House Study Bill 558


                                    HOUSE FILE       
                                    BY  (PROPOSED COMMITTEE ON COMMERCE,
                                         REGULATION AND LABOR BILL BY
                                         CHAIRPERSON JENKINS)


       Passed House, Date                Passed Senate,  Date             
       Vote:  Ayes        Nays           Vote:  Ayes        Nays         
                    Approved                            

                                         A BILL FOR

     1 An Act relating to the provision of consumer loans including
     2    requiring certain disclosures for delayed deposit services and
     3    title loans, providing for the licensing of credit union
     4    service organizations to provide delayed deposit services, and
     5    providing for interest rates by supervised financial
     6    organizations when engaging in delayed deposit services.
     7 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
     8 TLSB 5618HC 81
     9 kk/sh/8

PAG LIN



  1  1    Section 1.  Section 524.802, Code 2005, is amended by
  1  2 adding the following new subsection:
  1  3    NEW SUBSECTION.  13A.  Act as a delayed deposit services
  1  4 business as defined in section 533D.2.
  1  5    Sec. 2.  Section 533.4, Code 2005, is amended by adding the
  1  6 following new subsection:
  1  7    NEW SUBSECTION.  29.  Act as a delayed deposit services
  1  8 business as defined in section 533D.2.
  1  9    Sec. 3.  Section 533D.2, Code 2005, is amended by adding
  1 10 the following new subsection:
  1 11    NEW SUBSECTION.  1A.  "Credit union service organization"
  1 12 means an organization, corporation, or association whose
  1 13 membership or ownership is primarily confined or restricted to
  1 14 credit unions or organizations of credit unions and whose
  1 15 purpose is primarily designed to provide services to credit
  1 16 unions, organizations of credit unions, or credit union
  1 17 members.
  1 18    Sec. 4.  Section 533D.2, subsection 5, Code 2005, is
  1 19 amended to read as follows:
  1 20    5.  "Superintendent" means the any of the following:
  1 21    a.  The superintendent of credit unions for licensees which
  1 22 are credit union service organizations.
  1 23    b.  The superintendent of credit unions for credit unions
  1 24 acting as delayed deposit services businesses.
  1 25    c.  The superintendent of savings and loan associations for
  1 26 savings and loan associations acting as delayed deposit
  1 27 services businesses.
  1 28    d.  The superintendent of banking for banks and other
  1 29 supervised financial institutions that are not a credit union,
  1 30 credit union service organization, or savings and loan
  1 31 association acting as delayed deposit services businesses.
  1 32    e.  The superintendent of banking for all other licensees
  1 33 under this chapter.
  1 34    Sec. 5.  Section 533D.3, subsection 1, Code 2005, is
  1 35 amended to read as follows:
  2  1    1.  A Except as provided in section 533D.17, a person shall
  2  2 not operate a delayed deposit services business in this state
  2  3 unless the person is licensed by the superintendent as
  2  4 provided in this chapter.
  2  5    Sec. 6.  Section 533D.9, Code 2005, is amended by adding
  2  6 the following new subsection:
  2  7    NEW SUBSECTION.  2A.  In the written notice required by
  2  8 subsection 2, the licensee shall require the maker of the
  2  9 check to initial by the disclosure of the fee to be charged
  2 10 for the transaction and by the disclosure of the annual
  2 11 percentage rate.
  2 12    Sec. 7.  Section 533D.16, Code 2005, is amended to read as
  2 13 follows:
  2 14    533D.16  APPLICABILITY.
  2 15    1.  This Except as provided in section 533D.17, this
  2 16 chapter does not apply to a bank incorporated under the
  2 17 provisions of any state or federal law, a savings and loan
  2 18 association incorporated under the provisions of any state or
  2 19 federal law, a credit union organized under the provisions of
  2 20 any state or federal law, a corporation licensed as an
  2 21 industrial loan company under chapter 536A, or an affiliate of
  2 22 a bank, savings and loan association, credit union, or
  2 23 industrial loan company.
  2 24    2.  Notwithstanding subsection 1, this chapter applies to a
  2 25 credit union service organization.
  2 26    Sec. 8.  NEW SECTION.  533D.17  FINANCIAL ORGANIZATIONS ==
  2 27 RULES.
  2 28    Notwithstanding section 533D.16, the superintendent shall
  2 29 adopt rules to implement and make applicable the fee
  2 30 restrictions, required disclosures, and prohibited acts
  2 31 contained in sections 533D.9 and 533D.10 to any supervised
  2 32 financial organization, as defined in section 537.1301, acting
  2 33 as a delayed deposit services business in this state with
  2 34 regard to transactions of delayed deposit services provided by
  2 35 the supervised financial organization.
  3  1    Sec. 9.  Section 534.201, Code 2005, is amended by adding
  3  2 the following new unnumbered paragraph:
  3  3    NEW UNNUMBERED PARAGRAPH.  An association may act as a
  3  4 delayed deposit services business as defined in section
  3  5 533D.2.
  3  6    Sec. 10.  Section 537.2401, subsection 1, Code 2005, is
  3  7 amended to read as follows:
  3  8    1.  Except as provided with respect to a finance charge for
  3  9 loans pursuant to open end credit under section 537.2402, a
  3 10 lender may contract for and receive a finance charge not
  3 11 exceeding the maximum charge permitted by the laws of this
  3 12 state or of the United States for similar lenders, and, in
  3 13 addition, with respect to a consumer loan, a supervised
  3 14 financial organization or a mortgage lender may contract for
  3 15 and receive a finance charge, calculated according to the
  3 16 actuarial method, not exceeding twenty=one percent per year on
  3 17 the unpaid balance of the amount financed.  However, a
  3 18 supervised financial organization may contract for and receive
  3 19 a finance charge exceeding twenty=one percent per year on the
