Loan Amortized Fees

Lending Lending Loan Amortized Fees

Loan Amortized Fees functionality in the FLEX system enables credit unions to systematically amortize loan fees, such as CUDL fees or prepaid finance charges, over a specified period. This process involves initial fee posting upon loan origination and subsequent amortization postings during End-of-Day (EOD) processing.

1. Overview of Loan Amortized Fees

  • Purpose: To distribute loan fees as expenses over a defined period rather than recognizing the full amount at the time of loan posting.
  • Fee Groups: Fees are managed through “Fee Groups,” which are configured and then assigned to specific Loan Types.
  • Initial Posting: The full fee amount is posted when the loan is initially disbursed.
  • Amortization Posting: Amortization entries occur during EOD processing, typically on the last day of the month or quarter, based on the defined frequency.

2. Loan Amortized Fee Maintenance

This section details how to manage Fee Groups within the FLEX system.

2.1 Accessing Loan Amortized Fee Maintenance

  1. From the FLEX Main Menu, navigate to Loans.
  2. Expand the Maintenance section.
  3. Select Loan Amortized Fee Maintenance.
    • This screen displays all existing Fee Groups.

2.2 Managing Fee Groups

From the Loan Amortized Fee Maintenance screen, you can perform the following actions:

  • Add: Click the Add button to create a new Fee Group.
  • Edit: Highlight an existing Fee Group and click Edit to modify its settings.
  • Delete: Highlight an existing Fee Group and click Delete to remove it.

2.3 Fee Group Configuration Fields (Add/Edit Fee Group)

When adding or editing a Fee Group, the following fields are available for configuration:

  • Group Name:
    • Description: An alphanumeric field for the unique name of the fee group.
    • Action: Enter a descriptive name for the group (e.g., “CUDL”, “CERT FUND”).
  • Group Description:
    • Description: A detailed description associated with the fee group.
    • Action: Provide a clear explanation of the fee group’s purpose.
  • Fee Code:
    • Description: A credit union-defined code (up to 4 characters) to identify the type of fee.
    • Action: Assign a short, recognizable code (e.g., “CUD”, “CF”, “GPS”).
  • Amortization Periods / Frequency:
    • Description: Defines the number of periods over which the fee will be amortized and the frequency of posting.
    • Options: Monthly (M) or Quarterly (Q).
    • Action: Specify both the number of periods (e.g., 30) and the frequency (e.g., M for 30 months).
  • Use Branch Accounting:
    • Description: Indicates whether branch-specific accounting should be applied to this fee group.
    • Action: Select Yes or No as appropriate for your accounting practices.
  • Original Amount (Optional):
    • Description: Represents the default original fee amount.
    • Note: If left blank, the user can define this amount during the loan disbursement process. Can be used with “Percent of Balance.”
    • Action: Enter a fixed fee amount if it’s consistently the same for all loans using this group, or leave blank to allow manual entry at disbursement.
  • Percent of Balance (Optional):
    • Description: If the fee is calculated as a percentage of the loan balance.
    • Action: Enter the percentage rate (e.g., 0.000%). The system will calculate the fee based on the loan balance when added during disbursement.
  • Forced Depreciation Amount (Optional):
    • Description: Allows overriding the system-calculated amortization amount with a fixed value.
    • Note: If left blank, the system calculates the depreciation based on the original amount divided by the amortization periods. This can also be defined during loan disbursement.
    • Action: Enter a specific amount if a fixed depreciation amount is required, otherwise leave blank.
  • Income/Expense GL:
    • Description: The general ledger account for expense postings.
    • Action: Enter the GL account number. This account is DEBITED for the full fee upon loan posting and CREDITED for the monthly/quarterly depreciation.
  • Depreciation GL:
    • Description: The general ledger account for depreciation postings.
    • Action: Enter the GL account number. This account is DEBITED for the monthly/quarterly depreciation.
  • Payable GL:
    • Description: The general ledger account for payable postings.
    • Action: Enter the GL account number. This account is CREDITED for the full fee upon loan posting.

3. Adding Fee Group to Loan Type

Once a Fee Group is created, it must be assigned to a Loan Type for it to be applicable to loans.

