INSTALLMENT LOAN LAWS IN THE VARIOUS STATES 2 INSTALMENT LOAN STATUTES Instalment loan laws are generally exceptions to the interest-usury laws because they allow a lender making a consumer loan to receive a rate of interest greater than the legal or contract rate. This is done either directly, by prescribing a higher rate of interest, or indirectly, by allowing the lender to add the interest charges to or deduct it in advance from the legal or contract interest rates. Approximately four-fifths of the states have enacted special instalment loan laws. All of the laws have applicability to banks, though many of the states have also extended the laws to corporations and individuals who comply with the statutory provisions. Industrial loans and small loan or consumer finance loan laws are not included in the chart. Summaries of these laws may be found charted, respectively, at ¶ 44 and 41. See ¶ 31 for a detailed "Interest-Usury” chart, which sets out state rules concerning interest rates. CHART CONTENTS The statutory enactments in each state range from one or two provisions authorizing the lender to receive a greater rate of interest on loans, to multiple provisions which also regulate the terms, special charges and conditions under which the loan may be made. The "Instalment Loan Laws" chart provides stateby-state information covering instalment loan laws under the following nine major headings: Lenders The heading "lenders" tells who is authorized to make an instalment loan. In the great majority of the states, licensing is not required for instalment loan lenders; however, any applicable registration or qualification provisions are set forth under this heading. Maximum Loan The limit on the amount which a lender may loan to one borrower appears under “maximum loan." It may be expressed in terms of a dollar amount, either inclusive or exclusive of interest and charges, or it may be expressed in terms of a percentage of the lender's loanable assets. One state, South Carolina, sets forth a minimum limitation rather than a maximum. Other states have no special provision regarding the maximum loan. Interest Charges Instalment loan rates of interest vary from state to state. The rates represent the maximum charge that may be made expressed in a percentage per annum or in dollars per $100 dollars per year. The heading "interest charges" also provides information as to whether interest may be taken in advance or added to the principal amount of the loan, computation of the charges, and minimum charges which may be made in lieu of interest. Maximum Time The "maximum time" feature of the chart tells whether lender is subject to a time period during which a loan may be outstanding or the time over which instalment payments may extend. Payments and Refunds The "payments and refunds" heading is divided into two sub-headings. Instalment provides information as to the interval and amount requirements of each instalment or periodic payment. Prepayment covers whether a borrower is permitted to repay the amount of the loan before maturity, and, if so, the amount of refund of unearned interest charges he is entitled to receive. Authorized 2 1966, Commerce Clearing House, Inc. methods of computation are explained under this sub-heading. One method of computing the borrower's refund is known as "the rule of 78"; this method is explained at ¶ 38 of the GUIDE. Special Charges Any charges permitted to be made in addition to interest are continued in the "special charges" feature of the chart under the following sub-headings: Delinquency • Collection ● Insurance Premiums ● Investigation • Other Delinquency charges are permitted when a borrower fails to pay an instalment within the time provided for in the loan agreement. Collection charges encompass the legal costs incurred when the lender is forced to rely on means other than the borrower's promise to repay the loan in order to get his money back. Insurance premium charges occur when the borrower procures credit life, accident or health insurance or property insurance on security from or through the lender in connection with the loan. Investigation charges are the expenses which result from a credit investigation of the borrower or security appraisal. Other charges is a catch-all for miscellaneous authorized charges which usually include fees for filing and recording. Disclosure Provisions which require information to be given to the borrower are contained under the heading "disclosure." Penalty for Excessive