Pennsylvania Code › Title 10 - BANKING AND SECURITIES › Part IV - Bureau of Consumer Credit Agencies › Chapter 41 - CONSUMER DISCOUNT COMPANIES › Section 41.3 - Contracts with consumers

Current through Register Vol. 54, No. 28, July 13, 2024
(a) The
				terms of payment shall be clearly stipulated in loan contracts. It is required
				that a loan contract provide for payment for a specified duration except as
				otherwise permitted by the act. Documents pertaining to loan contracts which a
				consumer may be required to sign shall be completely filled in before execution
				by the consumer and may not be signed by the consumer at a place of business
				other than that designated in the license certificate. If special circumstances
				require, a licensee may, at the request of a consumer, obtain signatures at a
				place where the consumer may so designate. This subsection does not prohibit a
				licensee from granting loans by mail.
(b) A licensee may not, either directly or
				indirectly, require consumers to purchase merchandise, shares of stock, debt
				instruments or other forms of investment in or for the licensee or an affiliate
				as a condition for obtaining a loan.
(c) At the request of and for the convenience
				of a consumer, the first selective payment due date on a loan contract may be
				agreed upon by the licensee at the inception of the contract; the first
				selective payment due date may not occur more than 1 month and 15 days from the
				date of the contract, except when appropriate for the purpose of facilitating
				payment in accordance with a consumer's intermittent income as provided by
				section 14F of the act (7 P. S. §
										6214F). When a charge is made for an extended
				first payment due date by the licensee, the charge shall be disclosed on the
				statement of contract in such a way that the charge is separately identifiable
				from the other charges in the contract.
(d) The act requires that due notice of a
				licensee's intention to collect default charges be given to the consumer in the
				statement of contract. A licensee may, upon notice, collect a specified default
				charge on loan contracts at the rate permitted in the act on the amount in
				default. The minimum charge permitted in the act may be collected for a default
				of 10 or more days. No charge may be collected for default created by the
				deduction of default charges from prior installments. After maturity of the
				loan contract, the entire unpaid balance is the amount in default. No provision
				has been made permitting the full default charge to be collected for a fraction
				of a month when the loan contract is less than a month inh in default;
				therefore, it is necessary to calculate the default charge on the actual number
				of days from the due date of the payment in default to the date the payment is
				collected. Default charges may be accrued and collected at the time of final
				payment of a loan contract. Default charges accruing prior to periods of claims
				may be deducted from the proceeds of accident and health insurance claim
				payments; however, default charges may not accrue during periods of claims. See
				§
									41.3a (relating to calculation of
				default charges-statement of policy) for a statement of policy on calculation
				of default charges.
(e) An
				extension arises from a written agreement, other than the original loan
				contract, between a consumer and a licensee to alter the payment schedule in
				the original loan contract or to postpone one or more scheduled payments to the
				end of the contract. A deferment arises from a written agreement, other than
				the original loan contract, between a consumer and a licensee to postpone one
				or more scheduled payments for a specified period of time other than to the end
				of the contract. Each extension or deferment shall be negotiated separately.
				The charge for an extension or deferment shall be made only after the date on
				which the original loan contract was executed. If, during the term of a loan
				contract, a consumer requests a change of the due date of unpaid installments
				to a date of the month other than the original due date, a charge of 1.5% per
				month of the unpaid balance may be collected for the
bona fide
extension proportionate to the number of days extended. If, during the term of
				a loan contract, a consumer requests an extension of one or more payments to
				the end of the loan contract and the consumer does not intend to make up the
				missed payment in the meantime, a charge of 1.5% of the full unpaid balance may
				be collected for each payment so extended. If, during the term of a loan
				contract, a consumer requests a deferment of one or more payments, a charge of
				1.5% per month of the amount deferred may be collected for the period of
				deferment. No default charge on the extended or deferred payment may be
				collected in addition to the extension or deferment fee unless a subsequent
				delinquency occurs in the payment so extended or deferred. Under no conditions
				shall extension or deferment fees be added to unpaid principal balances, nor
				may the fees be deducted from full installment payments, except upon written
				agreement of the consumer in advance. Extension or deferment fees, or both, may
				not be deducted from accident and health insurance claim payments. This
				subsection may not limit the authority of a licensee to collect extension or
				deferment fees, with or without a consumer's written consent when the loan
				contract is in default at least 60 days; provided, however, that the number of
				extensions or deferments collected under these circumstances may not exceed the
				number of installments in default; except that, when a consumer remits
				scheduled installments in default, the licensee may not collect extension or
				deferment fees without the written consent of the consumer.
