House Bill 621-First Edition

GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 2005

H 1

HOUSE BILL 621

Short Title: Small Installment Consumer Loans.		(Public)
Sponsors:	Representative Wright.
Referred to:	Financial Institutions, if favorable, Finance.

March 14, 2005

A BILL TO BE ENTITLED

AN ACT to allow alternative INTEREST rates and maturities for loans not exceeding twelve hundred dollars.

The General Assembly of North Carolina enacts:

SECTION 1. Chapter 53 of the General Statutes is amended by adding a new Article to read:

"Article 15A.

"Small Installment Consumer Loans.

"§ 53-191.10. Title.

This Article shall be known and cited as the "Small Installment Consumer Loan Act".

"§ 53-191.11. Definitions.

As used in this Article, the following terms mean:

(1) Actuarial method. - The Actuarial Method as defined by the federal Consumer Credit Protection Act (15 U.S.C. § 1601, et. seq., commonly referred to as the Truth-In-Lending Act or TILA), as amended from time to time, together with the regulations issued from time to time by the Board of Governors of the Federal Reserve System pursuant to that Act.

(2) Amount of the loan. - The aggregate of the cash advance and the charges authorized by G.S. 53-191.15.

(3) Borrower. - Any person who borrows money from any licensee or who pays or obligates himself or herself to pay any money or otherwise furnishes any valuable consideration to any licensee for any act of the licensee as a licensee.

(4) Cash advance. - The Amount Financed as defined by the federal Consumer Credit Protection Act (15 U.S.C. § 1601, et. seq., commonly referred to as the Truth-In-Lending Act or TILA), as amended from time to time, together with the regulations issued from time to time by the Board of Governors of the Federal Reserve System pursuant to that Act.

(5) Commission. - The State Banking Commission.

(6) Commissioner. - The Commissioner of Banks.

(7) Deputy commissioner. - The deputy commissioner of banks.

(8) Lender. - A person who makes a loan under this Article.

(9) License. - The certificate issued by the Commissioner under the authority of this Article to conduct a consumer loan business.

(10) Licensee. - A person to whom one or more licenses have been issued.

(11) Loanable assets. - Cash, bank deposits, or installment loans made as a licensee pursuant to this Article as the Commissioner may approve.

(12) Person. - Any person, firm, partnership, association, or corporation.

"§ 53-191.12. Scope of Article; evasions; penalties; loans in violation of Article void.

(a) Scope. - Except as otherwise permitted under Article 15 of this Chapter, no person shall engage in the business of lending in amounts of one thousand two hundred dollars ($1,200) or less and contract for, exact, or receive, directly or indirectly, on or in connection with any such loan, any charges whether for interest, compensation, consideration, or expense, or any other purpose whatsoever, which in the aggregate are greater than permitted by Chapter 24 of the General Statutes, except as provided in and authorized by this Article, and without first having obtained a license from the Commissioner. The word "lending" as used in this section includes endorsing or otherwise securing loans or contracts for the repayment of loans.

(b) Evasions. - The provisions of subsection (a) of this section shall apply to any person who seeks to avoid its application by any device, subterfuge, or pretense whatsoever.

(c) Penalties; Commissioner to Provide and Testify as to Facts in Commissioner's Possession. - Any person not exempt from this Article, or any officer, agent, employee, or representative thereof, who intentionally fails to comply with or who otherwise intentionally violates any of the provisions of this Article, or any rule adopted pursuant to this Article, shall be guilty of a Class 1 misdemeanor. Each violation shall be considered a separate offense. It shall be the duty of the Commissioner to provide the district attorney of the court having jurisdiction of any such offense with all facts and evidence in the Commissioner's actual or constructive possession and to testify as to those facts upon the trial of any person for any such offense.

(d) Additional Penalties. - Any contract of loan, the making or collecting of which violates any provision of this Article or any rules adopted pursuant to the authority granted in this Article, except as a result of accidental or bona fide error of computation, shall be void, and the licensee or any other party in violation shall have no right to collect, receive, or retain any principal or charges whatsoever with respect to such loan.

"§ 53-191.13. Expense of supervision.

Each licensee, for the purpose of defraying necessary expenses of the Commissioner and the Commissioner's agents in supervising them, shall pay to the Commissioner the fees prescribed in G.S. 53-122 at the times therein specified.

