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In many cases, when you have a loan, you are able to pay the entire loan off early with a lump sum, rather than continuing to make regular, scheduled payments over an extended time period. The general process by which this occurs is that you go to your loan provider and ask them to tell you the loan payoff amount if you paid on a certain date. This will calculate any outstanding balances, plus any accrued interest between then and the date such that when you give them that money by that time, you will be paying off the entire loan as it is at the time they get the payment.

Are there any laws governing the loan payoff process, and in particular, laws to protect the borrower for predatory practices?

A possible situation I'm considering is the following. The lender will tell you your payoff amount for a specific date and requests that you mail in a check. You send your check (and it is postmarked by the specific date) and their processing department decides to sit on the check and wait to cash it. In the meantime, your loan has continued to accrue interest such that your payoff amount no longer pays off the loan. In the worst case scenario, you think your loan is done, you stop checking in on it, and five years down the line, you're hit by a collector asking where their accrued interest payments are. In the best case scenario, your payoff amount is cashed late and you still have $5 left of accrued interest. You send another check to pay off that $5 but by the time it's cashed, you have another $0.30 to pay off and the cycle continues. There's also the issue that the lender may consider the date they received the check (rather than the post-marked date) as the official date the check is paid off, leading to the right amount not arriving at the right time (and the above ad infinitum scenario playing out).

Are there laws that protects the borrower by making lenders honor loan payoff quotes or governing when a payment should be counted as received (e.g., by the postmark date vs the actual arrived-on-our-desk date)? I'm sure there are other shady scenarios predatory lenders could use so I'm interested in more information than just the example scenario I described above.

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  • There are such laws, but the specifics and procedures will depend to some extent on the type, of loan. In particular, mortgages (esp residential mortgaged) auto loans, and loans for consumer goods are likely to have special requirements and procedures that do not apply to other sorts of loans. What sort of loan would be in question here? – David Siegel Jan 1 at 18:30
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Massachusetts law regulating lending is more specific, that is, there isn't one law covering all loans. so it would matter if this was a business loan, car loan, paycheck loan, home loan... Whether or not the term "predatory" is applied within a statute is also variable. MGL Ch 183c is in fact entitled "Predatory home loan practices", but there is no specific prohibition against "predatory loans", instead the law says that certain practices are illegal, and the specific category of "predatory" isn't statutorily defined (for any category of loan, as far as I can tell).

The question is a bit too open-ended, but we can take an example or two. A loan obligation is met when the payment is received, not when the check is deposited. Therefore, a creditor cannot sit on a check in order to rack up late fees. The contract will contain a "receipt clause" which says whether it is sufficient that you put it in the mailbox (almost certainly not what the agreement says).

Your personal belief that you have discharged a debt does not make it so, thus if you fail to pay off the debt, and you do not receive a notice from the lender that the obligation has been discharged, you cannot argue "but I thought...." to nullify the obligation. Mortgage loan law imposes a specific statutory obligation on a lender to provide notice of discharge. Generally, the burden is on the creditor to verify that the loan has been paid off.

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