiding law, and if the customer keeps making their regular payments on time and only missed the January payment, the bank could not keep charging late fees each month. If this is correct, doesn't this in effect allow the customer to create a unilateral extension of their loan by only paying one late fee?

Just because the customer only gets charged one late fee, doesn't mean he would not be considered 30 days past due for the whole period. You can report him past due and/or accelerate the loan if you so choose.

I agree with Randy. The loan isn't extended. The maturity date stays the same. The customer is still delinquent. The "fine" for this simply doesn't grow with each passing month.