A credit union in our state recently had an NCUA examiner tell them that their consumer loan late fees were out of compliance with Montana law. They were not, but it is easy to see why the mistaken assumption was made. It also feels like a good time to review a couple basics in case the issue comes up at your credit union, or in the event you are concerned your fees may not currently comply.
First, for regular loans done on your credit union loan docs, you are not limited to what you can charge as a late fee, as long as it is appropriately disclosed on the loan agreements. While the Montana code addresses and restricts late fees in Title 32, chapter 5 (Consumer Loan Businesses), there is an exemption from the chapter for credit unions and other financial institutions at 32-5-103(5)(a).
Delinquency (or late) fees are also addressed in Title 31, chapter 1, Part 2 for Retail Installment Sales. The restriction for loans done with a retail installment contract of “not less than 10 days in an amount not to exceed $10 or, alternatively, the holder may calculate a fixed delinquency fee that is expressed as an interest rate not exceeding 15% of each installment in default” is found at 31-1-235(1).
Banks and other lending institutions (i.e. credit unions) are exempt at 31-1-202(2)(a) for loans done “in the ordinary course of lending.” That would include many of the consumer and mortgage loans you do, but the exemption doe not extend to any loans you buy from a dealer that were originally done on a retail installment contract. Those are still subject to the fee restriction above.
Most dealers are well aware of the restriction, but it never hurts to review your documents and dealer contracts to ensure you are in compliance.