Bank Failure & My Loan

Detective Krum

What happens to loans when a bank fails?  Some people suggest you do not have to pay your loan once a bank fails.  According to FDIC, you are still obligated to pay your loan.

Here is FDIC’s explanation of what happens to bank assets and outstanding loans.

• Prior to a bank’s failure, the FDIC offers some or all of the failing bank’s assets for sale to healthy financial institutions upon the bank’s closing.
• Loans not sold in the initial sale are packaged and offered for sale to the broader financial market, typically within a few months of the bank’s failure.
• Until the FDIC sells your loan, it undertakes the associated servicing responsibilities.

You have a loan with a bank that just failed.  The loan could be a car loan or mortgage, business loan or whatever. What if FDIC sells your loan?  FDIC’s reply to that question is explained below.

• Holders of loans, including the FDIC, routinely sell performing and non-performing loans in the financial markets.
• If the FDIC sells your loan, either at or subsequent to the time your bank is closed, the FDIC and the new owner will send you a notice of the transaction, with payment mailing instructions.
• The sale does not affect the terms of your loan. The new owner of your loan:
  • Must comply with all state and federal laws with respect to the ownership and servicing of your loan, including the Fair Debt Collection Practices Act,
  • Is entitled to collect all principal, interest, and other amounts owed, and
  • Assumes the receiver’s obligations and commitments.