As credit unions continue to find ways to help their members through these challenging times, skip a pay remains a hot topic in NAFCU’s compliance inbox. I addressed the rules for open-end credit in a previous blog and today’s post will cover the considerations for closed-end consumer credit.
Unlike open-end credit, Regulation Z does not specifically address skip a pay for closed-end loans. Section 1026.20provides rules for refinances but the original obligation is not generally paid off and replaced in a skip a pay program, so the disclosure requirements for refinancings will likely not apply. The rule explains that the requirements for modifications are governed by state law. Credit unions interested in offering skip a pay options for closed-end loans may want to review any applicable state laws and the loan agreement before proceeding.
Skip a pay for closed-end loans can be done a few different ways and it will generally be up to the credit union and its member to determine the best course of action. One way could be to advance the maturity of the loan each time a payment is skipped. Another way could be to add a balloon payment at the end of the loan. However the credit union decides to proceed, it may want to ensure the terms of the skip and any new repayment terms are clearly disclosed to the member in the skip a pay agreement.
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