The bank where I'm a lender has a provision in our mortgage loan documents that, if a borrower pays more than their normal payment amount, we set aside that extra amount until it adds up to a full payment, then we apply it to the loan as a normal payment. If the borrower wants the extra to pay down the principal balance, they have to tell us AND we have to apply it to the loan differently. It's a bit more paperwork for the teller who takes the payment. Whenever I go over loan documents with a customer, I point this out and tell them that, if they want to pay down the principal, they need to tell us when they make the payment.
We have a customer who this has been an issue for. It's been ongoing for several years, but this story takes place since December. The customer has been paying a bit extra each month (less than $100), telling the teller he wants the extra applied to principal. The teller who's taken his payments forgot to do the extra paperwork, so the payment wasn't split out the way the customer wanted. The extra payment was sitting on the system as an "amount partially paid."
When the customer discovered this, he was justifiably angry. I spoke with him in December. I agreed to reverse and reapply his last 2 payments (the bank is only required to correct errors less than 60 days old) and re-train the tellers on how to apply excess loan payments (which I did). He seemed mollified, at the time.
Then he called again yesterday. This time, the customer was angry because his monthly billing notices weren't matching up with how the payments were applied to his loan. I had him email me copies of the notices so I could look into it. After some digging, I discovered that the system was subtracting that "amount partially paid" from the interest due and from the total due on the billing notices. So it was showing that he wasn't due for as much for his next payment. He would pay the interest amount + an amount rounded up to the next $100. He expected the exact interest amount on his bill to go to interest, as long as he made the payment on the day it was due. But it never did, because of that "amount partially paid."
I agree with him that it's shady. I explained as best I could that that was how his loan documents said payments would be applied, but since he's informed us that he wants his payments applied differently, we'll apply them the way he wants going forward. There won't be an "amount partially paid" any more, so the interest that's listed on his bill will be the amount he pays (assuming he pays it on the day it's due). He accused the bank of attempting to make more on interest by applying payments this way, since the principal balance remains higher. And yes, that's true. It's a very small amount each payment, but over time and thousands of loans, it adds up. But it's not something I have any control over. That's how management has decided to process loan payments. He said it should be illegal. It isn't illegal, though. If it was, the bank wouldn't do it.
I managed to smooth things over, I think. But also, he's right. This is a shady and deceptive business practice. But it's also common. And banks get away with it all the time because it's legal.
We have a customer who this has been an issue for. It's been ongoing for several years, but this story takes place since December. The customer has been paying a bit extra each month (less than $100), telling the teller he wants the extra applied to principal. The teller who's taken his payments forgot to do the extra paperwork, so the payment wasn't split out the way the customer wanted. The extra payment was sitting on the system as an "amount partially paid."
When the customer discovered this, he was justifiably angry. I spoke with him in December. I agreed to reverse and reapply his last 2 payments (the bank is only required to correct errors less than 60 days old) and re-train the tellers on how to apply excess loan payments (which I did). He seemed mollified, at the time.
Then he called again yesterday. This time, the customer was angry because his monthly billing notices weren't matching up with how the payments were applied to his loan. I had him email me copies of the notices so I could look into it. After some digging, I discovered that the system was subtracting that "amount partially paid" from the interest due and from the total due on the billing notices. So it was showing that he wasn't due for as much for his next payment. He would pay the interest amount + an amount rounded up to the next $100. He expected the exact interest amount on his bill to go to interest, as long as he made the payment on the day it was due. But it never did, because of that "amount partially paid."
I agree with him that it's shady. I explained as best I could that that was how his loan documents said payments would be applied, but since he's informed us that he wants his payments applied differently, we'll apply them the way he wants going forward. There won't be an "amount partially paid" any more, so the interest that's listed on his bill will be the amount he pays (assuming he pays it on the day it's due). He accused the bank of attempting to make more on interest by applying payments this way, since the principal balance remains higher. And yes, that's true. It's a very small amount each payment, but over time and thousands of loans, it adds up. But it's not something I have any control over. That's how management has decided to process loan payments. He said it should be illegal. It isn't illegal, though. If it was, the bank wouldn't do it.
I managed to smooth things over, I think. But also, he's right. This is a shady and deceptive business practice. But it's also common. And banks get away with it all the time because it's legal.
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