§1615 Prohibition on Use of “rule of 78’s” in Connection with Mortgage Refinancings and Other Consumer Loans

Summary

Lenders must quickly give back any interest that was not earned if a borrower pays off a consumer loan early. No refund is needed if the refund would be under $1. This rule applies no matter why the loan was paid early, including refinancing, consolidation, restructuring, or if the lender accelerates the loan. For precomputed loans longer than 61 months made after September 30, 1993, lenders cannot use the "Rule of 78s" to figure refunds. They must use a way of calculating refunds that is at least as fair to the borrower as the actuarial method. If a borrower asks for the payoff amount, the lender or the loan owner must give, within 5 days, the total needed to pay off the loan and say how much of that will be refunded. If the request is written, the answer must be written. A borrower gets one such statement free each year. Lenders can charge a reasonable fee for extra statements if they tell the borrower the cost first. Actuarial method: a way to apply each payment first to interest and then to reduce the loan balance. "Consumer" and "creditor" use the meanings in section 1602, and "creditor" also includes any assignee of the original creditor.