Loan Fees

[Guest LBH]

The loan program requires a $50 fee to be paid by the particpant when requesting a loan. Can this fee be deducted from the particpants account (using pre-tax dollars)?Should the particpant pay for it separately? Can the administrator withhold the charge from the loan proceeds check?

[LCARUSI]

I've seen it deducted from the check proceeds and I've seen it deducted from the account. That's not to say you're third choice (separate payment by the participant) is invalid, I've never seen it done that way. It seems okay, but an administrative pain.

[Guest John McCrary]

I have had plans that made the participant pay the loan fee up front by check or money order. The plan can choose from the three discribed any method it wants to. It will have to be clear in the Loan Policy. The easiest way to administer the plan is to net it out of the proceeds of the loans. The plans I had that made them pay up front used it as a way to discouarge the participants from taking small, mulitple loans (charged $100 fee plus monthly admin fees for the life of the loan up front - so a 60 month loan would cost them $160 upfront).

[This message has been edited by John McCrary (edited 09-08-1999).]

[Guest Phil L]

I am curious as to (i) how you compute the APR (Annual Percentage Rate as required under Regulation Z) when all the fees for the life of the loan are taken up front, and (ii) how you ensure you are't violating the usury laws of a particular state when the fees for a small loan constitute a high percentage of the amount borrowed.

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[Guest Kevin Gordon]

If you take the charge for the loan out of the proceeds, upfront, and employee pays loan off early, how would you prorate the monthly fees not yet "earned."

[Guest Phil L]

I have been looking for quite some time as to the formula(s) for computing the APR on plan loans. Regulation Z is the source of the requirement but I have found it very difficult to read (and understand). Is there any reference that you are aware of that explains how the APR should be calculated?

Thanks.