Charged off loans and interest

The compliance team has heard from several members lately about the rules regarding charged off loans and interest. The questions focus on whether credit unions are permitted to continue charging interest after a loan had been charged off. There are a few different ways to look at this issue, which are covered below.

Regulation Z: The Periodic Statement Angle

Regulation Z does not provide a prohibition against charging interest after a loan has been charged off, but it does provide an exception to the periodic statement requirements for credit unions who do this. Periodic statements are required under section 1026.5(b)(2) for all open-end credit products and section 1026.41 for closed-end loans secured by a dwelling. Regulation Z does not require periodic statements for other types of closed-end loans, so these are not addressed.

Both rules provide an exception to the requirements for charged off loans if certain conditions are met. For open-end credit products, the conditions are:


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