Citations Affected: IC 24-4.5.
Synopsis: Small loans. Makes various changes in the small loan
provisions of the Uniform Consumer Credit Code, including: (1)
prohibits the renewal of a small loan; (2) removes limitations on
finance charges; (3) increases delinquency charges; (4) allows a small
loan to be secured by a borrower's authorization to debit an account
instead of a borrower's check; (5) increases civil penalties and statutory
damages from $1,000 to $2,000; and (6) prohibits a small loan if the
total payable amount of the small loan exceeds 15% of the borrower's
monthly gross income. (Current law provides that a small loan is
prohibited if it exceeds 20% of the borrower's monthly net income.)
Repeals provisions that relate to the renewal of a small loan.
Effective: Upon passage; July 1, 2004.
January 12, 2004, read first time and referred to Committee on Insurance and Financial
Institutions.
January 20, 2004, reported favorably _ Do Pass.
January 26, 2004, read second time, ordered engrossed. Engrossed.
January 29, 2004, read third time, passed. Yeas 44, nays 3.
A BILL FOR AN ACT to amend the Indiana Code concerning trade
regulations; consumer sales and credit.
SECTION 1. IC 24-4.5-7-104, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 104. "Small loan" means a loan:
(a) with a principal loan amount that is more than at least fifty
dollars ($50) and less than four not more than four hundred one
dollars ($401); ($400); and
(b) in which the lender holds the borrower's check or receives the
borrower's written authorization to debit the borrower's
account under an agreement, either express or implied, for a
specific period before the lender:
(i) offers the check for deposit or presentment; or
(ii) seeks exercises the authorization to transfer or withdraw
funds from debit the borrower's account.
SECTION 2. IC 24-4.5-7-105, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 105. "Principal" means the total of:
(a) the net amount paid to, receivable by, or paid or payable from
the account of the consumer; borrower; and
(b) to the extent that the payment is deferred, the additional
charges permitted by this chapter that are not included in
subdivision (a).
SECTION 3. IC 24-4.5-7-107, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 107. "Renewal" refers to a small loan that takes
the place of an existing small loan by:
(a) renewing;
(b) repaying;
(c) refinancing; or
(d) consolidating;
a small loan with the proceeds of another small loan made to the same
consumer borrower by a lender.
SECTION 4. IC 24-4.5-7-108, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 108. "Consecutive small loan" means a new small
loan agreement that the lender enters with the same consumer
borrower not later than seven (7) calendar days after a previous small
loan made to that customer borrower is paid in full.
SECTION 5. IC 24-4.5-7-109, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 109. "Paid in full" means the termination of a
small loan through:
(1) the payment of the consumer's borrower's check by the
drawee bank or authorized electronic transfer;
(2) the return of a check to a consumer borrower who redeems
it for consideration;
(3) the authorized debiting of the borrower's account; or
(4) any other method of termination.
SECTION 6. IC 24-4.5-7-110, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 110. "Monthly net gross income" means the
income received by the consumer borrower in the four (4) week thirty
(30) day period preceding the consumer's borrower's application for
a small loan under this chapter and exclusive of any income other than
regular net gross pay received, or as otherwise determined by the
department.
SECTION 7. IC 24-4.5-7-201, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 201. (1) Finance charges on the first one hundred
dollars ($100) of a small loan are limited to fifteen percent (15%) of
the principal.
(2) Finance charges on the amount of a small loan greater than one
hundred dollars ($100) are limited to ten percent (10%) of the amount
over one hundred dollars ($100).
(3) The total amount of finance charges may not exceed thirty-five
dollars ($35).
SECTION 8. IC 24-4.5-7-202, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 202. (1) Notwithstanding any other law, only the
following fees may be contracted for and received by the lender on a
small loan: or subsequent refinancing:
(a) The parties may contract for a delinquency charge of not more
than five ten dollars ($5) ($10) on any installment not paid in full
within ten (10) days after its scheduled due date.
(b) A delinquency charge under this section may be collected only
once on an installment, however long it remains in default. A
delinquency charge may be collected any time after it accrues.
(2) An additional charge may be made not to exceed twenty dollars
($20) for each:
(a) return by a bank or other depository institution of a:
(i) dishonored check;
(ii) negotiable order of withdrawal; or
(iii) share draft issued by the consumer; borrower; or
(b) time an authorization to debit the borrower's account is
dishonored.
This additional charge may be assessed one (1) time regardless of
how many times a check or an authorization to debit the borrower's
account may be submitted by the lender and dishonored.
SECTION 9. IC 24-4.5-7-301, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 301. (1) For purposes of this section, the lender
shall disclose to the consumer borrower to whom credit is extended
with respect to a small loan the information required by the Federal
Consumer Credit Protection Act.
(2) In addition to the requirements of subsection (1), the lender must
conspicuously display in bold type a notice to the public both in the
lending area of each business location and in the loan documents the
following statement:
"WARNING: A small loan is not intended to meet long term
financial needs. A small loan should be used only to meet short
term cash needs. Renewing the small loan rather than paying the
debt in full will require additional finance charges. The cost of
your small loan may be higher than loans offered by other lending
institutions. Small loans are regulated by the State of Indiana
Department of Financial Institutions.
