PRINTER'S NO. 849
No. 758 Session of 1989
INTRODUCED BY F. TAYLOR, GALLEN, McVERRY, B. D. CLARK, COY,
GEIST, BOYES, DOMBROWSKI, LESCOVITZ, FARGO, VAN HORNE,
CARLSON, BRANDT, PRESTON, YANDRISEVITS, NOYE, REINARD, DORR,
S. H. SMITH, LETTERMAN, COLE, MAIALE, CAPPABIANCA, SERAFINI,
RYAN, CESSAR, OLASZ, DININNI, GODSHALL, WOZNIAK,
J. L. WRIGHT, PRESSMANN, GLADECK, LaGROTTA, BARLEY, BURD,
HAGARTY, G. SNYDER, McCALL, LUCYK, D. R. WRIGHT, PICCOLA,
MARKOSEK, COLAFELLA, CHADWICK AND PERZEL, MARCH 14, 1989
REFERRED TO COMMITTEE ON BUSINESS AND COMMERCE, MARCH 14, 1989
AN ACT
1 Amending the act of November 30, 1965 (P.L.847, No.356),
2 entitled "An act relating to and regulating the business of
3 banking and the exercise by corporations of fiduciary powers;
4 affecting persons engaged in the business of banking and
5 corporations exercising fiduciary powers and affiliates of
6 such persons; affecting the shareholders of such persons and
7 the directors, trustees, officers, attorneys and employes of
8 such persons and of the affiliates of such persons; affecting
9 national banks located in the Commonwealth; affecting persons
10 dealing with persons engaged in the business of banking,
11 corporations exercising fiduciary powers and national banks;
12 conferring powers and imposing duties on the Banking Board,
13 on certain departments and officers of the Commonwealth and
14 on courts, prothonotaries, clerks and recorders of deeds;
15 providing penalties; and repealing certain acts and parts of
16 acts," providing for certain direct and indirect extensions
17 of credit to individuals, partnerships and unincorporated
18 associations; authorizing direct extensions of credit to
19 finance installment sales of goods and services to be made
20 through sellers and contractors as intermediaries; providing
21 special rules for transaction accounts of individuals; and
22 providing for compliance with Federal law regarding
23 availability of withdrawal of items deposited.
24 FINDINGS
25 The General Assembly makes the following findings as the
1 basis for this act:
2 (1) The Pennsylvania statutes and regulations which
3 govern direct and indirect extensions of credit by banks to
4 individuals and unincorporated entities have become
5 voluminous and intricate by reason of separate amendments and
6 supplements over several years and, in conjunction with
7 Federal statutes and regulations, have failed to provide a
8 stable basis for the offering of credit by banks. Such
9 statutes and regulations have imposed a costly, confusing and
10 needless complexity in the compliance requirements that banks
11 must satisfy without providing a proportionate benefit to
12 their customers.
13 (2) The interests of the public and the interests of the
14 State have been adversely affected by economic limitations on
15 direct and indirect extensions of credit under restrictions
16 of Pennsylvania law.
17 (3) Recent changes in Federal laws regulating interest
18 payable on deposits have enabled the public to obtain market
19 rates of interest on funds deposited with banks, and such
20 rates may be adjusted to reflect interest rate levels in the
21 national economy. Pennsylvania law generally does not provide
22 the same flexibility for interest rates on direct and
23 indirect extensions of credit.
24 (4) States contiguous to Pennsylvania, as well as most
25 other states of the United States, have changed bank lending
26 laws in order to maintain a consistent availability of
27 credit. A consequence of these changes has been that
28 financial institutions located in other states have become
29 the sources of a substantial and increasing percentage of the
30 personal credit business in Pennsylvania, detrimentally
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1 affecting employment, business and tax revenues in this
2 State.
3 (5) The accelerating development of interstate banking
4 will increase the significance of State laws which govern
5 bank extensions of credit and their effect on the choice of
6 places where activities will be located. The loss of jobs in
7 Pennsylvania directly caused by its outdated credit laws will
8 inevitably increase with changes in the banking industry
9 unless those laws offer the same opportunities for
10 competition by Pennsylvania organizations as do the laws of
11 other states.
