Overpayment Tolerance on Commercial Loans

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    Would anyone be willing to share their general policy regarding overpayment of commercial loans, especially at payoff? We have a $10.80 overpayment on a loan to 5 borrowers (three individuals and 3 entities). I didn’t see anything in our note that addresses how these would be handled. We would like to establish a policy of not refunding less than a certain amount.


    Excellent question. I am not aware of any federal law that directly addresses this issue. You might have state law concerns. Examiners could cite a UDAAP violation, but the small amount of the overpayment makes that seem unlikely. If a significant number of customers have small loses it is more likely that a violation might be cited.

    If the overpayment is the result of an action of the borrower you might consider imposing a fee for issuing a refund check. The fee will either eliminate the refund, or at least compensate you for the effort. Any such fee should be included in your contract. If the overpayment is the result of a bank error it is not reasonable to impose a fee.

    Issuing small refunds is a nuisance, but it is clearly the safe course of action.


    We didn’t see anything in state law (Ohio) regarding refunds. Based on SBA rules we decided to set a minimum to refund of $10.00. Another big issue we faced was how to refund when six borrowers are involved. First, our check writing platform didn’t have nearly enough characters to make a check payable to all parties. We contemplated issuing the refund to the same account that the funds came from, but it was a wire from the title company. We ended up issuing six checks for 1/6 of the $11.80. Big waste of resources. We’ll probably have at least one in the group who doesn’t cash the check either, and we will waste more resources handling an outstanding check.

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