Is it a violation of any US banking regulations for a bank to continue charging interest on a loan when they have temporarily blocked the account holder from making payments? (or at least interest on amount of the pending payments that are held up while the issue leading to the blockage is cleared up...)
-
1To the close voters who didn't comment, this is a question of law, not a request for advice.– Michael HallSep 13 at 17:23
-
I've never heard of a creditor blocking payments on a loan. What extenuating circumstances led to that?– abelenkySep 13 at 18:20
-
@abelenky, I deleted the extenuating circumstances because I believe it was triggering close votes. Please refer to the edit history if you are curious.– Michael HallSep 13 at 18:21
Add a comment
|
1 Answer
The relevant law is probably just the general common law of contracts. Banking regulations or consumer finance laws are unlikely to be pertinent to answering this question.
The implied duty of good faith and fair dealing in every contract (or comparable contract law doctrines in some jurisdictions that don't analyze the issue the same way) prohibit one party to a contract from benefiting by making it impossible for the other party to the contract to perform their duties under the contract.
But, this doesn't mean that any barrier to performance is a valid defense. For example, if the creditor has an e-pay system that you are unable to use, but also has a mailing address to which you can mail your payment, the fact that you are unable to use the e-pay system is probably not a valid defense to non-payment and would not prevent interest from accruing.
Indeed, even if you are unable to make payment by any means, that isn't necessarily a bar to imposing interest, because interest is seen as a compensatory remedy for the fact that you had that money that would otherwise have been repaid, even if the reason that you didn't pay was unfair. Interest at a non-default rate is normally due even if no one has breached the contract.
Inability to pay is a much stronger defense to the assertion by the creditor that you have defaulted on the contract by not paying the debt when due, and therefore should owe late fees, special default interest rate interest, and collection costs, and that they shouldn't report your account to a credit reporting agency as in default, than it is that you don't owe ordinary non-default interest.
Another key legal concept is "tender". To perform a duty to pay money under a contract you must tender the payment to the creditor - i.e. make an unconditional attempt to pay the amount due in a way that it is possible for the creditor to accept. If you tender payment unconditionally to a creditor, you are not in default to the extent of that payment on your obligation to pay, even if the creditor does not actually take the money, and tender of the amount due would stop interest from accruing on the amount tendered. Tender of payment has this effect because the creditor had the ability to not be deprived of the time value of the money lent by accepting the tendered funds, and any further harm to the creditor arising from non-payment arises from the creditor's own actions.
On the other hand, if the debtor could have tendered payment by some means if the debtor had sufficient funds to do so, but didn't tender payment, the debtor has probably breached the contract and is probably in default.
Of course, there are many U.S. jurisdictions. This answer reflects majority common law rules of contract law in the United States only. No doubt there are some U.S. jurisdictions which are either outliers with respect to the majority rule, or where this fact pattern would present the courts with a question of first impression upon which that jurisdiction has no clearly established legal rule.