When you set up recurring charges, you have the option of using a fixed dollar amount, a percentage of a loan amount, or an amount determined by a contingency bracket. Contingency brackets let you set the amount of recurring fees based on a range of different loan numbers, giving you more precise control over what charges are issued. This article will go over the types of contingency brackets and how to create and use a new bracket.
Using Contingency Brackets
Setting up a recurring charge with contingency brackets includes two distinct steps:
- Configure a complete set of contingency brackets. Rather than just creating a single bracket, you'll want a set that fit together, so that every interval is covered.
- Set up a recurring charge with a set of brackets selected as the amount calculation.
Brackets can be set up for four loan numbers:
Current Principal Balance
This type of bracket lets you base fee amount on the principal balance on the loan at the time the fee is assessed.
Original Principal Balance
This type of bracket lets you base fee amount on the original base principal amount. This is the original principal balance excluding any finance charges.
Next Due Amount
This type of bracket lets you base fee amount on the amount of the next payment that will due on the account.
This type of bracket lets you base fee amount on the regular payment amount on the account.
Setting up Contingency Brackets
In LMS, navigate to Settings > Loan > Charges > Contingency Brackets. Here, you'll see the brackets you've set up, sorted categorically. Within each category, they'll be organized by in ascending order, letting you easily see how fees vary at each interval. Later, when you add your contingency bracket to a recurring charge, you'll select the type of bracket — not a specific interval — so it think of each interval as a part of a larger, whole set of contingency brackets.
Clicking "Add" or the edit icon beside an individual bracket brings up this window:
You can specify the following for the bracket:
- Start – This is the lowest dollar amount that will still qualify for this bracket.
- Stop – This is the highest dollar amount that will still qualify for this bracket. Entering a plus + will include anything greater than the start value.
- Type – This is the type of the bracket: Current Principal Balance, Original Principal Base, Next Due Amount, or Payment Amount.
- Fee Amount – This is the amount of the fee that will be assessed on loans that fall into this bracket.
Click Save, and then repeat these steps for however many intervals you want to set up. At your highest interval, you'll want to set the Stop value as "+", allowing that interval to catch any number from that point up.
How To Use a Bracket
Now that you have created a bracket, we can set it up in a recurring charge. Navigate to Settings > Loan > Charges > Recurring Charges inside your company account. Our article Recurring Charges explains most of that process, so this article will just focus on the contingency brackets.
When you add or edit a recurring charge, one of the options is amount calculation. Select "Contingency", and then to the right you'll be able to select the contingency fee bracket you'd like to use.
For example, if you choose Payment Amount, then when an account qualifies for this type of recurring charge, the system will check the payment amount on that loan to see which bracket it falls into. The amount of the fee will then be the amount specified in that bracket.
Use Cases & Questions
Recurring fees, and by extension contingency brackets are most often used by business-to-business (B2B) lenders, as many regions regulate the types of fees that can be applied to consumer loans. B2B loans are generally less-regulated, so B2B lenders have a wider array of tools to incentivize borrowers to make payments on time.
Can I set any amount as the fee? Yes, you can set any dollar amount as the fee for any specific interval. You cannot, however, set a percentage or a calculated amount.
Can I have multiple sets of brackets for the same loan number? No. There are four separate categories, and you can create any number of intervals within a category, but you cannot create separate sets of brackets for the same category.
Are contingency brackets regulated or allowed in my area? That's a fantastic question, and one that you should probably direct toward your compliance officer or legal team. We of course urge all of our clients to follow the laws and regulations governing them, but the responsibility to research, understand, and comply with the law is your own.
Here's some technical terms related to the topic:
Recurring charges, assessed on a loan event or a rule.
How a recurring charge calculates its fee. You can select a fixed dollar amount, a percent of a loan number, or a set of contingency brackets.
A set of intervals for loan numbers (current or original balance, and the next or regular payment amount). When a loan qualifies for a recurring charge with a contingency bracket, it will assess that loan's numbers and find out which bracket it falls into, then add the appropriate fee to the loan.
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