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Interest Amount Collected for Loan Extensions

Answered by: 
Dan Persfull
Richard Insley | Guru Emeritus

Question: 
I am auditing loan extension​s,​ and I am coming across several loans where the payment the customer makes after the extension is not bumping the next payment due date. I have figured out that this is due to our loan ​staff not collecting enough accrued interest. So the customer​'​s payment went to interest, not bumping the due date. My question is : When granting an extension, what interest amount should be collected? What is currently accrued and owed at the time of the extension? or like my Bank is doing taking the per diem X the number of days extending? What is the best practice?
Answer: 

by Dan Persfull:

Payment deferments are regulated by state laws. What you can or cannot collect should be outlined there.

However if I have paid you X number of dollars that you told me I needed to pay to defer my payment and the payment was not properly deferred and my account is being reported past due I would definitely have a UDAAP claim filed.

Answer: 

by Richard Insley:

An extension agreement is an amendment to the loan contract. Read it carefully and determine what your bank agrees to do when the borrower agrees to pay for an extension. If the current procedure fails to produce the condition both you and the borrower have approved, then the procedure needs to change to whatever it takes to make that happen. As you work through this, it may be necessary to have legal counsel review (and possibly rewrite) the wording of the extension agreement.

First published on 02/10/2019

Filed under: 
Lending
Filed under lending as: 
Delinquent Accounts/loans

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