(f) On a loan contract which is wholly
				prepaid prior to maturity, the licensee shall refund to the consumer the
				unearned portion of the interest or discount. The refund shall be computed in
				accordance with the formula contained in section 14D of the act (7 P. S. §
										6214D), which formula is the sum of the
				digits method commonly known as the Rule of 78. The original first payment due
				date on the loan contract shall be used in determining the number of
				installments being prepaid, except when another due date was agreed upon and an
				extension charge was collected, in which case the agreed upon due date shall be
				used. When computing refunds on extended loan contracts, the number of
				installments extended shall be included in determining the number of
				installments being prepaid. The net balance due to liquidate a loan contract in
				full shall be quoted by a licensee when requested by a consumer or anyone
				authorized in writing by the consumer to obtain the net balance due. When an
				unpaid balance of an installment sale contract or a home improvement contract
				held by a licensee or its affiliate is prepaid from the proceeds of a direct
				loan granted by the licensee, a refund of the unearned interest or finance
				charge in the installment sale contract or the home improvement contract shall
				be allowed in accordance with the statutes governing the contracts.
(g) A licensee may not request that a
				consumer sign more than one note, mortgage, security agreement or other
				instrument in connection with a loan contract unless the additional instruments
				are clearly designated as duplicates before the consumer signs. A licensee
				shall, within 30 days of the final payment of a loan contract, return to the
				consumer original documents evidencing indebtedness or constituting security.
				Instruments evidencing the obligation or constituting security which are
				recorded with a public official and permanently filed with the public official
				are exempt from the preceding sentence of this subsection. A licensee shall,
				when notes, mortgages, security agreements or other evidences of indebtedness
				have been entered of record, satisfy the record when the obligation is paid in
				full if the consumer is willing to pay the costs of satisfaction. If the
				consumer is unable or unwilling to pay the costs of satisfaction, the licensee
				shall furnish to the consumer a satisfactory release which will enable the
				consumer to satisfy the record whenever he may choose to do so. This subsection
				may not prohibit a licensee from retaining on record a document used to secure
				additional loans and advances made within 30 days after a loan contract is paid
				in full. A licensee shall furnish, upon the request of the consumer, an
				accurate copy of a note, lease, mortgage, security agreement, bill of sale,
				assignment or other document evidencing indebtedness or constituting security
				which the consumer has signed. The first copy of each document shall be
				furnished free of charge.
(h) A
				licensee shall pay the proceeds of a loan contract to the consumer unless the
				licensee has obtained written authority from the consumer to pay a portion or
				all of the proceeds to a third party. The burden of showing proof of payment of
				amounts which have been paid to a third party on behalf of the consumer shall
				be on the licensee. The Administrator recommends the use of loan vouchers or
				other evidence of authority signed by the consumer to authorize the
				distribution of the proceeds to third parties. For the purposes of this
				subsection, a consumer's endorsement on a check payable to a third party shall
				constitute written authority from the consumer. In addition to the information
				required to be shown on the statement of contract which is to be furnished to
				the consumer under section 15 of the act (7 P. S. §
										6215), the statement shall show the interest
				or discount and service charge separately. Items deducted from the proceeds of
				a loan shall be shown on the statement of contract unless this information is
				furnished to the consumer on a loan voucher or other authorization for
				distribution of the proceeds.
(i) A
				licensee may not permit a person other than an employe of the licensee to
				accept payments on loan accounts at a place of business of the licensee other
				than a licensed office. This subsection does not apply to the collection of a
				contract in default by an attorney at law, public official or a collection
				agent authorized by a licensee. This subsection does not apply to a payment
				system whereby payments are accepted at a bank, a savings and loan association
				or other depository institution, organized and existing under the statutes of
				the Commonwealth, or of other states or of Federal law, on behalf of the
				licensee, in an arrangement commonly known as a lock box arrangement. When a
				consumer elects to mail payments, a licensee may, except on final payments,
				require the consumer to furnish self-addressed stamped envelopes for the
				purpose of forwarding receipts. When the mailing of receipts is conditioned
				upon the furnishing of self-addressed stamped envelopes by a consumer, a
				statement to that effect shall be furnished to the consumer.
(j) When a licensee places property or
				casualty insurance, other than installment floater insurance referred to in
				subsection (k), on behalf of a consumer, at the expense of the consumer, the
				licensee assumes the responsibility of furnishing to the consumer a policy or
				certificate of insurance within 30 days of the date of the contract. Insurance
				which a licensee obtains, either directly or indirectly, on behalf of a
				consumer shall be written by a company authorized to conduct business in this
				Commonwealth and through an agent or broker licensed by the Insurance
				Department to write insurance in this Commonwealth. The licensee shall retain,
				in his office, a schedule of rates charged on the insurance. No consumer may be
				held liable, under a so-called subrogation clause, for losses incurred by an
				insurance company when the premium was paid by the consumer. When property or
				casualty insurance has been obtained by a licensee on behalf of a consumer and
				the contract is liquidated by prepayment, renewal or sale of collateral prior
				to the expiration date of the contract, the licensee shall inform the consumer
				of his right to cancel or continue the insurance, and the licensee shall
				arrange for the refund of a portion of the premium which may be due to the
				consumer by reason of the cancellation of the insurance by the consumer or by
				the insurance company. Cancellation or retention of the coverage shall be
				optional with the consumer.
