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Waived MBL fees dont equal prepayment penalties says NCUA
ALEXANDRIA, Va. (11/14/08)—Federal credit unions may recoup waived settlement costs and fees associated with a member business loan (MBL) without it being considered a prohibited prepayment penalty, according to a recent legal opinion issued by the National Credit Union Administration (NCUA). The opinion was written in response to CUNA inquiries seeking clarification on the statutory mandate prohibiting federal credit unions from charging a borrower a prepayment penalty. The NCUA answered that as long as the recoupement period is reasonable in terms of the size and type of fees involved, the action is not prohibited under the Federal Credit Union Act (FCUA). It is the NCUA’s view, its letter said, that an agreement stating a borrower will pay for fees initially waived if he or she closes the loan within one year does not constitute a prepayment penalty. A loan agreement should specifically disclose to borrowers the conditional nature of a fee waiver and the recoupment period should be only long enough as is “reasonably necessary to offset expenses associated with waived fees.” The NCUA also said it agrees with CUNA’s interpretation that a fee due at loan payoff, a so-called back-end fee, should be treated the same as a fee due at or before loan closing. “In principle, we agree but only if the back-end fee is one that is charged regardless of whether the MBL is paid early or at maturity,” said the agency opinion.
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