Question: Which loans may have administrative fees?
Answer: Administrative fees are explicitly authorized under Chapter 342 of the Finance Code. So consumer installment loans with rates over 10% (including second lien mortgages) are covered. Remember too that the bank may elect to treat a consumer loan as covered by chapter 342 even if the rate is less than 10%. Dealer paper has its own rules. For example there are "doc fees" for auto dealer paper. But you aren't going to get it! The dealer will!
By contrast, section 34.203 of the Finance Code (Banking section) authorizes "loan fees" on loans that are NOT covered by chapter 342. That would include commercial loans, first lien residential real estate, and consumer loans with rates of 10% or less. Single pay consumer also fall under that category. Loan fees could include an administrative fee for various services related to the loan. (See also 7 TAC 12.32 for the regs.)
Question: How often can the fee be charged?
Answer: The fee should only be charged on a particular loan no more frequently than once every 180 days. In other words, the customer could refinance in six months and you could charge the fee again. (For finance companies that are using the alternate rates, the period is extended to a year.) Theoretically, the customer could pay a loan fee on more than one transaction with the bank in a year. There would be a problem if the bank broke up a single loan into multiple parts in order to charge more than one fee. I can't imagine a bank doing that, but I can assure you that finance companies have done that sort of thing in the past!
Question: Is there still a tax?
Answer: There used to be a $1 fee to the Comptroller of Public Accounts on the admin fee. That was repealed in the last session.
Question: How do we disclose?
Answer: The fee is a prepaid finance charge. That will affect your APR.
Question: The APR is high. Do we have a usury problem?
Answer: The fee is authorized by law. So even though your APR will look very high, so long as the stated interested rate is within the usury ceilings, the transaction will not be usurious. However, the Consumer Credit Commissioner has opined that if a lender finances the administrative fee, the interest on the fee should be considered with the contract interest to determine whether the loan is usurious. So long as the rate is not really close to the usury ceiling (generally 18%) there shouldn't be a problem. Some processors can set up these loans so that the customer pays the fee with installments but no interest is charged on the fee.
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