(k) The
				writing of installment floater insurance on household goods or other personal
				property pledged as security on a contract is subject to the provisions of 31
				Pa. Code Chapter 112 (relating to policies covering personal property pledged
				as collateral). The insurance may be sold by a licensee only when similar
				coverage is not carried by a consumer or when the consumer has similar coverage
				but is unable or unwilling to offer the insurance to secure a loan
				transaction.
(l) The sale of
				accidental death and dismemberment insurance, service club memberships or
				association-type membership policies by a licensee shall be completely
				voluntary on the part of a purchaser. When the purchaser is also a borrower,
				details of the loan transaction, including the disbursement of the loan
				proceeds to the borrower, shall be concluded before the licensee may initiate
				an effort to sell the services to the borrower. When a loan contract is renewed
				prior to the maturity of an insurance policy or a service club membership as
				referred to in this subsection, a licensee may not cancel the insurance policy
				or service club membership prior to its maturity. Cancellation of the insurance
				policy or service club membership shall be optional with the purchaser. A
				refund of premium resulting from the cancellation shall be paid to the
				purchaser.
(m) Individual policies
				or group certificates of credit life insurance and credit accident and health
				insurance shall be approved by the Insurance Department in accordance with the
				act of September 2, 1961 (P. L. 1232, No. 540) (40 P. S. §§
										1007.1-1007.15) for the regulation of credit
				life and credit accident and health insurance companies. Licensees shall comply
				with 31 Pa. Code Part III (relating to credit insurance) promulgated
				therefrom.
(n) Licensees shall
				maintain a separate file of insurance claims in order that complete information
				may be readily obtained by the Administrator to verify proper settlement of
				claims. Death claims shall be filed for at least the amount of the insurance in
				force at the time of the death of the insured. An excess over the net balance
				due on the contract, in the form of unearned discount rebates, applicable
				insurance premium rebates or otherwise, shall be remitted to the beneficiary or
				estate of the deceased consumer.
(o) For the purposes of this subsection, an
				individual signing the face of a joint note shall, in the absence of specific
				designation to the contrary, be construed as being liable as maker. When a
				licensee knows or has reason to know that an individual consumer derives the
				use, benefit or advantage of an aggregate amount in excess of $25,000 from the
				proceeds of one or more separate loan contracts granted by a licensee directly
				to the consumer or indirectly through other consumers, the loan contracts shall
				be construed as a single loan contract in excess of $25,000, and interest on
				the amount in excess of $25,000 shall be limited to the legal rate established
				by section 202 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. §
										202), which rate is 6.0% per annum simple
				interest. This limitation does not apply to the purchase of installment sale
				contracts or home improvement contracts, or another loan granted under another
				statute of the Commonwealth.
(p)
				When a loan in excess of $25,000 is granted to one consumer or when an
				aggregate number of loans are granted to one consumer by a licensee under the
				same management or control the total of which exceeds $25,000, the interest
				rate on the amount in excess of $25,000 shall be limited to the legal rate
				established by section 202 of the act of January 30, 1974 (P. L. 13, No. 6),
				which rate is 6.0%
per annum
simple interest. This means that
				a licensee may grant a single loan in excess of $25,000 or a series of loans
				the aggregate of which exceeds $25,000 and charge interest on the portion
				thereof not in excess of $25,000 at the rate provided in the act and on the
				portion thereof in excess of $25,000 at 6.0%
per annum
simple
				interest; except, interest shall be charged so as not to exceed that which
				could be charged in a manner which would amortize that portion of the loan
				balance on a single loan, or the aggregate on a series of loans, not in excess
				of $25,000 simultaneously with the portion in excess of $25,000. Licensees
				shall take reasonable precautions to prevent the granting of loans in violation
				of this subsection. This subsection does not apply to the purchase of
				installment sale contracts or home improvement contracts or to revolving loan
				accounts, or another loan granted under another statute of the
				Commonwealth.
(q) When an
				overcharge of any type occurs at the inception of a loan contract and is
				discovered later, it may be adjusted by crediting the loan contract with the
				amount of the overcharge plus interest at the contract rate on the basic
				overcharge from the date of the contract to the date of adjustment. If the
				adjustment is made by refunding the overcharge to the consumer by cash or
				check, the refund shall include interest on the basic overcharge at the
				contract rate from the date of the overcharge to the date of adjustment.
				Overcharges in extension fees and default charges shall be adjusted by cash
				refund or by crediting the consumer's contract with the amount of the
				overcharge plus interest on the basic overcharge at the contract rate from the
				date of the overcharge to the date of adjustment. When a contract is prepaid
				and an error is made in calculating refunds of unearned discount or unearned
				insurance premiums, the error shall be corrected immediately upon discovery,
				and the adjustment due the consumer shall include interest on the basic
				overcharge at the contract rate from the date of the error to the date of
				adjustment.
(r) A licensee granting
				business loans shall comply with the act and this chapter; except, rates of
				charge on the loans in excess of $10,000 shall be governed by the act of
				January 30, 1974 (P. L. 13, No. 6) (41 P. S. §§
										101-605).
This section cited in 10 Pa. Code §
											41.3a (relating to calculation of
					 default charges-statement of
					 policy).