Lender Training Workshop Follow Up

At the lender training workshop held on July 16, 1998, clarification was requested by lenders on the requirements of the regulations and the Common Manual regarding refunding of fees to a borrower who returns funds to a lender within 120 days of disbursement.  The following are questions and answers which address these requirements.

Q. Do the requirements apply to amounts received within 120 days of any disbursement or only the last disbursement? 
A: The requirements apply to any disbursement.

Q: How should the lender apply the funds received if there are no written instructions from the borrower?
A: If the borrower is not in repayment, the lender should refund the fees or an appropriate prorated amount of the fees and apply the refund of the fees as a credit to the borrower's principal balance.

If the borrower is in repayment, the lender must apply the funds according to its normal payment processing procedures.

Q. How should the lender apply the funds received if there are written instructions from the borrower?
A:  If the borrower is not in repayment, generally the lender should treat the written instructions as a non- specific return of funds and should refund the fees or an appropriate prorated amount of the fees and apply the refund of the fees as a credit to the borrower's principal balance. In the best interests of the borrower, all non-specific instructions such as "apply this to my account" or "for payment on my loan" should be interpreted in this manner.  However, if  the borrower specifically instructs the lender in writing as to how they would like the fees applied, such as a request to "apply this all to interest on my account," then the fees should not be refunded.

If the borrower is in repayment, the lender should refund the fees only if the borrower specifically requests that the fees be refunded.  A request for a cancellation or partial cancellation should be considered a request for a refund of the fees.   If the borrower does not make this specific request, the lender must apply the funds according to its normal payment processing procedure.

Q: How should the lender report the return of funds and appropriate refund of fees?
A: Lenders should use the attached form to report the return of funds and the corresponding refund of fees.

Questions regarding the attached form can be directed to Teri Vig at 801-321-7223. Questions regarding the posting of the returned funds can be directed to Brad Ewell at 801-321-7295. Questions or comments regarding the refund of fees can be directed the Policy Department at 801-321-7166.