By Ray Birch
SOUTH BEND, Ind.— Credit unions may be facing a growing compliance problem—and many don’t even know it.
The issue lies in something deceptively simple: loan payment calculators. These tools, used both on the back end of lending systems and consumer-facing websites, are often not accounting for complex state laws, federal requirements, and disclosure rules. The result, experts warn, could mean regulatory penalties, lawsuits, or reputational damage if left unchecked.
Sarah Milovich, general counsel and vice president of compliance at Carleton Inc., said she’s fielding an increasing number of questions from credit unions on this issue.
“It’s not always a direct question like, ‘Is my calculator sufficient?’” she explained. “The problems show up in the back end, when disclosures don’t align or assumptions don’t match the requirements of a given state law. That’s when credit unions start calling us.”
What’s A Payment Calculator?
At its simplest, a payment calculator is the tool that determines what a member’s monthly payment will be. That might be a simple website widget designed for marketing or, more critically, the calculator embedded in a credit union’s loan origination system. While the marketing version may provide a ballpark figure, the back-end calculators drive the actual terms and disclosures of a loan—meaning they must be accurate to avoid compliance violations.
“The risk,” Milovich noted, “is when a calculator fails to factor in things like taxes, fees, credit insurance, or even state-specific rules on interest computation. A small error may seem minor, but if repeated across thousands of loans, regulators see it as a pattern.”
Real-World Risks
Milovich shared an example where an online calculator, designed for the mortgage industry, was misapplied in a consumer lawsuit. A borrower’s attorney used the tool to claim a lender’s Truth in Lending Act disclosures were incorrect.
“The output looked perfectly reasonable to the consumer and their lawyer,” she said, “but the assumptions baked into the calculator were wrong for the type of loan at issue.”
Beyond lawsuits, credit unions run into regulatory and reputational hazards, Milovich said. For instance, in Texas, the law requires loan interest to be calculated on an “actual/365” calendar. A system using a different calendar could inadvertently overcharge by just a few dollars per loan. Regulators, however, view that as a compliance violation—and fines, redisclosures, and member mistrust can follow.
“Every time a credit union has to send a redisclosure letter, it plants doubt,” Milovich warned. “Members start to wonder—if they got my payment wrong, what else are they getting wrong?”
Why Credit Unions May Not Realize There’s A Problem
According to Milovich, many credit unions rely on standard government tools such as the FFIEC’s APR calculator, assuming it’s the gold standard. But those tools have known flaws, she said.
“We’ve found provable instances where the FFIEC calculator is not correct,” she said, pointing to how it struggles with loans starting near Feb. 28.
Another complication: the Truth in Lending Act allows APRs to be calculated using two different methods—the actuarial method or the U.S. rule. The FFIEC tool cannot handle the U.S. rule, creating gaps when credit unions buy loans originated under that method, Milovich explained
“These gaps don’t always show up until a credit union modernizes systems or acquires new loan portfolios,” Milovich explained. “But as more institutions update their platforms, we expect the number facing these issues to rise significantly.”
How To Protect Against Compliance Risk
What can credit unions do? Milovich recommends a two-step approach:
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Ensure Calculators Reflect State and Local Nuances
Credit unions must confirm their loan systems account for state-specific requirements like Texas’s “actual/365” rule or similar regional laws. -
Add a Compliance Check Layer
“Even if your origination system runs the initial calculations, there should be a compliance engine validating the results,” Milovich advised. That can include safeguards like:- Setting institutional APR caps (e.g., never exceeding 17.5%)
- Running validations against both allowable APR methods
- Ensuring fees, taxes, and insurance are always factored in
“This compliance check is what keeps institutions safe from fines, lawsuits, and reputational risk,” Milovich said.
A Growing Challenge
While it’s difficult to estimate how many credit unions are currently impacted, Milovich believes the problem is only going to expand.
“We hear from institutions that don’t know how their older systems were originally programmed—or how to reconcile them with today’s lending policies,” she said. “As credit unions modernize and expand, this is going to be a much bigger issue.”
For credit unions, the message is clear: the payment calculator may seem like a small cog in the lending machine, but if left unchecked, it can quietly undermine compliance—and trust, Milovich said.