IBA Compliance Connection

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If we agree to change the day of the month a borrower’s monthly payment is due on an installment loan, does the borrower need to sign a change in terms agreement? Our notes state the day of the month on which the first and last payments are due but do not specify the due date for interim payments. For example, a note may provide that the payment schedule will be 49 payments of $X beginning on May 1, 2020, and one payment of $Y on June 1, 2023. The note also states that payments made ten or more days after the “due date” will be considered late. Additionally, would we need a change in terms agreement if the maturity date is changing?

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We recommend reviewing your loan documents with your bank counsel to ensure that there is no language in the note or other loan agreement stating on which day of the month payments (other than the first and final payments) are due. If a date is not stated, you may be able to change the monthly payment date without a change in terms agreement; however, we recommend memorializing the change — and the borrower’s agreement to it — in writing. In the event of a payment default and potential litigation, you will need to be able to prove when the default occurred according to the terms of your agreement.

If your bank is changing the maturity date stated in your note, we recommend having your customer sign a change in terms agreement, as you should whenever a specific term in your loan agreement is being altered.