Interest Focus of the feature "penalty for excessive interest" is on the effect of charging beyond the maximum rate of interest permitted by the instalment loan law. Where no special provision exists reference should be made to the "Interest— Usury" chart at ¶ 31. Miscellaneous Provisions This portion of the chart contains other provisions not under the above headings. It is sub-divided into four catagories: Insurance ● Acceleration Security Other. Special provisions which have applicability in only several of the states appear under this heading. STATUTORY REFERENCE The chart provides statutory reference to the instalment loan laws adopted in the state. The statutes cited do not appear elsewhere in the GUIDE. ALABAMA References are to Code 1958, Recompiled, Title 9, Sec. 61, as amended Lenders. Any lender. Maximum Loan.-No special provisions. Interest Charges.-6% per annum for the entire loan period; may be aggregated with principal at the date of loan. Maximum Time.-No special provisions. Payments and Refunds.-Instalments: aggregate sum of principal and interest may be divided into monthly or other periodic payments. Prepayment: no special provisions. Special Charges. No special provisions. Disclosure.-No special provisions. Penalty For Excessive Interest.-No special provisions. Miscellaneous Provisions.-No special provisions. ALASKA References are to Alaska Statutes, Sec. 45.45.080, as amended by Laws 1968, Ch. 74, approved April 6, 1968, effective July 5, 1968 Lenders. Any money lenders. Maximum Loan.-$10,000, excluding interest on secured and unsecured loans. Interest Charges.-$6 per year on each $100 (“add on method"-not over 11.1% per year; "discount method"-not over 11.8% per year) of face amount for the entire loan period; may be collected in advance. Maximum Time.-7 years. Payments and Refunds. Instalments: substantially equal. Prepayment: allowed; refund credit computed in accordance with "Rule of 78," but lender need not make refund where computed credit is less than $5, or where net charge on loan is less than minimum charge provided for by law. Special Charges.-Delinquency: 5¢ per $1 of each instalment over 15 days in default; only one charge per instalment; maximum loan charge $15. Collection: actual charges incurred including attorney's fees and cost of legal process. Insurance Premiums: on required security. Investigation: no provision. Other: filing, recording and releasing fees. Disclosure. No special provisions. Penalty For Excessive Interest.-No special provisions. .01 1968 amendment. The 1968 amendment made the following changes: Maximum Loan: increased from $3,500. Interest Charges: added parenthetical material. Maximum Time: increased from 3 years.-CCH. ARIZONA References, unless otherwise noted, are to Arizona Revised Statutes, Sec. 6–254, as amended by Laws 1966, Ch. 94, effective July 23, 1966 Lenders. Any person, partnership, corporation, bank or trust company organized under state law, and any national bank doing business in the state. Maximum Loan.-$5,000 of total principal. Interest Charges.-$8 per $100 per year on $1,000 and $6 per year on amount in excess of $1,000, calculated from the date of indebtedness; interest or discount to be added to the principal amount; minimum charge of $10 permitted. Maximum Time.-No special provisions. Payments and Refunds.-Instalments: no provisions. Prepayment: allowed; refund credit computed in accordance with "Rule of 78"; minimum refund is $1; but, the borrower must pay reasonable collection costs in the event of delinquency. Special Charges.-Delinquency: no provision. Collection: reasonable costs and fees incurred. Insurance Premiums: actual costs incurred; banks and savings and loan associations may charge for disbursements actually and necessarily made to make the loan qualify as a lawful investment, provided the borrower has the privilege of furnishing such services or insurances necessary to satisfy the loan requirement. Investigation: no charges can be made for application preparation, credit investigation, security appraisal or examination of public records for liens or encumbrances. Other: actual filing, recording, and acknowledging fees and title report costs. (Sec. 6-255, as amended by Laws 1965, Ch. 86.) Disclosure. No special provisions. Penalty For Excessive Interest.-Loan is usurious (see "Interest-Usury Chart" at 31). (Sec. 6-255, as amended by Laws 1965, Ch. 86.) Miscellaneous Provisions.