Introduction to Interest Rate Change Notice

As per Australian legislation, when a minimum payment installment amount increases, the bank is required to notify the customer. This written notification must be provided no later than a specific number of days before a change in the payment amount takes effect. This requirement only applies to retail lending products where the minimum repayment amounts increase and not decrease.

For personal lending products, the bank is required to inform the increase of installment amount before the new amount is taking effect.

Whenever the Primary Lending Rate (PLR) is changed and communicated by the Central Bank, the bank creates a record with the actual effective date. Say if interest has to be effective from 1st September, then the bank creates a future dated record for 1st September so that the new rate is effective on 1st September.

However, the customer will get enough time, the recalculation of payment is deferred by X days (by regulation 23 days which includes 3 days for postage).

The advice to communicate the new payment amount, which is going to change in X days and has to be generated as of the interest change date, but only when there is an increase in the payment amount.

The Temenos Transact AA module can be configured to recalculate the payment amount or term whenever the interest rate is changed. However, the requirement to defer recalculation of payment amount by X no of days cannot be achieved through the model bank configuration.

This document explains in detail the Interest Rate Change Notice functionality from a bank user’s perspective.

The bank requires changes to the Temenos Transact model bank lending functionality to support Australian banking standards and specific operations.

In the case of an increase in the variable interest rate and if today's rate is Fixed but when there is a future dated variable interest rate, the bank user is able to apply a hold on the calc amount of instalments which fall in the hold period from the date of rate change, whether the rate is effective today or a future date.

Also, when a specific activity is initiated, the freeze on the repayment amount applied through the Payment Holiday will be cancelled, and the calc amount will be recalculated immediately.

This functionality enables bank users to place a hold on the calculated amount of instalments that fall in the hold period starting from the date of the interest rate change, whenever there is an increase in the variable interest rate with today's rate is Fixed. Also, it allows bank users to cancel the freeze on the repayment amount applied through the Payment Holiday, when a specific activity is initiated, and recalculate the calc amount.

Click here to understand the terms and abbreviations used in this module.