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After acquiring a financial institution through an FDIC receivership, can we change all of the old bank’s loans from a 360/365 interest calculation to a 365/365 basis without notifying the customers or having them sign new loan agreements, since the change would be to their benefit? – IBA Compliance Connection

IBA Compliance Connection

Your go to source for compliance!

After acquiring a financial institution through an FDIC receivership, can we change all of the old bank’s loans from a 360/365 interest calculation to a 365/365 basis without notifying the customers or having them sign new loan agreements, since the change would be to their benefit?

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We believe that the bank would need to obtain the borrower’s consent before switching their loan from the 360/365 method to the 365/365 method of calculating interest. Even though this change would clearly benefit the borrower, any change to the loan agreement should be agreed to by the borrower (and obtaining their consent for any changes would be prudent given the recent rash of anti-bank lawsuits). You may also want to contact the FDIC’s Closed Banks and Asset Sales Department, which maintains a hotline for questions about asset sales at 888-206-4662 (and they may be able to answer specific questions about the purchase and assumption agreement by which you purchased the loans).

Also, we note that the Illinois legislature enacted a law (in 2010) to explicitly state that banks may use the 360/365 method of calculating interest on commercial loans. 815 ILCS 205/4(5) (“. . . a rate or amount of interest may be lawfully computed when applying the ratio of the annual interest rate over a year based on 360 days. The provisions of this amendatory Act of the 96th General Assembly are declarative of existing law”).