A consumer borrower may rescind a small loan without cost not
later than the end of the business day immediately following the
day on which the small loan was made. To rescind a small loan,
a consumer borrower must inform the lender that the consumer
borrower wants to rescind the small loan, and the consumer
borrower must return the cash amount of the principal of the
small loan to the lender.".
(3) The statement required in subsection (2) must be in:
(a) 14 point bold face type in the loan documents; and
(b) not less than one (1) inch bold print in the lending area of the
business location.
(4) When a borrower enters into a small loan, the lender shall
provide the borrower with a pamphlet approved by the
department that describes:
(a) the availability of debt management and credit counseling
services; and
(b) the borrower's rights and responsibilities in the
transaction.
SECTION 10. IC 24-4.5-7-401, AS AMENDED BY P.L.258-2003,
SECTION 2, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 401. (1) Except as provided in subsection (2), A
small loan may not be made for a term of less than fourteen (14) days.
(2) After the consumer's third borrower's fifth consecutive small
loan, another small loan may not be made to that consumer borrower
within seven (7) days after the due date of the third fifth consecutive
small loan. unless the new small loan is for a term of twenty-eight (28)
days or longer. After the borrower's fifth consecutive small loan, the
balance must be paid in full. However, the borrower and lender
may agree to enter into a simple interest loan, payable in
installments, under IC 24-4.5-3 within seven (7) days after the due
date of the fifth consecutive small loan.
SECTION 11. IC 24-4.5-7-402, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 402. (1) A lender is prohibited from making a
small loan to a consumer borrower if the total payable amount of the
small loan exceeds twenty fifteen percent (20%) (15%) of the
consumer's borrower's monthly net gross income.
(2) A small loan may be secured by only one (1) check or electronic
authorization to debit the borrower's account per small loan. The
check or electronic debit may not exceed the amount advanced to or on
behalf of the consumer borrower plus loan finance charges contracted
for and permitted.
(3) A consumer borrower may make partial payments in any
amount on the small loan without charge at any time before the due
date of the small loan. After each payment is made on a small loan,
whether the payment is in part or in full, the lender shall give a signed
and dated receipt to the consumer borrower making a payment
showing the amount paid and the balance due on the small loan.
(4) The lender shall provide to each consumer borrower a copy of
the required loan documents before the disbursement of the loan
proceeds.
(5) A consumer borrower may rescind a small loan without cost not
later than the end of the business day immediately following the day on
which the small loan was made. To rescind a small loan, a consumer
borrower must:
(a) inform the lender that the consumer borrower wants to
rescind the small loan; and
(b) return the cash amount of the principal of the small loan to the
lender.
(6) A lender shall not enter into a renewal with a borrower. If
a loan is paid in full, a subsequent loan is not a renewal.
SECTION 12. IC 24-4.5-7-404, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 404. (1) As used in this section, "commercially
reasonable method of verification" means one (1) or more private
consumer credit reporting services that the department determines
to be capable of providing a lender with adequate verification
information necessary to ensure compliance with subsection (4).
(2) With respect to a small loan, or subsequent refinancing, no
lender may permit a person to become obligated under more than one
(1) loan agreement with the lender at any time.
(2) (3) A lender shall not make a small loan or subsequent
refinancing that, when combined with another outstanding small loan
owed to another lender, exceeds a total of four hundred dollars ($400)
when the face amounts of the checks written or debits authorized in
connection with each loan are combined into a single sum. A lender
shall not make a small loan to a consumer borrower who has two (2)
or more small loans outstanding, regardless of the total value of the
small loans.
(3) (4) A lender complies with subsection (2) (3) if the consumer
borrower represents in writing that the consumer borrower does not
have any outstanding small loans with the lender, or with any other
another lender, an affiliate of the lender or another lender, or a
separate entity involved in a business association with the lender or
another lender in making small loans, and the lender independently
verifies the accuracy of the consumer's borrower's written
representation through a commercially reasonable means. method of
verification. A lender's method of verifying whether a consumer
borrower has any outstanding small loans will be considered
commercially reasonable if the method includes a manual investigation
or an electronic query of:
(a) the lender's own records, including both records maintained at
the location where the consumer borrower is applying for the
transaction and records maintained at other locations within the
state that are owned and operated by the lender; and
(b) available department approved third party databases.
(5) The department shall monitor the effectiveness of private
consumer credit reporting services in providing the verification
information required under subsection (4). If the department
determines that one (1) or more commercially reasonable methods
of verification are available, the department shall:
(a) provide reasonable notice to all lenders identifying the
commercially reasonable methods of verification that are
available; and
(b) require each lender to use one (1) of the identified
commercially reasonable methods of verification as a means
of complying with subsection (4).
(4) (6) The excess amount of loan finance charge provided for in
agreements in violation of this section is an excess charge for purposes
of the provisions concerning effect of violations on rights of parties
(IC 24-4.5-5-202) and the provisions concerning civil actions by the
department (IC 24-4.5-6-113).
