SECTION 83.704. Deferment

(a) Definition. A deferment means the payment of an additional interest charge to defer the payment date of a scheduled payment on a contract. A deferment charge prescribed by this section may occur in a loan transaction that employs either the precomputed or the scheduled installment earnings methods of calculation. A separate deferment charge is not applicable to a loan transaction that employs the true daily earnings method since an extension of time would be calculated on elapsed daily charges, and the parties may agree to modify the terms of the transaction as long as the modification conforms to the requirements of Texas Finance Code, Chapter 342, Subchapter G.

(b) Bilateral or mutual deferment. A borrower and a lender may mutually agree to defer any scheduled installment. There is no limit on the number of bilateral deferments that can be made during the time that a loan contract is in effect. Bilateral or mutual deferments must be agreed upon in writing.

(c) Deferment notice. Each deferment must be recorded on the account record at the time the deferment is made. A written notice containing the conditions of the deferment must be provided to the borrower. The deferment notice must include the name of the lender, the name of the borrower, the loan number, the date of the deferment, the installment or installments being deferred, the deferment period, the amount of the deferment charge, the balance on the account, and the date and amount of the next installment due. The notice must be signed by the borrower to indicate the borrower's agreement to a bilateral deferment.

(d) Computation of deferment charge for regular transaction. Each deferment charge on a regular loan transaction must be computed in accordance with the method prescribed by the loan contract. If the loan contract does not provide for a deferment charge, then no deferment charge may be assessed or collected. A lender may employ any of the prescribed computational methods described in this subsection so long as the computational method employed is consistently utilized throughout the term of the loan. An authorized lender may calculate the deferment charge using the balance method or the date method.

(1) Balance method. The balance method is used to determine the difference between the refund of unearned interest as of the due date of the last entirely paid installment and the due date of the next succeeding unpaid installment.

(A) Calculation for deferment before first installment. The interest for the deferment may be no more than the difference between the refund that would be required for prepayment in full on the first installment due date, if it were one month from the date of the loan, and the total interest charged on the loan, exclusive of any charge for any additional odd days or an administrative fee. The deferment charge for the first installment is essentially the charge for the first month of interest.

(B) Calculation for deferment after first installment. The first step in determining the deferment charge using the balance method for any installment after the first installment is to determine the deferment period.

(i) "Deferment period." The deferment period is the period from the last entirely paid installment to the "next succeeding unpaid installment." The deferment period will constitute the deferment of the "first entirely unpaid installment."

(ii) Determination of "last entirely paid installment." In order to determine the "last entirely paid installment," first the remaining precomputed balance must be computed. The determination of the balance will identify the last entirely paid installment. In determining the remaining precomputed balance, an authorized lender must adjust the amount of the remaining precomputed balance for any amounts relating to any minor payment schedule irregularities or any add-on insurance premiums or other permissible charges applied to the precomputed balance after the consummation of the loan. After determining the remaining precomputed balance, the remaining precomputed balance must be divided by the regular installment amount. This calculation will reveal the number of remaining installments to be paid. By determining the number of remaining installments to be paid, the due date of the last paid installment may be determined (this must be a wholly unpaid installment). Texas Finance Code, §342.204(a)(1) only permits a deferment charge to be assessed on an installment that is completely unpaid.

(iii) Determination of "next succeeding unpaid installment." The due date of the next succeeding unpaid installment is the end of the "deferment period."

(iv) Calculation for deferment charge. The calculation for the deferment charge is the scheduled interest charge for the "deferment period."

(v) Example of deferment calculation. The terms of a precomputed Texas Finance Code, §342.301 loan are as follows: Date of loan: 09/01/2015; First payment due date: 10/01/2015; Cash Advance: $2,766.48; Finance Charge: $833.52; Total of Payments: $3,600; Term: 36 months; Monthly installment: $100; Refunding method: Sum of the periodic balances; and Annual Percentage Rate: 18%. If an authorized lender agrees to a deferment roughly six months into the contract and the remaining precomputed balance is $3,095 (no adjustments are necessary), to determine the "last entirely paid installment," the authorized lender must divide the precomputed balance by the regular installment amount ($3,095 divided by $100 = 30.95). Because the entire amount of the installment must be unpaid, the result must be rounded to the next lowest whole number (in this case, 30). For calculation purposes, there are 30 remaining installments and 6 installments have been made. In this case, the 7th scheduled installment is being deferred. The deferment charge is calculated by determining the scheduled interest charge for the deferment period, or from the last entirely paid installment to the "first entirely unpaid installment" (the 6th entirely paid scheduled installment) to the "next succeeding unpaid installment" (7th scheduled installment). The "next succeeding unpaid installment" is determined by subtracting one unit period from the "last entirely paid installment" (30 - 1 = 29). The calculation of the deferment charge is the difference between the interest refund of the 6th entirely paid installment (36 - 30) and the 7th first entirely unpaid installment (36 - 29). This difference would be $37.54. A scheduled installment earnings refund method would yield a slightly different result of $36.69.

(2) Date method. The date method determines the deferment charge by taking the difference between the amount of the refund of unearned interest as if a full prepayment of the loan occurred as of the date of the deferment, and the amount of the refund of unearned interest for a full prepayment of the loan occurred one full month prior to the date of the deferment.

(e) No deferment when payment applied to account balance. If a payment has been applied to reduce an account balance, no deferment of any prior balance or installments may be made. This does not preclude the collection of a deferment fee previously assessed but not collected.

(f) No deferment when default charge already collected. No installment may be deferred if a default charge has already been collected on the account or if a partial payment in any amount has been credited to any installment. If an amount equal to one whole installment has already been credited to an account, this entry cannot be altered in order to credit part of the installment to a deferment charge.

(g) Missed payment covered by insurance. When any payment or partial payment is deferred that is later paid by some form of insurance, such as credit disability insurance, unemployment insurance, or collateral protection insurance, any prior assessment of additional interest for deferment must be waived.

(h) Accounting of payment. If a payment is submitted from which a deferment charge is taken, the excess of the amount necessary to bring the account current must be applied to the remaining balance of the loan. However, any difference that exceeds $3 must be returned to the borrower upon the borrower's request.

(i) Noncompliance. Deferment fees not assessed or collected in accordance with the requirements of this section are subject to refund to the borrower. In the event deferment fees are refunded to the borrower, no rescheduling of the loan contract is permitted.

Source Note: The provisions of this §83.704 adopted to be effective November 9, 2006, 31 TexReg 8994; amended to be effective November 4, 2010, 35 TexReg 9698; amended to be effective July 10, 2014, 39 TexReg 5142