Citations Affected: IC 24-4.5-7.
Synopsis: Small loans. Makes various changes in the small loan
provisions of the Uniform Consumer Credit Code, including: (1)
increases the maximum allowable principal for a small loan from
$400.99 to $500; (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; and (5) 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 a provision that limits
the circumstances under which a small loan may be renewed.
Effective: July 1, 2004.
January 12, 2004, read first time and referred to Committee on Insurance and Financial
Institutions.
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 five hundred one
dollars ($401); ($500); 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, renewed, or
extended with a new small loan.
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.
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. However, the borrower and lender may agree to
enter into a simple interest loan 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.
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) 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) 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 five hundred dollars ($400)
($500) 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) A lender complies with subsection (2) 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 commercially reasonable means. 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.