Monthly Payment Processing via Segmented ACH Collection
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Solution Overview
Problem
Conventional monthly payment collection systems collect full payments in advance, causing cash flow issues for consumers and violating Truth in Lending rules, while being costly for lenders and offering little financial advantage to consumers.
Innovation Solution
A business process that collects smaller weekly or bi-weekly payments via ACH, applying the full monthly payment in arrears when sufficient funds are collected, allowing lenders to offer a competitive feature that reduces processing costs and aligns with consumer payment schedules without violating regulations.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If full monthly payment is collected in advance, then lender receives payment on time, but consumer faces cash flow problems and system violates Truth in Lending rules
Solution Approach 1:
The patent segments the full monthly payment into smaller incremental payments collected more frequently (weekly, bi-weekly, or twice monthly). This segmentation allows the lender to collect the total payment amount through multiple smaller transactions rather than one large advance payment, resolving the contradiction by eliminating cash flow problems while maintaining reliable collection through the accumulation of segmented payments.
2Ease of operation
If smaller incremental payments are collected, then consumer cash flow improves, but processing costs increase due to more transactions
Solution Approach 1:
The patent introduces an intermediary mechanism where the lender's existing payment processing infrastructure mediates between the consumer's incremental payments and the loan account. This intermediary system accumulates multiple smaller payments and processes them as a unified collection strategy, leveraging existing ACH networks and processing systems to minimize additional transaction costs while maintaining the benefits of incremental collection.
3Ease of operation
If payments are collected in arrears, then consumer understands payment timing better, but lender loses interest income
Solution Approach 1:
The patent applies dynamics by making the payment collection timing flexible and adaptive rather than fixed. The system dynamically adjusts when the full monthly payment is considered 'due' based on when incremental payments are received, while still applying them in arrears relative to the original monthly due date. This dynamic approach maintains consumer understanding through clear timing rules while minimizing interest income loss through optimized accumulation periods.
Data Source
AI summary
The present invention provides for a business process, method, and system that shall work with most any monthly payment obligation like a mortgage or installment loan; it collects smaller weekly, every two weeks, or twice monthly debits starting on the first or next monthly due date, then the full monthly payment is applied in arrears when sufficient funds are collected; the lender would offer this service as a courtesy to help the consumer and as a competitive feature and would in most cases also lower their regular check payment processing costs which can range from $1.50 to $5.00. The present invention will allow those lenders to keep their existing infrastructures in place and offer our solution as an option. The lender sacrifices very little and benefits greatly. If the consumer defaults on the automated collection process, it simply reverts to the or