12 (6) The interests of individuals and unincorporated
13 entities in continuing credit availability from banks located
14 in this State, the interests of the State in augmenting
15 employment and business of its residents and the interests of
16 the State and political subdivisions in State and local taxes
17 resulting from such employment and business will be promoted
18 by simplification and flexibility of bank lending laws so
19 that credit can be offered at market rates and competitive
20 terms.
21 PURPOSES
22 On the basis of these findings, the purposes of this act are
23 to provide:
24 (1) Uniform, adequate and simplified disclosure by
25 adoption of the comprehensive Federal rules governing
26 disclosure in consumer credit transactions.
27 (2) Availability from Pennsylvania banks of credit at
28 competitive market rates of interest and charges so that
29 customers may benefit from decreases in market rates and
30 Pennsylvania banks may continue to offer credit, and compete
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1 with banks from other states, during periods of both
2 increases and decreases in interest rates.
3 (3) Maintenance of credit services for Pennsylvania
4 customers at local banks so that customer alternatives will
5 not be restricted to out-of-state companies as in the case of
6 past periods of high interest rates.
7 (4) Unification and simplification of rules governing
8 bank credit to promote efficiency and to increase borrower
9 comprehension of the terms of credit.
10 The provisions of this statute shall be liberally construed to
11 accomplish the foregoing purposes.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. The act of November 30, 1965 (P.L.847, No.356),
15 known as the Banking Code of 1965, is amended by adding a
16 section to read:
17 Section 322. Extensions of Credit to Individuals, Partnerships
18 and Unincorporated Associations
19 (a) Definitions--As used in this section, the following
20 words and phrases shall have the meanings given to them in this
21 subsection:
22 "Credit device"--any card, check, identification code or
23 other means of identification contemplated by the agreement
24 governing a plan.
25 "Loans"--cash advances or loans to be paid to or for the
26 account of the customer.
27 "Plan" or "open-end credit plan"--a plan contemplating the
28 extension of credit under an account governed by an agreement
29 between an institution and a customer pursuant to which:
30 (i) the institution permits the customer and, if the
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1 agreement governing the plan so provides, persons acting on
2 behalf of or with authorization from the customer from time
3 to time to make purchases or to obtain loans, or both, by use
4 of a credit device,
5 (ii) the amounts of purchases made and loans obtained
6 are charged to the customer's account under the plan,
7 (iii) the customer is required to pay the institution
8 the amounts of all purchases and loans charged to the
9 customer's account under the plan but has the privilege of
10 paying the amounts outstanding from time to time in full or
11 installments, and
12 (iv) interest may be charged and collected by the
13 institution from time to time on the outstanding unpaid
14 indebtedness under such plan.
15 "Purchases"--payments for property of whatever nature, real
16 or personal, tangible or intangible, and payments for services,
17 licenses, taxes, official fees, fines, private or governmental
18 obligations, or any other thing of value.
19 "Truth in Lending"--the Federal Truth in Lending Act (Public
20 Law 90-321, 15 U.S.C. § 1601 et seq.) and regulations
21 promulgated thereunder as in effect from time to time. The terms
22 "finance charge," "annual percentage rate," "credit card,"
23 "open-end credit" and "closed-end credit" have the same coverage
24 and meanings as the definitions of those terms under Truth in
25 Lending.
26 (b) Coverage--This section shall govern all direct and
27 indirect extensions of credit by an institution for personal,
28 family, household, business or agricultural purposes to an
29 individual, a partnership or an unincorporated association,
30 whether as closed-end credit or open-end credit, except
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1 extensions of credit:
2 (i) which are secured by a first-lien, purchase money,
3 residential real estate mortgage,
4 (ii) which are student loans guaranteed by the
5 Pennsylvania Higher Education Assistance Agency, or
6 (iii) which are not subject to a maximum rate of
7 interest or finance charge, or as to which the pleading of
8 usury as a defense is prohibited, pursuant to Federal or
9 State law.
10 (c) Disclosures--In connection with an extension of credit,
11 an institution shall make applicable disclosures required by
12 Truth in Lending in lieu of any disclosure requirement which may
13 be imposed by Pennsylvania law.
