Question 1

WHAT IS DOUBLE DIPPING?

Accepted Answer

Borrowers stuck in debt traps may become highly profitable for some lenders through a practice commonly referred to as “double-dipping.” When borrowers take out new loans before fully repaying an existing loan, they are often double-charged for the outstanding portion of their loans, although many may not realize it. For example, a borrower who still owes $20,000 may take out a second loan of $50,000. The $20,000 they owe would be rolled into the new loan or required to be paid off first, and so they receive only $30,000 of new capital rather than $50,000. However, they may be charged financing costs on the full $50,000, which would in effect mean they were double-charged for any new charges relating to the $20,000 that had been outstanding.

Question 2

WHEN CAN A LENDER CHARGE A FEE IN REFINANCING A LOAN THAT IT PREVIOUSLY MADE?

Accepted Answer

In refinancing a loan, fixed charges should be assessed only on new capital provided to the borrower, except in a loan workout situation. In that case, where a troubled borrower is provided a lower payment, longer repayment terms, or other similar assistance, reasonable fees may be charged to cover costs incurred by the lender associated with the loan workout.

SMALL BUSINESS BORROWERS BILL OF RIGHTS

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