No, we do not believe that you are required to enter into a renewal, extension or modification before the loan’s original maturity date. 

Regulation Z distinguishes a “refinancing,” which could require a new set of disclosures, from other transactions, such as renewals, extensions and modifications, which do not require new disclosures. The general rule under Regulation Z is that a refinancing occurs only when an existing obligation is “satisfied and replaced” by a new transaction. If the renewal, extension or modification does not satisfy and replace the existing loan, then you are not required to treat it as a refinancing and will not have to provide a new set of disclosures. 

The Seventh Circuit has considered a similar issue, albeit in the context of a lump-sum payday loan. The court found that the loan did not “expire” when it matured and held that it was permissible to renew the loan after the maturity date without triggering Regulation Z’s refinance requirements. Similarly, we believe that it is permissible to renew, extend or modify a balloon payment loan after the original maturity date without triggering Regulation Z’s refinance requirements. 

For more information and Q&As, you may wish to explore the Refinancing a Mortgage Loan page on GoToIBA.com. 

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.20(a) (A “refinancing” occurs when “an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer.”)

• Jackson v. American Loan Co., Inc., 202 F.3d 911, 913 (7th Cir. 2000) (“American Loan does not ‘cancel’ the old loan and note, or substitute a new one, when it agrees to defer repayment until another payday, and thus it does not ‘refinance’ the loan. . . . To say, as plaintiffs do, that a loan ‘expires by its terms’ on the original due date is fanciful. All of the loan’s terms, including the repayment obligation, persist.”)