GA Code § 7-3-14 (2021)
2021 Georgia Code|Title 7 - Banking and Finance|Chapter 3 - Installment Loans|Article 2 - Operating Procedures|§ 7-3-14. Payment Before Maturity; Refund of Prepaid Interest; Continuing Insurance

 Notwithstanding the provisions of any contract to the contrary, a borrower may at any time prepay all or any part of the unpaid balance to become payable under any installment loan. If the borrower prepays the loan in full before maturity, the licensee shall refund to the borrower a portion of the prepaid interest, calculated in complete even months (odd days omitted), as follows: the amount of the refund shall represent at least as great a proportion of the total interest as the sum of the periodical time balance after the date of prepayment bears to the sum of all periodical time balances under the schedule of payments in the original contract. Where the amount of the refund due to anticipation of payment is less than $1.00, no refund need be made. If the borrower has been required to purchase insurance coverage other than insurance coverage in a blanket policy when the borrower has paid no acquisition cost, the borrower shall have the option to continue such insurance in force for the balance of the policy period, with all rights transferred to the borrower or his or her assigns, in which event no refund of insurance premiums shall be made.    (Ga. L. 1955, p. 431, § 17; Code 1981, §7-3-17; Code 1981, §7-3-14, as redesignated by Ga. L. 2020, p. 156, § 2/SB 462.)    The 2020 amendment,  effective June 30, 2020, redesignated former Code Section 7-3-17 as present Code Section 7-3-14, and in the first sentence, substituted "loan" for "contract"; in the second sentence, substituted "prepays the loan" for "pays the time balance", "the borrower" for "him", and "the amount" for "The amount"; and, in the fourth sentence, inserted "insurance coverage", substituted "the borrower" for "he" twice, substituted "his or her” for "his”, and deleted "to him" following "made" at the end. See Editor's notes at the beginning of this chapter for applicability.   Editor's notes.   - Ga. L. 2020, p. 156, § 2/SB 462, effective June 30, 2020, redesignated former Code Section 7-3-14 as present Code Section 7-3-11.   Law reviews.   - For article discussing methods of computation of finance charges in Georgia consumer credit contracts, see 30 Mercer L. Rev. 281 (1978).   JUDICIAL DECISIONS   Section compensates lender for profits lost when loan prepaid.    - In enacting O.C.G.A. § 7-3-17 (now O.C.G.A. § 7-3-14), the General Assembly made a specific exception to the general limitation of O.C.G.A. § 7-3-14 (now O.C.G.A. § 7-3-11) on interest and to the general prohibition in O.C.G.A. § 7-3-15 (now O.C.G.A. § 7-3-11) on further charges, with a view toward compensating a lender for lost profits when a debtor voluntarily repays the debtor's loan. Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981).   Section applicable to prepaid interest and insurance but makes no mention of loan fee charges.    - Georgia law provides a specific refund system upon prepayment of loans. It applies to prepaid interest and insurance charges but makes no mention of a loan fee charge. Jones v. Community Loan & Inv. Corp., 526 F.2d 642 (5th Cir.), on rehearing, 544 F.2d 1228 (5th Cir. 1976), cert. denied, 431 U.S. 934, 97 S. Ct. 2642, 53 L. Ed. 2d 250 (1977).   Rule of 78's violates this section.    - Given the purpose of the Industrial Loan Act (now Georgia Installment Loan Act, O.C.G.A. § 7-3-1 et seq., the strict construction which Georgia courts have applied to it, its general limitation on interest rates charged on such small loans in O.C.G.A. § 7-3-14 (now O.C.G.A. § 7-3-11), its general prohibition in O.C.G.A. § 7-3-15 (now O.C.G.A. § 7-3-18) on charges in excess of those authorized, and the commission regulations, which, according to accepted interpretive principles, appear to exclude anything but pro rata computations of interest on rebates and refinancing, it would seem that the use of the Rule of 78's to compute the interest rebate and the refinancing of a loan agreement pursuant to that Act violates O.C.G.A. § 7-3-17 (now O.C.G.A. § 7-3-14). Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981).   Determination of refund by Rule of 78's is permitted.    - Computation of refunds of unearned interest according to Rule of 78's when borrower pays time balance in full before maturity is permitted. Pollard v. Congress Fin. Corp., 153 Ga. App. 357, 265 S.E.2d 296 (1980). (But see, Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981)).   Rule of 78's applicable in refinancing situation.   - One statute the General Assembly has written to allow for use of the Rule of 78's in situations involving the prepayment of all or any part of the unpaid balance of an installment contract prior to maturity should be held applicable when a borrower retires one note held by a particular lender by using the proceeds of a second note from the same lender. The General Assembly's decision to allow more than a pro rata loss of interest in prepayment situations indicates the General Assembly's desire to allow a similar loss by the borrower in a refinancing situation since both transactions are initiated by the borrower and are evidences of the borrower's failure to fulfill the borrower's contractual obligation to repay the lender pursuant to the initial installment contract. That failure has caused the General Assembly to exact a penalty against the borrower in the form of allowing a creditor's use of the Rule of 78's in a prepayment situation, and in the absence of a clear statement to the contrary, the same penalty should be exacted against the refinancing borrower. Simpson v. Termplan, Inc., 535 F. Supp. 36 (N.D. Ga. 1981). (But see, Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981)).    Industrial Loan Act (now Georgia Installment Loan Act), O.C.G.A. § 7-3-1 et seq., authorizes the lender to use the Rule of 78's to compute interest rebates in refinancing cases and the Act does not require lenders to compute such rebates on a pro rata basis. Varner v. Century Fin. Corp., 253 Ga. 27, 317 S.E.2d 178 (1984). (But see, Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981)).   Nothing less than refund of all unearned interest permitted when creditor accelerates.    - When there is not a prepayment, the Rule of 78's cannot be used to compute interest refund and when acceleration was made at half-way point in contract but less than 50 percent of total interest charged was refunded, nothing less than a refund of all unearned interest when the creditor accelerates can be permitted. Garrett v. G.A.C. Fin. Corp., 129 Ga. App. 96, 198 S.E.2d 717 (1973).    Cited in Brown v. Quality Fin. Co., 112 Ga. App. 369, 145 S.E.2d 99 (1965); Cook v. First Nat'l Bank, 130 Ga. App. 587, 203 S.E.2d 870 (1974); Harlow v. Walton Loan Corp., 174 Ga. App. 311, 329 S.E.2d 616 (1985).   RESEARCH REFERENCES   Am. Jur. 2d.   - 53A Am. Jur. 2d, Moneylenders and Pawnbrokers, §§ 46 et seq., 51 et seq.   ALR.    - Personal liability for repayment of loan or advance under contract which expressly provides for repayment from proceeds of crop or other property and contains no express promise for repayment otherwise, 111 A.L.R. 1062.