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:

Prerequisites

None.

Steps

To define a fee:

1. Log in to your Salesforce account.

2. Click Servicing Configuration.

3. Go to Product, Fee Setup.

4. Click Manage Fees.

   The Fee page is displayed.

5. Click Define New Fee.

   The New Fee page is displayed.

6. In the Fee Detail section:

   1. Specify a Fee Name. For example, Late Fee.

   2. 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.

   3. 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.

   4. 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. 

   5. 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.

   6. 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.

7. In the Fee Calculation section:

   1. Select the Fee Calculation Method. This defines how the fee amount is calculated.

   2. 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.

   3. 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.

   4. 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. 

   5. Specify the Minimum Amount to be charged. This applies to both fixed fee amounts and fees derived as % amounts.

   6. Specify the Maximum Amount to be charged. This applies to both fixed fee amounts and fees derived as % amounts.

   7. Select the Enable Fee Capitalization checkbox to add the fee to the loan balance and apply interest on it.

      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.

8. In the Advanced section:

   1. 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.

   2. 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.

9. 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.

10. 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.

11. 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.

12. Specify the following Fee Accounts:

    1. Fee Income 

    2. Fee Prepay 

    3. Fee Expense 

    4. Fee Unearned Income 

13. Click Save to save the fee

    Field Reference

    Field Name	Description
    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: Event To charge the borrower Late Fee for late payments, if any. Maintenance Fee this is a deprecated field but you can achieve this functionality through the Periodic Fee. Pay-Off Fees for early payment of the loan (foreclosing). NSF Fees (Non-Sufficient Funds) for having insufficient funds in the account. Periodic Fees on a routine basis, typically, weekly, monthly, bi-weekly, semi-monthly, monthly, bi-monthly, quarterly, semi-annually, annually, or on specific dates. Other based on factors manually decided by the lender. The charge is not created or applied automatically by the system. Amortized Fees according to the payment frequency. If the payment frequency on the related loan contract is specified as Monthly, the amortized fees is also charged on a monthly basis. No separate bills are generated for payment of the fee amount. The fee is applied on the contract starting from the next payment due date as per the loan frequency. The number of charges created are equal to the number of bills generated from that point onwards. Time of Disbursement at the time of disbursement. In case of loans funded in tranches (FIT), or a line of credit, the fee amount is calculated at each disbursement. Pre-Paid Fees before disbursement of loan amount. For example, if origination fee is not handled outside the CL Loan system, then it can be a part of the loan amount. A lender has the choice to add or reduce the pre-paid fee amount from the loan amount. In the former case, amortization is generated on the increased loan amount. In the latter case, the fee is deducted upfront and no separate charge is created. In case of an FIT loan, this fee is settled during the first disbursal. IO sale to charge the investor at the time of sale of investment order. This value is not available for selection by default and must be added manually. For more information, refer to section Modifying the Drop Down List. Prepayment Penalty when a borrower repays the loan before the scheduled maturity date or repays more than the due.
    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: Tenor Based Slabs: The Prepayment Penalty will be charged based on the tenor of the loan. Amount Based Slabs: The Prepayment Penalty will be charged based on the amount of the loan.
    Fee Calculation
    Fee Calculation Method	Defines how the fee is calculated. Method To calculate the fee Amount calculated as % of loan amount as a percentage of the total loan amount. Amount calculated as % of loan payoff as a percentage of the loan payoff amount. Amount calculated as % of payment amount as a percentage of payment amount. Amount calculated as % of principal balance as a percentage of principal balance. Fixed as a fixed amount. Custom as a custom amount derived using a calculation formula or logic. For example, % of payment amount + % of principal balance. Amount calculated as % of disbursement amount as a percentage of disbursement amount. For example, if the loan amount disbursed is 1000 and the Amount is 10, the total fee is 10% of disbursement amount, which is 100. For a loan funded in tranches and a line of credit, the fee is for each disbursed amount.
    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.
    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. 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: Late Fee Minimum Days Past Due on Contract Maximum Days Past Due on Contract LF1 0 30 LF2 31 60 LF3 61 -1 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.
    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.
    N/A In Case Of Uncleared Transactions	Check box 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
    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
    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
    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