Cancelling a new loan

[Guest msf]

A participant requested a a new loan (paper based) about 2 months ago. Since then a loan repayment has come in and been processed. The participant never cashed the check and know wants to cancel the loan, reprocess the check into his account as of current and have the recordkeeper reverse the loan repayment and issue him the funds. Outside consultants have actually said that this is ok to do, but I have a serious concern with doing that. Any thoughts or feedback...

[Alan Simpson]

Why not just have the participant cash the loan check and then make a payment that pays off the loan.

If the loan payment had been made under a mistake of fact (i.e. loan not really funded) you might be able to get that payment back to them. However, in appears in this case that the participant was aware of the loan, the loan was funded, and just wanted to change their mind about having a loan.

My position would be that once the loan paperwork is signed, and the loan has been funded, you have a loan and that the only way to get out of the loan is to pay it off, not just give the check back.

Remember, you are setting a precedent here and what do you want other participants who take a loan to know -- that they can change their minds and create more work for other people, or that it is their responsibility to fully understand what they are doing.

[pmacduff]

I agree with Alan, especially since one payment has already been processed. The participant should cash the loan check and then pay off the loan in full [provided the plan loan policy allows for prepayments without penalty;I assume most, if not all, do].