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. 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 "InterestUsury" 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 Laves 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. |