14 (d) Agreements for extension of credit--An institution may
15 extend credit pursuant to this section on the basis of a written
16 agreement. Such agreement, including related statements, notices
17 and documents (a completed copy of each of which shall be given
18 to the customer), shall have the form and contents required by
19 Truth in Lending and shall, in addition, provide if applicable:
20 (i) the amounts of available credit and the procedure or
21 means by which it may be obtained,
22 (ii) maturity provisions, installment payment
23 requirements, prepayment privileges and rebates of unearned
24 interest upon prepayment,
25 (iii) either the amounts or rates of interest, which may
26 be fixed or variable rates, or the basis for determining such
27 amounts or rates, subject to subsection (m),
28 (iv) the method of determining balances of unpaid
29 indebtedness to which periodic rates of interest are
30 applicable which, in the case of an open-end credit plan,
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1 may, if the agreement governing the plan so provides, include
2 the amount of any interest and other charges, including
3 delinquency charges, which have accrued in the account,
4 (v) charges which may be imposed in addition to
5 interest, in such amounts as the agreement provides, or as
6 established in the manner the agreement provides, such as,
7 but not limited to, minimum charges, check charges and
8 maintenance charges related to extensions of credit pursuant
9 to overdraft check plans, delinquency charges for each
10 installment or payment which is in default and fees,
11 extension charges and charges that may be incurred on
12 default, including attorney fees, court and other collection
13 costs. Such additional charges may include a daily, weekly,
14 monthly, annual or other periodic charge for the privileges
15 made available to the customer under an open-end credit plan,
16 transaction charges for each separate purchase or loan under
17 the plan and a minimum charge for each scheduled billing
18 period under the plan, during any portion of which there is
19 an outstanding unpaid indebtedness under the plan,
20 (vi) collateral security and provisions relating
21 thereto, except that there may not be any authorization for
22 entry of judgment by confession, and
23 (vii) insurance coverages and premiums therefor.
24 Such agreements shall be valid and enforceable and an
25 institution may impose and collect the interest and other
26 charges provided therein.
27 (e) Computation of interest--A fixed rate of interest
28 included in a finance charge shall be computed either on a
29 simple interest basis by a generally accepted actuarial method,
30 including a method permitted for determination of an annual
19890H0758B0849 - 7 -
1 percentage rate under Truth in Lending or, as to an extension of
2 credit with an initial maturity of not more than sixty months,
3 which is made within two years after the effective date of this
4 section, on an add-on or discount basis. The maximum amount that
5 may be charged on the basis of a variable rate of interest shall
6 be computed in accordance with or with reference to a schedule
7 or formula, at the times and for the periods provided in the
8 agreement. The periodic rate of interest, as so varied, will be
9 applicable to all outstanding unpaid indebtedness under the
10 agreement from the effective date of the variation if so
11 provided in the agreement.
12 (f) Changes in terms--An institution may change the terms of
13 the agreement if:
14 (i) the agreement so provides,
15 (ii) there is compliance with applicable notice
16 requirements of Truth in Lending prior to the effective date
17 of the change,
18 (iii) such notice states that a customer for whose
19 account a change in terms does not become effective may pay
20 all outstanding amounts pursuant to the agreement as in
21 effect prior to the notice, and
22 (iv) in the case of an increase in a fixed rate of
23 interest or other charges payable by the customer under an
24 open-end credit plan, the customer incurs additional
25 indebtedness after the effective date of the change of terms.
26 If the agreement governing the plan so provides, a change of
27 terms pursuant to this subsection may, on and after the date it
28 becomes effective as to an account, apply to all then
29 outstanding unpaid indebtedness. A change in the amount of
30 interest imposed in accordance with or with reference to a
19890H0758B0849 - 8 -
1 schedule or formula for a variable rate of interest shall not be
2 deemed to be a change in terms but a change in such schedule or
3 formula shall be deemed to be a change in terms. No change may
4 be made in a fixed rate of interest or other charges payable
5 with respect to the outstanding balance of indebtedness or in
6 the amount or due dates of required installment payments on
7 closed-end credit unless there is written consent of the
8 customer at the time of the change except for an extension of
9 any due date or an option granted by the institution to the
10 customer to omit payments and except as may be otherwise
11 provided in an agreement for an extension of credit which is not
12 for personal, family or household purposes.