"§ 53-191.14. License required; showing financial responsibility; investigation of applicants; hearings; existing businesses; contents of license; transfer; posting.

(a) Necessity for License; Prerequisites to Issuance. - No person shall engage in or offer to engage in the business regulated by this Article unless and until a license has been issued by the Commissioner, and the Commissioner shall not issue any such license unless and until the Commissioner finds all of the following:

(1) The financial responsibility, experience, character, and general fitness of the applicant are such as to command the confidence of the public and to warrant the belief that the business will be operated lawfully and fairly within the purposes of this Article.

(2) The applicant has available for the operation of the business at the specified location loanable assets of at least fifty thousand dollars ($50,000).

(b) Investigation of Applicants. - Upon the receipt of an application, the Commissioner shall investigate the facts. If the Commissioner determines from such preliminary investigation that the applicant does not satisfy the conditions set forth in subsection (a) of this section, the Commissioner shall so notify the applicant who shall then be entitled to an informal hearing thereon provided the applicant so requests in writing within 30 days after the Commissioner has caused the notice to be mailed to the applicant. In the event of a hearing, to be held in the offices of the Commissioner of Banks in Raleigh, the Commissioner shall reconsider the application and, after the hearing, issue a written order granting or denying the application. At the time of making the application, the applicant shall pay the Banking Department the sum of two hundred fifty dollars ($250.00) as a fee for investigating the application, which shall be retained irrespective of whether or not a license is granted the applicant.

(c) Required Assets Available. - Each licensee shall continue at all times to have available for the operation of the business at the specified location loanable assets of at least fifty thousand dollars ($50,000). The requirements and standards of this subsection and subdivision (a)(2) of this section shall be maintained throughout the period of the license and failure to maintain these requirements or standards shall be grounds for the revocation of a license under the provisions of this Article.

(d) License; Posting; Continuing. - Each license shall state the address at which the business is to be conducted and shall state fully the name of the licensee, and if the licensee is a partnership or association, the names of the members thereof, and if a corporation, the date and place of its incorporation. Transfer or assignment of a license by one person to another by sale or otherwise is prohibited without the prior approval of the Commissioner. Each license shall be kept posted in the licensed place of business. Each license shall remain in full force and effect until surrendered, revoked, or suspended as provided in this Article.

"§ 53-191.15. Alternative rates and maturities for loans not exceeding $1,200.

(a) Notwithstanding any other provisions of law, a licensee may elect to make installment loans with cash advances not exceeding one thousand two hundred dollars ($1,200) under the following terms and conditions:

(1) No acquisition charge in excess of ten percent (10%) of the cash advance of the loan may be charged.

(2) On any loan with a cash advance of not more than three hundred dollars ($300.00), no installment account handling charge in excess of four and one-half percent (4.5%) of the cash advance per month may be charged.

(3) On any loan with a cash advance in excess of three hundred dollars ($300.00) but not more than five hundred dollars ($500.00), no installment account handling charge in excess of four percent (4%) of the cash advance per month may be charged.

(4) On any loan with a cash advance in excess of five hundred dollars ($500.00) but not more than seven hundred dollars ($700.00), no installment account handling charge in excess of three percent (3%) of the cash advance per month may be charged.

(5) On any loan with a cash advance in excess of seven hundred dollars ($700.00) but not more than one thousand dollars ($1,000), no installment account handling charge in excess of two and one-half percent (2.5%) of the cash advance per month may be charged.

(6) On any loan with a cash advance in excess of one thousand dollars ($1,000) but not more than one thousand two hundred dollars ($1,200), no installment account handling charge in excess of two percent (2%) of the cash advance per month may be charged.

(7) The minimum term for any loan made under this section shall be three months and the maximum term shall be 18 months.

(b) If a loan made under this section is prepaid in full, including payment in cash or by a new loan or the renewal of the loan, or if the licensee demands payment in full of the unpaid balance, the licensee shall refund or credit to the borrower that portion of the installment account handling charge contracted for on the loan, the acquisition charge being fully earned as of the date of the loan, determined by the actuarial method computed as of the next scheduled installment due date next following the date of prepayment.

(c) On any loan established under this section, no insurance charge or any other charge of any nature whatsoever is permitted except as provided in this section, and except for the following:

(1) A delinquent payment charge of ten dollars ($10.00) on any installment not paid within 10 days after its due date.

