Late Fees, late fees, late fees
Greetings, I hope all is well out there in compliance land!
Over the past couple of weeks, we have received a few questions on different aspects of applying late fees for open-end credit transactions, including “pyramiding” of late fees. Back when NCUA had its own UDAP authority in the pre-Dodd-Frank era (old §706), the practice of pyramiding late fees was explicitly prohibited. Pyramiding of late fees is a situation where a member (who has been previously charged a late fee) pays the current amount due on a loan without the prior month’s late fee included, and the payment is applied to the late fee first, leaving an overdue balance on the current month payment, resulting in another late fee. While NCUA’s UDAP rulemaking authority was repealed, the agency issued a Letter to Credit Unions stating the following:
“Due to the statutory repeal, the NCUA Board plans to repeal Part 706 at an open meeting later this year. However, the repeal of NCUA’s rules in Part 706 will not mean that the credit practices described in those rules are permissible. The FTC Act and the Dodd-Frank Act continue to prohibit unfair or deceptive acts or practices.
If a federal credit union engages in an unfair or deceptive practice described in the soon-to-be repealed credit practices rules, NCUA may determine a statutory violation exists, depending on the facts and circumstances of the particular case.”