13 (g) Prepayment--
14 (i) A borrower or buyer may prepay an extension of
15 credit in full at any time without any prepayment charge.
16 (ii) If interest has been precomputed, then, in the
17 event of prepayment of an extension of credit, the
18 institution shall refund to the customer the unearned portion
19 of the precomputed interest. The refund shall be in an amount
20 not less than the amount of the unearned precomputed interest
21 calculated in accordance with a generally accepted actuarial
22 method including a method permitted for determination of an
23 annual percentage rate under Truth in Lending, except that
24 the amount of the unearned interest on an extension of credit
25 with an initial maturity of not more than sixty months which
26 is made within two years after the effective date of this
27 section for which interest is computed on an add-on or
28 discount basis as permitted by subsection (e) may be
29 calculated in accordance with the "sum of the balances"
30 method, and except that the customer shall not be entitled to
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1 a refund which results in a net minimum charge of less than
2 an amount equal to the interest that would accrue in the
3 first month the extension of credit was scheduled to be
4 outstanding. The institution shall not be required to refund
5 the unearned portion of the interest if such amount is less
6 than one dollar ($1).
7 (iii) The amount of a refund under the "sum of the
8 balances" method is determined by multiplying the precomputed
9 interest by a fraction, the numerator of which is the sum of
10 the balances, including interest, of the extension of credit
11 scheduled to be outstanding after deducting the first of the
12 payments scheduled to be made on or after the date of
13 prepayment, and the denominator of which is the sum of all
14 the unpaid balances, including interest, of the extension of
15 credit scheduled to be outstanding from its inception to, and
16 including the maturity of the final installment. Intervals
17 between scheduled payments must be regular periods of one
18 month or less except that the interval between the inception
19 of an extension of credit and the due date of the first
20 scheduled payment may be:
21 (A) one month and fifteen days when the regular
22 payment interval is a month,
23 (B) one month when the regular payment interval is
24 less than a month but more than a week, or
25 (C) eleven days when the regular payment interval is
26 a week or less.
27 (h) Insurance--The agreement may provide for life, health,
28 accident, loss-of-income or other permissible insurance related
29 to an extension of credit under a group or individual policy
30 subject to the option of the customer to furnish required
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1 insurance through an authorized insurer of the customer's choice
2 as provided in section 11 of the act of September 2, 1961
3 (P.L.1232, No.540), known as the "Model Act for the Regulation
4 of Credit Life Insurance and Credit Accident and Health
5 Insurance," and, if premiums for such insurance are paid to the
6 institution, provisions shall be made for rebates of unearned
7 premiums, if any, upon prepayment. An institution may require
8 that insurance be maintained, from an insurer acceptable to the
9 institution, against loss or damage to property which is
10 collateral security for the extension of credit and against
11 liability arising out of the ownership or use of such property.
12 An institution may grant an extension of credit to finance the
13 premiums for such insurance.
14 (i) Extensions of credit through intermediaries--An
15 extension of credit to finance a sale of a motor vehicle, other
16 than through an open-end credit plan, may be made by an
17 institution through a seller licensed as an installment seller
18 under the act of June 28, 1947 (P.L.1110, No.476), known as the
19 "Motor Vehicle Sales Finance Act," as an intermediary if:
20 (i) the agreement governing the extension of credit
21 conspicuously provides that the extension of credit is made
22 by the institution to the buyer and is subject to the
23 provisions of this section, and
24 (ii) either the institution has made a commitment to
25 make the extension of credit or the agreement is subject to
26 acceptance by the institution within two business days after
27 the date of the agreement and the institution upon such
28 acceptance sends written notice thereof to the buyer. The
29 terms and conditions under which the seller acts as an
30 intermediary between the institution and the buyer shall be
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1 determined by written agreement between the institution and
2 the seller.