(2) The return check charge permitted under G.S. 25-3-506.

(3) Fees actually paid to any public official or agency of a county or the State to file, record, or perfect, pursuant to Article 9 of Chapter 25 of the General Statutes, or G.S. 20-58, the lender's security interest in any collateral securing the loan.

(4) Interest after maturity on the outstanding balance at a rate equal to eight percent (8%) per annum.

(d) The loan charges allowed under this section may not be imposed on a loan to a borrower who has one or more loans outstanding under this Article with the same lender or an affiliated lender except that a licensee may make a loan having the charges allowed under this section to pay off the balance due under any other loan or loans made by the lender or its affiliates provided that the aggregate payoff balance of the loan or loans being paid off does not exceed one thousand two hundred dollars ($1,200). The acquisition by a lender or an affiliate of a lender in a bulk transaction of loans made under this Article to a borrower who, at the time of the acquisition, has a loan under this section from the acquiring licensee or an affiliate of the licensee shall not be a violation of this section.

(e) Any loan made under this section must provide for repayment in substantially equal monthly installments. No loan made under this section may be prepaid by a loan from the same licensee or an affiliate of the same licensee who made the initial loan until at least 61 days after the initial loan date nor may a licensee or an affiliate of the same licensee under this section make a new loan to the same borrower until at least 61 days after the initial loan date.

"§ 53-191.16. Businesses exempted.

Nothing in this Article shall be construed to apply to any person, firm, or corporation doing business under the authority of any law of this State or of the United States relating to banks, trust companies, savings and loan associations, cooperative credit unions, agricultural credit corporations or associations organized under the laws of North Carolina, production credit associations organized under the act of Congress known as the Farm Credit Act of 1933, pawnbrokers lending or advancing money on specific articles of personal property, industrial banks, the business of negotiating loans on real estate as defined in G.S. 105-41, nor to installment paper dealers as defined in G.S. 105-83 other than persons, firms, and corporations engaged in the business of accepting fees for endorsing or otherwise securing loans or contracts for repayment of loans.

"§ 53-191.17. Applicable provisions.

The provisions of the following sections shall apply to loans, borrowers, and lenders governed by this Article as if these transactions were transactions under Article 15 of this Chapter: G.S. 53-169 through G.S. 53-172 and G.S. 53-181 through G.S. 53-188."

SECTION 2. G.S. 53-169 reads as rewritten:

"§ 53-169. Application for license.

The application for license shall be made on a form prepared and furnished by the Commissioner of Banks and shall state:

(1) The fact that the applicant desires to engage in business under this ~~Article;~~ Article or under Article 15A of this ~~and~~Chapter; and

(2) Whether the applicant is an individual, partnership, association or corporation; and

(3) The name and address of the person who will manage and be in immediate control of the business; and

(4) The name and address of the owners and their percentage of equity in the company, except when the Commissioner does not deem it feasible to furnish such information because of the number of stockholders involved; and

(5) When the applicant proposes to commence doing business; and

(6) Such other information as the Commissioner of Banks deems necessary.

The statements made in such application shall be sworn to by the applicant or persons making application on the applicant's behalf."

SECTION 3. G.S. 53-172(a) reads as rewritten:

"(a) No licensee shall conduct the business of making loans under ~~this Article~~ Article 15 or Article 15A of this Chapter within any office, suite, room, or place of business in which any other business is solicited or transacted.

~~Installment~~ The business of installment paper dealers as defined in G.S. 105-83, small installment consumer lenders under Articles 15 and 15A of this Chapter, check-cashing under G.S. 53-276, and the collection by a licensee of loans legally made in North Carolina, or another state by another government regulated lender or lending agency, shall not be considered as being ~~any~~ other business within the meaning of this section."

SECTION 4. G.S. 53-173 is amended by adding a new subsection to read:

"(b1) Delinquent Payment Charge. - In addition to the interest and fees permitted under this section, a licensee may collect a delinquent payment charge of the greater of ten dollars ($10.00) or five percent (5%) of the amount of the payment due not paid within 10 days after its due date."

SECTION 5. G.S. 53-176(c) reads as rewritten:

"(c) The provisions of G.S. 53-173(b), (b1), (c) and (d) and G.S. 53-180(b), (c), (d), (e), (f), (g), (h) and (i) shall apply to loans made pursuant to this section."

SECTION 6. This act becomes effective October 1, 2005.