Compliance Question of the Week

Can a federally chartered credit union recoup waived settlement costs and fees associated with a Member Business Loan (MBL) without those costs being considered a prohibited prepayment penalty?

Yes, as long as the recoupment period is reasonable in terms of the size and type of fees being waived. In NCUA’s Opinion Letter 08-0731, the NCUA addressed this issue by first noting that the Federal Credit Union Act allows borrowers to repay a loan before maturity without penalty. Therefore, an FCU is prohibited from charging a borrower a prepayment penalty if he were to pay off the loan before it is due. However, in another analysis of non-member business loan waiver of appraisal and title fees, it was determined that these were not prohibited penalties since they were disclosed and agreed to by the borrower, and the recoupment period was a reasonable one or two years.

Related Links:

NCUA Opinion Letter 08-0731


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Posted in Compliance News.