Internal Controls for Loans
  • 25 Nov 2022
  • 2 Minutes To Read
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Internal Controls for Loans

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In the Internal Controls section of Creating a new loan product form, you can setup automatic internal controls for loans, such as the dormancy period or the number of days before locking accounts in arrears.

Internal Controls with Close Dormant Accounts, Lock Arrears Accounts and Cap Charges

Close dormant accounts

Loan accounts that have been completely paid off can be either manually or automatically closed. If you want Mambu to automatically close those accounts, check this option and enter the number of days after which the account should be automatically closed.

One of the advantages of this option is that it reduces the risk of creating incorrect reports and performance indicators with data from accounts that have been paid off but not closed.

Lock arrears accounts

Loan accounts that are in arrears can be locked automatically after a chosen number of days. By locking the account, applying interest, fees or penalties is stopped. Additionally, locked accounts do not accept transactions posted to them unless the user has permission to post transactions on a locked account. If you want Mambu to automatically lock an account, check this option and enter the number of days after which the account should be automatically locked.

Cap charges

This option allows you to automatically lock accounts in arrears when interest, fees and penalties are more than a percentage of the current principal balance or of the original principal amount.

Cap Charges option with % Outstanding Principal Balance and Soft Cap options.

  • With Soft Cap constraints, when the threshold is exceeded, the income balances, such as interest, fees, or penalties will be applied and the account will be set in Locked (Capping).
  • With Hard Cap constraints, when the threshold is exceeded, the income balances will not be applied anymore and the account will be set in Locked (Capping) state.

Example

We set up a loan product with the following internal control: when the interest, fees, or penalties raise up to more than 10% of the Outstanding principal, the account is automatically locked and no charges are being applied to it.

Example of a loan account with 1444 days late and gathered over 30% of initial balance interest which is why it was automatically locked

If we select soft cap, the interest, fees, or penalties will be applied before the account gets automatically locked. If we select hard cap, the interest, fees, or penalties will not be applied before the account gets automatically locked.

Apply accrued charges before lock (capping)

Select this box, if you want to lock the account when the accrued interest and penalties at account level go over the defined limit. When running the end-of-day tasks, the cron job will automatically put the account into Locked state when it identifies that the accrued interest and/or penalty goes over the limit. For more information, see End of Day Processing and Cron Jobs.

Unlocking the account is possible only after the constraint defined in the product is not satisfied any more: the account is no longer in arrears or the client has paid interest, fees or penalties.

Please Note

The accounts will be closed or locked when the nightly actions are performed at midnight. Closing the account will also trigger any automated text messages or notifications you might have set up for closing the account.

Please Note

If you want to enable any of these options for existing loans, you will see them available when editing the product.


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