Question of the Week

Question: We would like to amend our closed-end loans to increase our late fees on all our loans. What kind of form do we use and where in Regulation Z can we find rules on how to do that?

Answer: There aren’t any forms or rules because it isn’t permitted.

A closed-end loan is bound by the terms of the contract as agreed to between the lender and borrower. The contents of that contract govern the entire relationship for the term of the loan, including rates and fees. Neither party can modify those terms without the agreement of the other party, which would usually be done with a subsequent action form signed by both.

No reasonable member would accept terms that are unfavorable to their position, such as an increase in late fees, so absent an unusual member, you are stuck with those contractual terms. The member can’t change the fees to be lower without the credit union, and the credit union can’t change them to be higher without the member.  

For future loans, you may modify your contracts to charge a higher late fee. This may require your loan processor to have some contracts at one late-charge rate, while others have a different late-charge rate.