401kLoans was founded in 2000 to provide a higher level of compliance support in processing participant loans from defined contribution plans. The popularity of plan loans continues to grow. The loan features of many of the popular recordkeeping platforms lack the integrated features recordkeeping service providers need to stay competitive while managing the compliance risk associated with loan origination activities.

The courts and regulators have made it clear that consumer lending laws of the various agencies and jurisdictions apply to plan loans. For example, the compliance and disclosure requirements of the Truth-in-Lending Act, as fleshed out in the Federal Reserve’s Regulation Z, apply to plan loans. Recordkeeping service providers that fail to provide the required disclosures risk administrative sanctions, and, with severe violations, civil and criminal penalties. Further, we noted that the industry has struggled with the characterization of fees assessed with plan loans. As most plan loans are written with origination or maintenance charges, this misunderstanding poses a significant risk. Here’s why:

	Regulation Z clearly indicates that any plan, trust, or trustee that writes over 25 loan transactions in a year is subject to the requirements of the regulation, is subject to the limitations contained therein, and must provide the required disclosures to the participant/borrower before the loan agreement is signed. Whether or not fees are charged is irrelevant for determining the applicability of the regulation. (An in-depth description of the Truth-in-Lending Act’s implementing regulation, Regulation Z, is provided in our Loan Origination Knowledge Base section.)
	Origination and maintenance fees are finance charges and must properly be reflected in the disclosed APR and finance charge.
	Administrative sanctions can take the form of reimbursement for under-disclosed interest and undisclosed fees. Disgorgement of fees might relate back to loans two to three years old. The result can be an administrative nightmare and a reputational blow.

We believe that in an industry of razor-thin margins, revenues follow efficencies and that efficiencies are best created with insightful incorporation of technology to assist in the performance of day-to-day tasks. Recordkeeping service providers continually invest in technology to improve services just to keep up with competitors’ offerings. In addition, recordkeeping service providers generally carry the most risk, as they are performing thousands of transactions each day. To help mitigate that risk, our software solution offers recordkeeping service providers and directed trustees a compliance-conscience work flow capable of supporting paperless and noteless loan originations, innovative fee possibilities, and, of course, accurate Truth-in-Lending disclosures.

Simply call us to discuss how you can implement our software immediately.
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