SECTION 13. IC 24-4.5-7-406, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 406. An agreement with respect to a small loan
may not provide for charges as a result of default by the consumer
borrower other than those authorized by this chapter. A provision in
violation of this section is unenforceable.
SECTION 14. IC 24-4.5-7-409, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 409. (1) This section applies to licensees and
unlicensed persons.
(2) The following apply to small loans only when a check or an
authorization to debit a borrower's account is used to defraud
another person:
(a) IC 26-1-3.1-502.5 (surcharge after dishonor).
(b) IC 26-2-7 (penalties for stopping payments or permitting
dishonor of checks and drafts).
(c) IC 34-4-30 (before its repeal).
(d) IC 34-24-3 (treble damages allowed in certain civil actions
by crime victims).
and (e) IC 35-43-5 apply to small loans only when a check is used
to defraud another person. (forgery, fraud, and other
deceptions).
IC 24-4.5-3-404 (attorney's fees) does not apply to a small loan.
(3) A contractual agreement in a small loan transaction must include
the language of subsection (2) in 14 point bold type.
(4) A person who violates this chapter:
(a) is subject to a civil penalty up to one two thousand dollars
($1,000) ($2,000) imposed by the department;
(b) is subject to the remedies provided in IC 24-4.5-5-202;
(c) commits a deceptive act under IC 24-5-0.5 and is subject to
the penalties listed in IC 24-5-0.5;
(d) has no right to collect, receive, or retain any principal, interest,
or other charges from a small loan; however, this subdivision does
not apply if the violation is the result of an accident or bona fide
error of computation; and
(e) is liable to the consumer borrower for actual damages,
statutory damages of one two thousand dollars ($1,000) ($2,000)
per violation, costs, and attorney's fees; however, this subdivision
does not apply if the violation is the result of an accident or bona
fide error of computation.
(5) The department may sue:
(a) to enjoin any conduct that constitutes or will constitute a
violation of this chapter; and
(b) for other equitable relief.
(6) The remedies provided in this section are cumulative but are not
intended to be the exclusive remedies available to a consumer.
borrower. A consumer borrower is not required to exhaust any
administrative remedies under this section or any other applicable law.
SECTION 15. IC 24-4.5-7-410, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
UPON PASSAGE]: Sec. 410. A lender making small loans shall not
commit nor cause to be committed any of the following acts:
(a) Threatening to use or using the criminal process in any state
to collect on a small loan.
(b) Threatening to take action against a consumer borrower that
is prohibited by this chapter.
(c) Making a misleading or deceptive statement regarding a small
loan or a consequence of taking a small loan.
(d) Contracting for and collecting attorney's fees on small loans
made under this chapter.
(e) Altering the date or any other information on a check or an
authorization to debit the borrower's account held as security.
(f) Using a device or agreement that the department determines
would have the effect of charging or collecting more fees,
charges, or interest than allowed by this chapter, including, but
not limited to:
(i) entering a different type of transaction with the consumer;
borrower;
(ii) entering into a sales/leaseback arrangement;
(iii) catalog sales; or
(iv) entering into transactions in which a customer receives
a purported cash rebate that is advanced by someone
offering Internet content services, or some other product
or service, when the cash rebate does not represent a
discount or an adjustment of the purchase price for the
product or service; or
(v) entering any other transaction with the consumer
borrower that is designed to evade the applicability of this
chapter.
(g) Engaging in unfair, deceptive, or fraudulent practices in the
making or collecting of a small loan.
(h) Charging to cash a check representing the proceeds of a small
loan.
(i) Except as otherwise provided in this chapter:
(i) accepting the proceeds of a new small loan as payment of
an existing small loan provided by the same lender; or
(ii) renewing, refinancing, or consolidating a small loan with
the proceeds of another small loan made by the same lender.
(j) Including any of the following provisions in a loan document:
(i) A hold harmless clause.
(ii) A confession of judgment clause.
(iii) A mandatory arbitration clause, unless the terms and
conditions of the arbitration have been approved by the
director of the department.
(iv) An assignment of or order for payment of wages or other
compensation for services.
(v) A provision in which the consumer borrower agrees not
to assert a claim or defense arising out of contract.
(vi) A waiver of any provision of this chapter.
(k) Selling insurance of any kind in connection with the making
or collecting of a small loan.
(l) Entering into a renewal with a borrower.
SECTION 16. IC 24-4.5-7-412, AS ADDED BY P.L.38-2002,
SECTION 1, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE
JULY 1, 2004]: Sec. 412. Upon the receipt of a check from a consumer
borrower for a small loan, the lender shall immediately stamp the back
of the check with an endorsement that states:
"This check is being negotiated as part of a small loan under
IC 24-4.5, and any holder of this check takes it subject to the
claims and defenses of the maker.".
SECTION 17. THE FOLLOWING ARE REPEALED [EFFECTIVE
JULY 1, 2004]: IC 24-4.5-7-407; IC 24-4.5-7-408.
SECTION 18. An emergency is declared for this act.