-No special provisions. ARKANSAS AND CALIFORNIA There are no statutory provisions pertaining to instalment loans. COLORADO References are to Revised Statutes 1963, as amended Lenders.-Licensees under this act (Loans over $1500), which includes any person engaged in the business of making loans of money or of personal credit on security. (Sec. 73–2-1) National banks, trust companies, state chartered banks, savings and loan associations and title and guarantee companies are excluded. (Sec. 73-2-10) A $50 per annum license tax on each place of business is required. Licensees must be state residents, or in the case of corporations, joint stock companies or incorporated societies, have a resident agent for service of process. (Sec. 73-2-1) Application must be made to the state banking commissioner not less than 30 days prior to granting of the license. Licenses date from first day of month of issue to following October 31. (Sec. 73-2-2) A $2,000 bond must accompany each application. (Sec. 73-2-3) [The Banking Code of 1957, Sec. 14-6-5, authorizes a state bank to "lend money either upon the security of real property or personal property, or otherwise; to charge, or to receive in advance, interest therefor; to contract for a charge for a secured or unsecured installment loan.”] Maximum Loan.-Loan must be over $1500. (Sec. 73–3–19) Interest Charges.-2% per month on the actual amount of the loan may be charged upon any loan or upon any unpaid balance after a partial payment; may not be deducted in advance. (Sec. 73-2-5) Maximum Time.-No special provisions. Payments and Refunds.-No special provisions. Special Charges.—The interest charge must include all charges except upon the foreclosure of security. (Sec. 73-2-5) No other charge provisions. Disclosure. The borrower must be furnished with a signed statement showing the amount of the loan, the effective and due dates, the amount and rate of interest, the dates when interest is payable, and a description of the security. When payments are made, the borrower must receive a "receipt for payment stating whether of principal or of interest, made on account of such loan.” (Sec. 73-2-5) Penalty For Excessive Interest.—Violation is a misdemeanor. (Sec. 73–2–9) A person paying a greater rate of interest can recover treble the amount of money so paid within one year after the date of payment. (Sec. 73–2–7) Miscellaneous Provisions.-No special provisions. .01 Colorado law.-Art. 2 of Ch. 73, CRS 63, Loans Over Fifteen Hundred Dollars, is based on the 1913 Loan Law, Laws 1913, Ch. 108, limiting the interest on loans to 12%. This Act was not reflected in compilations of the statutes subsequent to 1935 when the legislature passed a small loans act, Laws 1935, Ch. 157. The 1935 Act was replaced by the 1943 Small Loan Law, Laws 1943, Ch. 121. On May 12, 1952 the Colorado Supreme Court ruled in Sullivan v. Siegal, 245 P. 2d 860, that the 1913 Loan Law had not been repealed by Sec. 15 of the 1935 Act, which, by title, was held to pertain only to loans under $300, and that omission from the statutes compilations had no effect on repeal. The effect of this ruling was to make the 1913 Act applicable to loans over $300. In 1955 the legislature passed the Colorado Consumer Finance Act, Laws 1955, Ch. 174, (See "Small Loans" Chart at ¶41) which pertains only to loans of $1500 or less. This Act replaced the 1943 Small Loans Law and repealed any application of the 1913 Loan Law to loans of $1500 or less.-CCH. CONNECTICUT References are to General Statutes, 1958, Title 36, Sec. 97, as amended by Laws 1961, P.A. No. 197 Lenders.-Savings banks and savings departments of state banks and trust companies. Maximum Loan.-$2,000 on unsecured personal loans; aggregate unpaid balances outstanding can not exceed 2% of a bank's assets. Interest Charges.-1% per month on unpaid principal balance. Payments and Refunds.-Instalments: consecutive and weekly or monthly to begin no later than 2 months from date of note. Prepayment: no special provisions. Special Charges.-No special provisions. Disclosure.-Prospective borrowers must receive a repayment schedule settling forth the cost of loans. Penalty For Excessive Interest.-No special provisions. DELAWARE Although state banks and trust companies organized under state law and national banks are exempt from the licensing requirements of the Small Loans Act, instalment loans made by these institutions are regulated by the provisions of the Act. (Code Annotated, Tile 5, Secs. 2108, 2114) See "Small Loans Act" Chart at ¶ 41 for the Delaware Small Loan Act provisions. |