Defining a fee
Overview
You have the flexibility to define the fees applied on a CL Contract. The fee may be part of the lending product definition, such as processing fee, or be derived based on borrower actions, such as NSF fees for insufficient funds in borrower account for payments. Multiple fees are combined to form fee sets and are then linked to the lending products. Except for pre-paid fees, which are configured independently, all the fees must be present in the fee set associated with the lending product or loan contract in order to be applied.
In case of fees that may be chargeable multiple times, such as late fee, lenders can customize the conditions under which the fee is applied. For example, one lender may charge a late fee only when the first payment is delinquent and not for subsequent consecutive payments that remain unpaid. Another lender, however, may want to charge a late fee for each delinquent payment. A third vendor may apply late fee only for the first three consecutive non-payments, and so on. These conditions can be defined using a custom class that overrides the default CL Loan charge application decisioning.
You can enable capitalization of a fee, whereby, the fee amount is added to the loan balance and interest is accrued on it, in situations of late or non payment of the fee. In the default payment spread, this interest is recovered before satisfying the other components of interest, fee and principal balance. However, you cannot add a capitalized fee to a non-interest bearing loan, such as amortization based loan or a line of credit.
As part of fee setup and CL Loan configuration, you can define the number of days before the same fee can be reapplied on the contract. This default minimum number of days for a recurrent charge are specified in the lending product definition.
The following are some examples of the commonly configured fees:
Purpose | Fee Name | Fee Category | Time of Charge | Fee Calculation Method | Sample Amount or % |
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Charge on payment returns due to insufficient funds in borrower account | NSF Fees | Loan | NSF Fees | Fixed | 35 |
Charge on a late payment | Late Fees | Loan | Late Fees | Amount calculated as a % of payment amount | 2.5 |
Standard charge on disbursement of loan | Origination Fees | Loan | Time of Disbursement | Amount calculated as a % of loan amount | 1 |
Charge based on related setups on the fee | Custom Fees | Loan | Fee Setup | Custom | 5 |
Prerequisites
None.
Steps
To define a fee:
Log in to your Salesforce account.
Click Servicing Configuration.
Go to Product, Fee Setup.
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Click Manage Fees.
The Fee page is displayed.
Click Define New Fee.The New Fee page is displayed.
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In the Fee Detail section:
Specify aFee Name. For example, Late Fee.
Select the State to specify the status of the fee. The options include Active and Inactive. A fee must be active to be applied on a contract.
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Select the Purpose. The default value is None. Select Protect to create a fee called Protect, to be used for the Protect feature.
Note:The steps listed below pertain to the fee category of Loan. The fee categories Client and Group have been deprecated as they no longer impact product functionality.
Select the Fee Category. The options include Loan, Group, and Client. The fee category of a fee and fee set must be the same to add the fee to the fee set.
Select the Time of charge. This is dependent on the category of fee selected. It defines the event on which the charge must be applied automatically.
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Specify the Custom Fee Application Condition Class. This is required if you want to override the default application logic with custom logic for applying late, NSF, or payoff recurring fees .
Note:If you are upgrading from a previous version of CL Loan, you must add this field to the Fee page. For more information, refer to section Custom Application of Fees.
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In the Fee Calculation section:
Select the Fee Calculation Method. This defines how the fee amount is calculated.
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Specify the number or percentage Amount of fee to be charged. For example, if the fee is calculated as 1% of loan amount, then enter "1" in the Amount field.
Note:The amount for Fixed time calculation method is a flat amount, but the amount is a % value for other fee calculation methods except Custom.
Select the Interest Bearing checkbox if interest is accrued and charged on the fee amount in case of late payment of fee. You must select either this or the Enable Fee Capitalization checkbox.
Specify the Interest Rate if this is an interest bearing fee, to indicate the rate at which interest is accrued on the fee amount. For example, if the fee is 100, then 1% rate of interest per month would accumulate $1 for 1 month.
Specify the Minimum Amount to be charged. This applies to both fixed fee amounts and fees derived as % amounts.
Specify the Maximum Amount to be charged. This applies to both fixed fee amounts and fees derived as % amounts.