3 An extension of credit made through an intermediary pursuant to
4 this section shall be subject to this act and other acts
5 governing transactions between banks and their customers and
6 shall not be subject to the provisions or requirements of any
7 other regulatory statute, rule or regulation and neither a
8 seller who acts as an intermediary for an institution with
9 respect to such an extension of credit nor an institution which
10 makes such an extension of credit through a seller as an
11 intermediary shall be deemed to be in violation of licensing or
12 other requirements of any other regulatory statute, rule or
13 regulation that would be applicable to extensions of credits by
14 such a seller or contractor to its customers.
15 (j) Right of rescission--A person whose ownership interest
16 in that person's principal dwelling is subject to a lien or
17 security interest as collateral security for an extension of
18 credit subject to this section shall have a right of rescission
19 for the same types of transactions, on the same terms and
20 conditions and for the same time periods as those provided for
21 the right of rescission under Truth in Lending.
22 (k) Statement of account--Upon the written request of the
23 customer, an institution shall provide, within ninety days after
24 the end of each calendar year, a statement of the customer's
25 account showing payments made during such year, the amount
26 applied to interest and the balance of the account at the end of
27 such year.
28 (l) Waiver of provisions--No provision of this section which
29 confers rights on the customer or any other person may be waived
30 or modified except to the extent and in the circumstances in
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1 which Truth in Lending permits a consumer to waive or modify the
2 right of rescission.
3 (m) Maximum rates of interest for credit card purchases--The
4 maximum rate of interest from time to time that may be imposed
5 on amounts charged to a credit card account for purchases shall
6 be the index rate under this subsection in effect at the time
7 the interest is charged to the account and shall be applicable
8 to all balances in the account for purchases and, if the
9 agreement governing the account so provides, to interest and
10 other charges accrued on unpaid balances for purchases. The
11 index rate shall be determined for each calendar quarter
12 commencing on the first day of January, April, July and October
13 of each year. For the first calendar quarter which commences not
14 less than ninety days after the date of approval of this
15 subsection, the index rate shall be the sum of the average
16 annual percentage yield on U.S. Government securities for a
17 constant three-year maturity as published by the Board of
18 Governors of the Federal Reserve System rounded to the nearer
19 quarter of one percent ("U.S. Government three-year rate") for
20 the first full calendar month after such date of approval plus
21 eight percent. For each successive calendar quarter, the index
22 rate shall be the average U.S. Government three-year rate for
23 the second calendar month preceding such quarter plus eight
24 percent. The index rate for a calendar quarter shall be the
25 maximum rate of interest imposed in each billing cycle which
26 begins in such calendar quarter on balances subject to this
27 subsection. Notwithstanding any provision in this section or any
28 other act to the contrary, there shall be no limitation on the
29 rate, amount or manner of assessing or adjusting service
30 charges, finance charges, interest, annual or other periodic
19890H0758B0849 - 13 -
1 fees or any other fees or charges imposed in connection with
2 credit cards issued by any bank, savings bank or savings and
3 loan association located in Pennsylvania to cardholders
4 domiciled outside Pennsylvania: Provided, however, That the
5 rate, amount and manner of assessing and adjusting such service
6 charges, finance charges, interest, fees and charges shall be
7 set forth in writing and agreed to by the credit care issuer and
8 the cardholder. This subsection (m), the annual or other
9 periodic fees and any additional fees and charges, other than
10 the service charge, finance charge or interest, shall all be
11 deemed to be material to the determination of the rate of the
12 service charge, finance charge and interest for purposes of
13 Federal law. In determining whether a cardholder is domiciled in
14 Pennsylvania, a credit card issuer may conclusively assume that
15 such cardholder is domiciled outside Pennsylvania if the issuer
16 has not mailed any solicitation to the cardholder at a
17 Pennsylvania address, has not entered into a credit card
18 agreement with a cardholder pursuant to a personal meeting at an
19 office of the issuer in Pennsylvania and does not mail the
20 cardholder's monthly billing statements to a Pennsylvania
21 address.
