We are not aware of any laws or regulations that would require you to ask your customers to sign new notes in this situation. In our view, the fact that your bank will be declining to exercise its right to charge an 18% post-maturity rate does not necessitate the issuance of new notes or disclosures. However, as discussed below, there is no guarantee that an attorney in a debt collection action would not challenge this practice in court.

In general, it is advisable to ensure that your system settings and other practices are consistent with your loan terms and disclosures. But in this situation, you will not be charging a post-maturity rate that exceeds the rate disclosed in the loan notes — in fact, your system will be applying a far lower rate, to the benefit of your borrowers. While this practice is inconsistent with the provisions in those loan notes, we are not aware of any law or regulation that would prohibit you from charging a lower rate than the rate agreed to by your borrowers. Provided that this is the only inconsistency between your system and provisions of your notes, we do not believe it is necessary to issue new notes or disclosures.

However, it is conceivable that you could encounter a creative attorney representing a borrower in a collection action someday who would be willing to argue that these notes only provide you with the right to charge 18%, not more and not less, and that by charging a lower rate, you were violating the loan note terms. While we find it difficult to envision a judge that would give this argument any credence (since the practice of charging a lower default rate clearly benefits your customers), the costs of responding to and defending against such a challenge should be factored into your considerations as to how to address this situation.