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Indiana Department of Financial Institutions

Indiana Department of Financial Institutions

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Indiana Department of Financial Institutions

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  1. Indiana Department of Financial Institutions 30 South Meridian StreetSuite 300Indianapolis, Indiana 46204-2759 (317) 232-3955, (800) 382-4880FAX (317) 232-7655WEB

  2. Opening Remarks Charles Phillips, Director

  3. Opening Remarks J. Philip Goddard, Deputy Director and General Counsel

  4. Overview Mark Tarpey, Division Supervisor

  5. Definitions and Income Requirements Donna Kaye, Assistant to Division Supervisor

  6. IC 24-4.5-7 Chapter 7 Changed “consumer” to “borrower” in all subsections of Chapter 7. Clarifies that written authorization to debit borrower’s account is allowed.

  7. Definition “small loan” Changed principal loan amount to at least fifty dollars ($50) and not more than five hundred dollars ($500). See IC 24-4.5-7-104

  8. Definition “monthly gross income” Changed definition from net to “monthly gross income”; Income received by the borrower in the thirty (30) day period preceding the borrower’s application. Exclusive of any income other than regular gross pay received. See IC 24-4.5-7-110

  9. Consumer Income Requirements Total payable amount of the small loan cannot exceed 15% of gross monthly income. See IC 24-4.5-7-402

  10. Renewal - now prohibited 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. See IC 24-4.5-7-402(6) Each loan must be paid in full by cash, deposit of check, or debit of the borrower’s account. The borrower can still make payments prior to maturity.

  11. Finance Charges, Fees, Disclosure Rick Bane, Field Supervisor

  12. Small Loan Finance Charges 15% on the first $250 of a small loan; 13% on the amount of a small loan greater than $250 and less than or equal to $400; and, 10% of the amount over ($400) and less than or equal to five hundred dollars ($500). See IC 24-4.5-7-201

  13. Rates Applied to Principal Rates are applied to the amount financed, or principal, to determine the finance charge. The rates are not applied to the face amount of the check or authorization to debit the account of the borrower, which already includes finance charges.

  14. Maximum Rate on Principal

  15. Small Loan Finance ChargesEffective July 1, 2004

  16. Monthly Gross Income 15% of monthly gross income is the limit for the total repayable on a small loan. See IC 24-4.5-7-402

  17. Additional Fees Delinquency Charge was removed. The only additional fee that may be contracted for and received by the lender on a small loan is a charge not to exceed twenty dollars ($20) for each NSF item. See IC 24-4.5-7-202

  18. NSF Fee Limitations The NSF charge can be assessed only one time regardless of how many times a check or electronic debit is submitted by the lender.

  19. Disclosure of “Warning” Removes language related to “Renewing” Added language related to 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. See IC 24-4.5-7-301

  20. Limitations of Loans Robert Benbow, Field Supervisor

  21. Term of a Small Loan 1 A small loan may not be made for a term of less than 14 days - remains the same. See IC 24-4.5-7-401

  22. Term of a Small Loan 2 After the borrower's initial loan, and five subsequent consecutive small loans, another small loan may not be made to the borrower within seven days after the due date of the fifth consecutive small loan. Note: the balance must be paid in full by cash, deposit of check, or debit of the borrower’s account.

  23. Term of a Small Loan 3 After the borrower's fifth consecutive small loan, the balance must be paid in full or the borrower and lender may agree to enter into a simple interest loan, payable in installments, under IC 24-4.5-3-508 (maximum APR of 36%) within seven (7) days after the due date of the fifth consecutive small loan.

  24. Term of a Small Loan 4 The maximum Annual Percentage Rate is 36%, on amounts up to $990.00, as of July 1, 2004 Note: currently 36% APR on amounts up to $960.00

  25. Payable in Installments “Payable in installments” means that payment is required or permitted by written agreement to be made in more than four (4) installments, not including a down payment. See IC 24-4.5-1-301(13)

  26. Consecutive Small Loan No change A new small loan agreement that the lender enters with the same borrower not later than seven (7) calendar days after a previous small loan made to that borrower is paid in full. See IC 24-4.5-7-108

  27. Commercially reasonable method of verification 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).(Borrower makes written statement regarding other loans and lender verifies) See IC 24-4.5-7-404

  28. Endorsed/Approved Vendors DFI has not endorsed/approved any specific vendor. DFI will continue to monitor the issue of a third party reporting service useable by all payday lenders, similar to a typical credit reporting agency. At a minimum, lenders must be able to check all of their own, and affiliates, locations to ensure customers’ loans comply with IC 24-4.5-7-404(3).

  29. Loan with another lender Changed total loan amounts allowed from four hundred dollars ($400) to fivehundred dollars ($500) when face amount of checks written, or debits authorized, are combined into a single sum.

  30. Change - with any other lender 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.

  31. Method of verification. Commercially reasonable means was changed to, a commercially reasonable method of verification.

  32. Private consumer credit reporting services The department shall monitor the effectiveness in Reporting. If methods of verification are available the DFI will: Provide notice to all lenders identifying methods, and Require lenders to use one method to comply with requirements.

  33. Renewal or refinancing Renewals are not allowed effective March 17, 2004, under IC 24-4.5-7-410(l)), and, Renewal sections repealed as of July 1, 2004. See IC 24-4.5-7-407 and 7-408.

  34. Department Compliance Advisory The DFI will allow renewals until July 1, 2004, because of conflict in current statute and new statute. Renewal enforcement will have the July 1 date.

  35. Restrictions and Enforcement Generally speaking, under 7-409 there is; • No Surcharge after dishonor • No Penalty for stopping payment • No Treble damages in civil actions • No Attorney’s Fees

  36. Civil Penalties for Violations under 7-409(4) A person who violates this Chapter is subject to a civil penalty up to $2,000.00 imposed by the department, and Is liable to the borrower for actual damages, statutory damages of $2,000.00 per violation.

  37. Limitations 1 A lender making small loans shall not commit acts; Using a device the department determines would have the effect of charging or collecting more than allowed by this chapter. See IC 24-4.5-7-410(f)

  38. Limitations 2 Includes new language under (f)(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;

  39. Examination Issues & Reminders Mark Tarpey, Division Supervisor

  40. General Reminders 1 Intent of Chapter 7 was to restrict bad check charges on payday loans. Finance Charges permitted under Chapter 7 were to cover collection costs. Small claims court actions can be used to enforce the terms of the loan agreements. Court costs and post judgment interest can be awarded.

  41. General Reminders 2 Bad check laws generally do not apply to payday loans. Bad check laws allow retail merchants, who have no agreement with customers as lenders do, some recourse. Licensee must maintain detailed records of collection activity, including all details of small claims court proceedings. SEE IC 24-4.5-3-506

  42. Questions and Answers