Profile: onehome
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Welcome to Regulation Room, onehome, and thanks for your comment. The first part of your comment discusses how lenders credit partial payments that don’t cover the full outstanding balance. CFPB hopes to minimize delinquent fees for borrowers making partial payments. If a borrower who owes $1000 in January and $1000 in February makes a partial payment of $500 in January, the $500 is held in a suspense account. If the borrower pays $500 again in February, the two payments are combined and applied to January. When the borrower makes partial payments totaling one full installment, the delinquency on the oldest overdue installment is satisfied first and the borrower no longer incurs late fees on that amount. In the example, at the end of February, the borrower will have paid the January… more »
You suggest that, when a borrower makes a partial payment that is less than one full installment, CFPB should still require lenders to credit the payment to the amount the borrower owes or hold the partial payment in a suspense account that earns interest. So, using the prior example, the $500 paid in January would be used to reduce the amount the borrower owes by $500, even if it’s less than a full installment or the borrower would receive interest on the $500 until a full installment was paid to the lender. The interest on the suspense account would be used to offset any penalties tied to the $500 partial payment that was made. It’s not clear how easy it is for servicers to keep track of and make these kinds of calculations on payment amounts that are less than a full installment. If CFPB does not adopt your proposal and borrowers continue to get no credit for partial payments, do you think borrowers would still make partial payments? Would it be helpful if CFPB instead requires servicers to return partial payments or be clearer that money in a suspense account earns no interest and does not reduce penalties or fees? « less
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I studied the example Periodic Statment 2. If a lender will put a partial payment in a suspense account, why can’t the lender apply as much of the partial payment as is needed to bring a late payment up-to date. For instance, if the 3-1-12 payment could be made and some of the late charges paid, why does the full amount of the partial payment stay in the suspense account? To hold funds in the suspense account until the full amount is collected and fees are paid still hurts the borrower who is at least trying to catch up. Even paying interest and then the remainder to pricipal on a partial payment helps the borrower catch up. The lender will benefit from the additional interest on the principal that is paid down more slowly and the late charges. Otherwise, the suspense account should… more »
The portion of the funds that would be alloted to the escrow for taxes and insurance should be applied as well. Those items must be paid anyway and there is no reason for the bank to add them to the loan amount and charge interest when there was funds to cover them. Perhaps that should be done first. « less
Regulation Room Research Team,
The borrower should certainly know that a partial payment is not credited to their benefit if that is the case. In all honesty, as a consumer, why would I give a partial payment and receive no benefit until I can make the rest of the payment? I have better uses for those funds (especially if I am in a financial bind) or I can put them in a savings account. Also, if a partial payment is returned to the borrower as in the case of some lenders, doesn’t that encourage the borrower to spend those funds to pay for something else? If payment was tendered, even a partial payment, the borrower was attempting to fulfill his or her obligation and should receive some credit for the attempt. It has been my experience that consumers who are encouraged to work… more »
As for the recordkeeping issue for servicers of the accounts, my guess would be that partial payments could be programmed into the bookkeeping program and the allocations made automatically or nearly so. The additional time would be minimal compared to the benefit to the consumer. It certainly wouldn’t be any more difficult than keeping track of the partial payments in a suspense account.
Sincerely,
Onehome
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