22 Section 2. Section 506(a)(vi), (vii) and (viii) of the act,
23 amended December 21, 1988 (P.L.1416, No.173), are amended and
24 the subsection is amended by adding a clause to read:
25 Section 506. Lending Powers; Direct Leasing of Personal
26 Property
27 (a) A savings bank may:
28 * * *
29 (vi) in the case of a savings bank which has elected to
30 exercise the conditional powers provided in section 513, make
19890H0758B0849 - 14 -
1 secured or unsecured loans for personal, family or household
2 purposes, including loans reasonably incident to the
3 provision of such credit, and subject to regulation by the
4 department, issue credit cards, extend credit in connection
5 therewith, and otherwise engage in or participate in credit
6 card operations, except that the total amount of such loans
7 or extensions of credit shall not exceed thirty percent of
8 the assets of such savings bank[. In any loan or extension of
9 credit made under the authority of this clause a savings bank
10 may charge or impose any rate or charge which could be
11 imposed by a bank in connection with any such loan or
12 extension of credit and shall be subject to the same
13 restrictions and limitations imposed upon a bank in
14 connection with such loan or extension of credit];
15 (vii) make overdraft loans specifically related to
16 deposits which are subject to withdrawal by check or by
17 negotiable order of withdrawal; [and]
18 (viii) make loans for the payment of educational
19 expenses; and
20 (ix) in any loan or extension of credit made under the
21 authority of this section, charge or impose any rate or
22 charge which could be imposed by a bank in connection with
23 any such loan or extension of credit, make agreements in the
24 same manner and with the same terms, provisions and
25 conditions as a bank and, in addition to the restrictions of
26 this section, shall be subject only to the same disclosure
27 and other requirements, restrictions and limitations imposed
28 upon a bank in connection with such loan or extension of
29 credit.
30 [A savings bank may not lend money or discount or purchase
19890H0758B0849 - 15 -
1 evidences of indebtedness or agreements for the payment of money
2 except as provided in sections 504 and 505 and in this
3 subsection (a).]
4 * * *
5 Section 3. The act is amended by adding a section to read:
6 Section 611. Compliance with Federal Law Regarding Availability
7 of Withdrawal of Items Deposited
8 An institution shall comply with the "Expedited Funds
9 Availability Act" (Public Law 100-86, 12 U.S.C. § 4001 et seq.)
10 and any amendments thereof and any regulations, interpretations
11 and rulings issued thereunder from the effective date thereof.
12 Section 4. The provisions of this act shall only govern
13 transactions between banks or savings banks and their customers
14 and, by reason of the references to "interest, finance charge,
15 rate, and/or terms" in section 701(a)(26) of the act of December
16 14, 1967 (P.L.746, No.345), known as the Savings Association
17 Code of 1967, transactions between savings associations and
18 their customers, and shall not affect acts and parts of acts
19 governing other creditors or sellers or contractors for goods or
20 services, or acts or parts of acts governing such other
21 creditors or sellers as to installment sales or contracts for
22 goods or services, including, but not limited to the act of June
23 28, 1947 (P.L.1110, No.476), known as the Motor Vehicle Sales
24 Finance Act, the act of August 14, 1963 (P.L.1082, No.464),
25 known as the Home Improvement Finance Act and the act of October
26 28, 1966 (Sp.Sess., P.L.55, No.7), known as the Goods and
27 Services Installment Sales Act, or acts and parts of acts
28 governing rights, duties and procedures for enforcement of
29 obligations upon default on an extension of credit, or acts and
30 parts of acts governing credit life insurance or the act of
19890H0758B0849 - 16 -
1 December 17, 1968 (P.L.1224, No.387), known as the Unfair Trade
2 Practices and Consumer Protection Law, or 13 Pa.C.S. (relating
3 to commercial code). This act shall not repeal any act governing
4 criminal usury, extortionate extensions of credit or
5 racketeering activity or repeal or affect any law relating to
6 the preservation against an assignee of a consumer's claims and
7 defenses arising out of an agreement for the purchase of goods
8 or services.
9 Section 5. All acts and parts of acts are repealed insofar
10 as they are inconsistent with the provisions of this act.
11 Section 6. This amendatory act shall be known and may be
12 cited as the Simplification and Availability of Bank Credit Act.
13 Section 7. This act shall take effect immediately.
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