Interest Overcharges & Misapplication of Loan Payments

Americans who enter into loan agreements may naturally expect that lenders will apply interest charges consistent with the terms of their loan. Unfortunately, even with today’s automated technological advancements, mistakes are frequently made, and these errors can cost consumers substantial sums of money. Further, catching errors may be difficult given the many different types of loan products and features available to consumers, i.e., does your loan accrue simple or compound interest (yearly, monthly, daily), do you have a fixed or variable interest rate loan, etc.

Certainly, no loan product is immune from interest application errors. In the early 1990s, a government study reported that interest rate errors occurred in 30–35% of adjustable rate mortgages (ARMs). More recently, errors have been readily identified in reverse mortgages, automobile loans, student loans, and mortgages held by military families (the Servicemembers Civil Relief Act places a 6 percent cap on interest rates for active duty servicemembers).  In one case, Wells Fargo was ordered to pay $3.1 million for failing to accurately apply payments and calculate amounts owed, and for failing to voluntarily correct its errors when they were brought to its attention.

Rebekah L. Bailey

Consumer Law Attorney
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Consumers should not only double check the math on their interest payments, but they should pay close attention to the application of their loan payments as well to ensure that their lender is applying their payments in the correct order among fees, escrow, interest, and principal. Proper application of loan payments ensures that your loan is paid off in a timely manner. Consult your loan documents to determine the proper payment allocations for your loan.