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Select the Enable Fee Capitalization checkbox to add the fee to the loan balance and apply interest on it.
Note:You cannot add a capitalized fee to an amortization based loan or a line of credit. If you attach a fee set containing a capitalized fee, while creating the lending product, an error is displayed.
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In the Advanced section:
Specify the Minimum Days Past Due On Contract. This is applicable only for late fees. It is the minimum number of days that the payment must be past due for a late fee to be charged.
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Specify the Maximum Days Past Due On Contract since the last payment was made on the contract.
The default value is -1. The value of -1 ensures that the fee remains applicable till it is paid up, even beyond the maximum date ranges specified.
If you do not want the system to consider a date range, and directly apply the fee, both these fields must be left blank.
Note:The Maximum Days Past Due on the contract must be specified as -1, as this allows the late fee to remain applicable beyond the specified range of days past due, till it is paid by the borrower.
Specify the Investor Share (%), which is the percentage of fee payment distributed to investors who have funded the loan. For information on how multiple investors can fund a loan, and receive returns on it, refer to section Fractionalization.
Specify the Minimum Days for Recurrent Charge of the same fee. This does not apply to a fee with time of charge as Pre-Paid Fees.
Select the N/A In Case Of Uncleared Transactions checkbox if late fee must not be charged in cases where the payment is received from the borrower, and is either in uncleared status with the bank, or is in the lock period specified for the contract.
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Specify the following Fee Accounts:
Fee Income
Fee Prepay
Fee Expense
Fee Unearned Income
Click Save to save the fee
Field Reference
Field Name | Description | ||||||||||||||||||||||||
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Fee Detail | |||||||||||||||||||||||||
Fee Name | The name of the fee. For example, Loan Late Fee, LOC Pre-Paid Fee. | ||||||||||||||||||||||||
State | The status of the fee. The options include Active and Inactive. A fee must be active to be applied on a contract. | ||||||||||||||||||||||||
Purpose | This field is currently used to indicate a Protect fee for Protect enabled loans. The Protect fee is not added as part of the fee set, and is included separately in the contract. | ||||||||||||||||||||||||
Fee Category | The business category where the fee is applied. The values include Loan, Group, Client, however, Client and Group are not in use. The fee category of a fee and fee set must be the same to add the fee to the fee set. | ||||||||||||||||||||||||
Time of Charge |
This is dependent on the category of fee selected. It defines the event on which the charge must be applied automatically. These events include:
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Custom Fee Application Condition Class | The custom class that defines the conditions under which a charge that is due on a contract must be applied. This class overrides the default application logic for NSF, payoff and late fees. For example, a late fee may be applied on unpaid bills for only the first two consecutive bills, and not again, until all dues are paid and contract is in good standing again. | ||||||||||||||||||||||||
Prepayment Penalty Type |
This is applicable for Prepayment Penalty Time of charge. This field represents the type based on which the Prepayment Penalty has to be charged. The options are:
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Fee Calculation | |||||||||||||||||||||||||
Fee Calculation Method |
Defines how the fee is calculated.
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Amount | The number or percentage Amount of fee to be charged. For example, if the fee is calculated as 1% of loan amount, then enter "1" in the Amount field. | ||||||||||||||||||||||||
Interest Bearing | Indicates if interest is accrued and charged on the fee amount in case of late payment of fee. A fee is due as soon as it is charged. In case of any delay, interest is computed daily using the 30/360 day convention, on a non-compounding basis. | ||||||||||||||||||||||||
Minimum Amount | The minimum fee amount to be charged. This applies to both fixed fee amounts and fees derived as % amounts. | ||||||||||||||||||||||||
Maximum Amount | The maximum fee amount to be charged. This applies to both fixed fee amounts and fees derived as % amounts. | ||||||||||||||||||||||||
Enable Fee Capitalization | Indicates that the charges applied to the contract under this fee accrue interest. This means that the initial charge value is considered as part of the loan balance, and therefore accrues interest. You can select either this or the Interest Bearing checkbox, but not both. | ||||||||||||||||||||||||
Include in Dues | The selected checkbox indicates that the fee is included in the bill. |
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Interest Rate | Indicates the rate at which interest is accrued on the fee amount for an interest bearing fee. For example, if the fee is 100, then 1% rate of interest per month would accumulate $1 for 1 month. | ||||||||||||||||||||||||
Advanced: This is applicable only for late fees. If you do not want the system to consider a date range within which the payment is outstanding, and directly apply the fee, leave both these fields blank.