  1. Navigate to Type Configuration.
  2. Select the relevant Loan Type to edit.
  3. Go to the Fees tab.
  4. Locate the Miscellaneous section.
  5. Assign the desired Fee Group from the dropdown menu.
  • Note: Only one Fee Group can be assigned per Loan Type at any given time. However, the same Fee Group can be used multiple times on a single loan if multiple fee amounts need to be amortized.

4. Loan Fee Amortization in Loan Disbursement

After a Fee Group is assigned to a Loan Type, an “Amortized Fees” tab becomes available in Loan Disbursement.

4.1 Accessing Amortized Fees in Loan Disbursement

  1. Open Loan Processing – New Loan Entry or an existing loan.
  2. Navigate to the Amortized Fees tab.

4.2 Adding an Amortized Fee Record to a Loan

  1. On the Amortized Fees tab, click the Add button.
  2. A new window will appear to configure the specific amortized fee for this loan.
  3. Configure the following fields:
    • Fee Code:
      • Description: Select the specific Fee Code to be applied to this loan.
      • Action: Choose the appropriate fee from the dropdown.
    • Amortization Method:
      • Description: Displays ‘S’ for Straight Line amortization. This field is not maintainable.
    • Amortization Periods / Frequency:
      • Description: Defaults to the frequency defined in the Fee Group Code.
      • Action: Can be changed here if necessary for this specific loan.
    • Start Date:
      • Description: The date from which amortization posting will begin.
      • Action: Enter the desired start date.
    • Original Amount:
      • Description: Represents the total fee amount as originally entered. The system uses this to calculate depreciation. If the Fee Group uses a percentage of balance, this field auto-fills.
      • Action: Verify or enter the total fee amount.
    • Forced Amount:
      • Description: Allows overriding the system-calculated depreciation amount with a fixed value for this loan.
      • Action: Leave blank for system calculation, or enter a specific amount to force.
    • Remaining Amount:
      • Description: Displays the amount of the fee still remaining to be depreciated.
      • Note: This field cannot be manually maintained and updates only upon posting.
    • Expense GL:
      • Description: Displays the default expense general ledger account from the Fee Group Code.
      • Action: This account will be debited when the monthly or quarterly posting occurs.
    • Depreciation GL:
      • Description: Displays the default depreciation general ledger account from the Fee Group Code.
      • Action: This account will be debited when the monthly or quarterly posting occurs.
    • Payable GL:
      • Description: Displays the default payable general ledger account from the Fee Group Code.
      • Action: This account is not affected by monthly or quarterly depreciation postings.

5. Amortized Fees Tab in Loan Maintenance

The Amortized Fees tab is also available within Loan Maintenance for viewing and editing existing amortized fee records for a loan.

5.1 Accessing Amortized Fees in Loan Maintenance

  1. From the FLEX Main Menu, navigate to Loans.
  2. Select Maintenance.
  3. Choose Loan Maintenance.
  4. Select the desired loan.
  5. Navigate to the Amortized Fees tab.

5.2 Editing an Amortized Fee Record

  • To edit an existing Fee Group record, highlight it and click the Edit button. This will open the “Edit Fee” window with the same fields as described in Section 4.2.

6. Summary of General Ledger Postings

Understanding the GL postings is crucial for reconciliation and financial reporting.

6.1 Initial Loan Posting (Full Fee Amount)

  • Expense General Ledger: DEBITED for the full amount of the fee.
  • Payable General Ledger: CREDITED for the full amount of the fee.

6.2 Monthly or Quarterly Depreciation Posting

  • Expense General Ledger: CREDITED for the monthly/quarterly depreciation amount.
  • Depreciation General Ledger: DEBITED for the monthly/quarterly depreciation amount.

6.3 Loan Paid Off Prior to Full Depreciation (Loan Flagged Closed)

If a loan is paid off and flagged as closed before the fee is fully depreciated (i.e., remaining amount is not zero), a final entry is triggered:

  • Expense General Ledger: CREDITED for the remaining undepreciated amount at the end of the month the loan was flagged closed.
  • Depreciation General Ledger: DEBITED for the remaining undepreciated amount at the end of the month the loan was flagged closed.
    • Important Note: This final entry is ONLY triggered in the month the loan is flagged closed.