We are not aware of any law or regulation requiring you to disclose a loan transfer fee for an FSA-guaranteed loan in a promissory note or other loan documentation — given that you disclosed the fee when your customer requested the substitution of lender, which you are not required to grant.

The Illinois Banking Act generally provides that banks may charge fees that have been agreed to by your customer and that the establishment of fees are a “business decision to be made by a bank according to prudent business judgment and safe and sound operating standards.” Under this standard, we do not believe it was necessary to disclose a loan transfer fee at the time of origination, since your customer initiated the substitution of lender transaction and you disclosed the fee at the time of the borrower’s request.

Under the FSA regulations, a guaranteed loan may only be transferred to a new lender if the original lender agrees to the transfer and the FSA approves of the substitution in writing.

Regarding fee amounts, the FSA regulations generally allow a lender to charge a borrower fees, provided the fees are no greater than those charged to customers for similar transactions not guaranteed by the FSA. There is no requirement in the regulation that such fees be disclosed at the time of origination.

Consequently, we do not believe you were required to disclose to your customer that they may be charged a transfer fee in the event they sought a substitution of lender for their FSA-guaranteed loan. However, we note that if your bank substitutes a lender without the borrower’s consent, you may need to waive the fee or obtain the borrower’s agreement before charging a fee.

For resources related to our guidance, please see:

• Illinois Banking Act, 205 ILCS 5/5e(a) (“Notwithstanding the provisions of any other law in connection with extensions of credit, a State bank may elect to contract for and receive interest, fees, and other charges for extensions of credit subject only to the provisions of subsection (1) of Section 4 of the Interest Act, except for extensions of credit secured by residential real estate, which shall be subject to the laws applicable thereto.”)

• Illinois Banking Act, 205 ILCS 5/5e(b) (“The establishment of account service charges and the amounts of the charges not otherwise limited or prescribed by law is a business decision to be made by a bank according to prudent business judgment and safe and sound operating standards. . . .”)

• FSA Farm Loan Regulations, 7 CFR 762.105(c) (“A new eligible lender may be substituted for the original lender, upon the original lender’s concurrence, under the following conditions:

(1) The Agency approves of the substitution in writing by executing a modification of the guarantee to identify the new lender, the amount of debt at the time of the substitution and any new loan terms if applicable.

(2) The new lender agrees in writing to: (i) Assume all servicing and other responsibilities of the original lender and to acquire the unguaranteed portion of the loan; (ii) Execute a lender's agreement if one is not in effect . . . (iv) Give any holder written notice of the substitution. If the rate and terms are changed, written concurrence from the holder is required.

(3) The original lender will: (i) Assign their promissory note, lien instruments, loan agreements, and other documents to the new lender. (ii) If the loan is subject to an existing interest assistance agreement, submit a request for subsidy for the partial year that it has owned the loan.”)

• FSA Guaranteed Farm Loan Programs, Tidbits/ Helpful Hints, Page 56 (November 2015) (“In all cases, a ‘Substitution of Lender’ as per 2-FLP Par 287 can be approved by the SED to transfer the Loan Guarantees from Lender A to Lender B. However, both lenders must be in agreement for the substitution of lender to occur. FSA cannot force the original lender to agree to a substitution of lender transaction. The purchasing lender must be aware that the guaranteed loan(s) is being bought AS IS.”)

• FSA Farm Loan Regulations, 7 CFR 762.124(f)(1) (“The lender may charge the applicant and borrower fees for the loan provided they are no greater than those charged to unguaranteed customers for similar transactions. Similar transactions are those involving the same type of loan requested (for example, operating loans or farm real estate loans).”)