Note:
Based on the number of Days Past Due on a CL Contract, when a due is generated, appropriate late fees is applied. The table given below provides details of the Late Fee, Minimum Days Past Due on the CL Contract, and Maximum Days Past Due on the CL Contract:
Let us assume payment due dates are July 10, August 10, September 10, and October 10, 2016 respectively, and pre-bill days are 0. Based on the scenario, the late fee is calculated as follows: If borrower makes the payment that is due on July 10, 2016 on July 11, 2016, the Late Fee LF1 is applied as the day is one day since the payment due date. If the borrower does not make any payment in July and even on August 10, LF2 is applied. If the borrower does not make any payment till and on September 10, LF3 is applied. However, If borrower makes a payment for all pending dues on Aug 15, the borrower pays Due 1 and LF2 on it, and Due 2 and LF1 on it. | |||||||||||||||||||||||||
Minimum Days Past Due on Contract | It is the minimum number of days that the payment must be past due for a late fee to be charged. | ||||||||||||||||||||||||
Maximum Days Past Due on Contract |
since the last payment was made on the contract. The default value is -1. The value of -1 ensures that the fee remains applicable till it is paid up, even beyond the maximum date ranges specified. In a fee set, you can define either a flat rate fee or a fee structure with non-overlapping day range. |
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Minimum Days for Recurrent Charge | The minimum number of days that must elapse before the same fee can be charged to the borrower. For example, if a late fee is already applied on a contract, then for future unpaid payments, the same fee may not be applied for these minimum number of days. | ||||||||||||||||||||||||
Investor Share % | The percentage of fee payment distributed to investors who have funded the loan. The value of this fee is the sum of the starting amount of the fee and any interest that is computed on it. In case of multiple investors, the investor share % is distributed among all investors as per their share in the loan amount. For information on how multiple investors can fund a loan, and receive returns on it, refer to section Fractionalization. | ||||||||||||||||||||||||
Minimum Days for Recurrent Charge |
This indicates the number of days before which a charge of the same type can be applied again. This helps the borrowers from being charged for the same fee again within the specified period. The default value of this is 30 days, but this value is configurable. For example, if a lender has chosen the option ‘Minimum days for recurrent charge’ as 30 days, and the borrower is in a weekly payment cycle. Payment occurs on June 3 and then on every subsequent Friday, of June 10, 17 and 24. The borrower misses the first payment on June 3, and a late fee is charged on June 4. The next payment due is on June 10. However, no late fee is charged for this missed payment as a late fee has already been charged within the last 30 days. The borrower again misses the payment due on June 17. However, no late fee is charged as one late fee is already charged within the past 30 days.
Note:
Minimum days for recurring charge can be set up for any type of fee. If you add this for an existing fee, it affects the future charges. |
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N/A In Case Of Uncleared Transactions | Checkbox to indicate that late fee must not be charged in cases where the payment is received from the borrower, and is either in uncleared status with the bank, or is in the lock period specified for the contract. | ||||||||||||||||||||||||
Fee Income |
This account is used to track income on a particular fee. At time of loan payment, this account is credited. This account is also credited for amortized fees. Type: Income |
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Fee Prepay |
This account is used to track fees that are prepaid by the lender to an external party. This is typically part of the buyback process. Type: Asset or Contra liability |
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Fee Expense |
This account is used to track any fee related expense on a loan. This is typically part of the buyback process, where part of the origination fee is shared with the originating bank. Type: Expense |
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Fee Unearned Income |
This account is used to track unearned income on a fee. Typically, origination fee is recorded as 'unearned' at the time of funding, and recognized, or amortized, over the life of the loan. Type: Income |