  3 20 unpaid balance of the amount financed for transactions
  3 21 conducted pursuant to delayed deposit services provided
  3 22 pursuant to chapter 533D.  This subsection does not prohibit a
  3 23 lender from contracting for and receiving a finance charge
  3 24 exceeding twenty=one percent per year on the unpaid balance of
  3 25 the amount financed on consumer loans if authorized by other
  3 26 provisions of the law.
  3 27    Sec. 11.  NEW SECTION.  537.3213  TITLE LOAN DISCLOSURES.
  3 28    1.  A person who provides a loan of money secured by a
  3 29 certificate of title to a motor vehicle shall, prior to making
  3 30 the loan, provide to the borrower a notice written in clear,
  3 31 understandable language disclosing all of the following:
  3 32    a.  The fee to be charged for the transaction.
  3 33    b.  The annual percentage rate on the first hundred dollars
  3 34 on the face amount of the loan which the fee represents, and
  3 35 the annual percentage rate on subsequent one hundred dollar
  4  1 increments which the fee represents, if different.
  4  2    c.  Any penalty which the lender will charge if the
  4  3 borrower makes a payment with a check that is not negotiable
  4  4 on the date agreed upon.  A penalty to be charged pursuant to
  4  5 this paragraph shall only be collected by the lender once on a
  4  6 check no matter how long the check remains unpaid.  A penalty
  4  7 to be charged pursuant to this subsection is a lender's
  4  8 exclusive remedy and if a lender charges a penalty pursuant to
  4  9 this subsection, no other penalties under this chapter or any
  4 10 other provision shall apply.
  4 11    2.  In addition to the notice required by subsection 1, a
  4 12 person who provides a loan of money secured by a certificate
  4 13 of title to a motor vehicle shall conspicuously display a
  4 14 schedule of all fees, charges, and penalties for all services
  4 15 provided by the person as the lender.  The notice shall be
  4 16 posted at the principal place of business and every branch
  4 17 office of the lender.
  4 18    3.  A loan of money secured by a certificate of title to a
  4 19 motor vehicle provided in violation of any provision of this
  4 20 section is null and void.  A borrower who enters into a loan
  4 21 with a person who acts in violation of this section shall not
  4 22 be bound by the loan agreement, and the lender shall return to
  4 23 the borrower the titled personal property pledged or the fair
  4 24 market value of the titled property and all principal,
  4 25 interest, fees, and other charges paid by the borrower.  The
  4 26 borrower may commence a civil action to enforce this
  4 27 subsection in which the borrower is entitled to reasonable
  4 28 attorney fees, costs, and interest.
  4 29    4.  This section shall not apply to a supervised financial
  4 30 organization.
  4 31                           EXPLANATION
  4 32    This bill relates to the provision of delayed deposit
  4 33 services and vehicle title loans.  The bill requires credit
  4 34 union service organizations as defined by the bill to be
  4 35 licensed and generally subject to the requirements of Code
  5  1 chapter 533D when engaging in the delayed deposit services
  5  2 business, commonly known as "payday loans".
  5  3    The bill requires licensed delayed deposit services
  5  4 providers to require customers to initial next to the required
  5  5 disclosures relating to fees to be charged and the annual
  5  6 percentage rate.
  5  7    The bill allows supervised financial organizations, as
  5  8 defined by Code section 537.1301, to charge interest rates
  5  9 above 21 percent for delayed deposit services transactions.
  5 10 The bill amends the definition of "superintendent" in Code
  5 11 chapter 533D so that "superintendent" may mean the
  5 12 superintendent of banking, the superintendent of credit
  5 13 unions, or the superintendent of savings and loan
  5 14 associations, depending on the entity that is engaging in the
  5 15 delayed deposit services business.  Generally, the
  5 16 superintendent of banking will continue to license all delayed
  5 17 deposit services providers who are not credit unions, credit
  5 18 union services organizations, or savings and loan
  5 19 associations.
  5 20    The bill requires the superintendent of banking, the
  5 21 superintendent of credit unions, and the superintendent of
  5 22 savings and loan associations to adopt rules to make
  5 23 applicable the requirements relating to fee restrictions,
  5 24 disclosures, and prohibited acts of Code sections 533D.9 and
  5 25 533D.10 to supervised financial organizations, as applicable.
  5 26    The bill clarifies that state banks, credit unions, and
  5 27 savings and loan associations may engage in the delayed
  5 28 deposit services business.
  5 29    The bill requires persons who provide loans secured by a
  5 30 certificate of title to a motor vehicle, except for supervised
  5 31 financial organizations, to make certain written disclosures
  5 32 prior to providing the loan.  The lender must disclose the fee
  5 33 being charged for the loan transaction and give the annual
  5 34 percentage rate for each $100 increment of the loan if the
  5 35 rate is different for additional $100 increments.  The lender
  6  1 must also disclose what penalty the lender will charge for a
  6  2 returned check, which may only be collected one time
  6  3 regardless of how long the check remains unpaid.  The lender
  6  4 must also display a schedule of all fees, charges, and
  6  5 penalties for all services provided at each office of the
  6  6 lender.  A loan provided without the required disclosures is
  6  7 null and void and the borrower is not obligated to pay the
  6  8 loan.  A lender who provides a loan secured by a certificate
  6  9 of title to a motor vehicle without the required disclosures
  6 10 shall return the certificate of title pledged and all loan
  6 11 payments, interest, and other fees and charges paid by the
  6 12 borrower or the borrower may file a civil action for such
  6 13 items plus attorney fees, costs, and interest.
  6 14 LSB 5618HC 81
  6 15 kk:nh/sh/8