PRINTER'S NO. 3926
No. 2672 Session of 2002
INTRODUCED BY ROSS, ALLEN, CAPPELLI, CORRIGAN, CREIGHTON, GEIST,
HENNESSEY, HERSHEY, MANDERINO, NICKOL, PHILLIPS, SATHER,
T. STEVENSON AND WATSON, JUNE 3, 2002
REFERRED TO COMMITTEE ON COMMERCE AND ECONOMIC DEVELOPMENT,
JUNE 3, 2002
AN ACT
1 Regulating deferred deposit loans and certain lenders; and
2 providing for the powers and duties of the Department of
3 Banking and for licenses.
4 TABLE OF CONTENTS
5 Chapter 1. Preliminary Provisions
6 Section 101. Short title.
7 Section 102. Definitions.
8 Section 103. Construction with Federal law.
9 Chapter 3. Nature and Effect of Deferred Deposit Loans
10 Section 301. Written agreement requirements.
11 Section 302. Notice to consumers.
12 Section 303. Authorized finance charge.
13 Section 304. Maximum loan amount.
14 Section 305. Multiple outstanding transactions notice.
15 Section 306. Renewal.
16 Section 307. Form of loan proceeds.
17 Section 308. Endorsement of instrument.
1 Section 309. Redemption of instrument.
2 Section 310. Authorized dishonored instrument charge.
3 Section 311. Posting of charges.
4 Section 312. Notice on assignment or sale of instruments.
5 Chapter 5. Administrative and Licensure Provisions
6 Section 501. Records and annual reports.
7 Section 502. License requirement.
8 Section 503. Examination and investigation.
9 Section 504. Denial of license; discipline.
10 Section 505. Criminal culpability.
11 Section 506. Unfair or deceptive practices.
12 Chapter 7. Miscellaneous Provisions
13 Section 701. Rules and regulations.
14 Section 702. Report to General Assembly.
15 Section 703. Effective date.
16 The General Assembly of the Commonwealth of Pennsylvania
17 hereby enacts as follows:
18 CHAPTER 1
19 PRELIMINARY PROVISIONS
20 Section 101. Short title.
21 This act shall be known and may be cited as the Deferred
22 Deposit Loan Act.
23 Section 102. Definitions.
24 The following words and phrases when used in this act shall
25 have the meanings given to them in this section unless the
26 context clearly indicates otherwise:
27 "Consumer." A person, other than an organization, who is the
28 buyer, lessee or debtor to whom credit is granted in a consumer
29 credit transaction.
30 "Deferred deposit loan." A consumer loan whereby the lender,
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1 for a fee, finance charge or other consideration:
2 (1) Accepts a dated instrument from a consumer.
3 (2) Agrees to hold the instrument for a period of time
4 prior to negotiation or deposit of the instrument.
5 (3) Pays to the consumer, credits to the consumer's
6 account or pays to another person on the consumer's behalf
7 the amount of the instrument less finance charges permitted
8 by section 303.
9 "Department." The Department of Banking of the Commonwealth.
10 "Instrument." A personal check or authorization to transfer
11 or withdraw funds from an account signed by a consumer and made
12 payable to a person subject to this article.
13 "Lender." A person who offers or makes a deferred deposit
14 loan, who arranges a deferred deposit loan for a third party or
15 who acts as an agent for a third party, regardless of whether
16 the third party is exempt from licensing under this act or
17 whether approval, acceptance or ratification by the third party
18 is necessary to create a legal obligation for the third party.
19 The term includes, but is not limited to, a supervised financial
20 organization.
21 "Loan amount." The amount financed as defined in regulation
22 Z of 12 CFR 226.18(b) (relating to general disclosure
23 requirements), or as supplemented by this act.
24 "Supervised financial organization." A person, other than an
25 insurance company or other organization:
26 (1) Primarily engaged in an insurance business.
27 (2) Organized, chartered or holding an authorization
28 certificate under the laws of any state or of the United
29 States which authorizes the person to make loans and to
30 receive deposits, including a savings, share, certificate or
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1 deposit account.
2 (3) Subject to supervision by an official or agency of
3 any state or of the United States.
4 Section 103. Construction with Federal law.
5 Notwithstanding that a bank, savings and loan association,
6 credit union or supervised lender may be exempted by Federal law
7 from this act's interest rate, finance charges and licensure
8 provisions, all other applicable provisions of this act apply to
9 both a deferred deposit loan and a deferred deposit lender.
10 CHAPTER 3
11 NATURE AND EFFECT OF DEFERRED DEPOSIT LOANS
12 Section 301. Written agreement requirements.
13 Each deferred deposit loan transaction and renewal shall be
14 documented by a written agreement signed by both the lender and
15 consumer. The written agreement shall contain:
16 (1) The name of the consumer.
17 (2) The transaction date.
18 (3) The amount of the instrument.
19 (4) The annual percentage rate charged.
20 (5) A statement of the total amount of finance charges
21 charged, expressed both as a dollar amount and an annual
22 percentage rate.
23 (6) A date, not more than 30 days after the loan
24 transaction date, upon which the instrument may be deposited
25 or negotiated.
26 Section 302. Notice to consumers.
27 A lender shall provide the following notice in a prominent
28 place on each loan agreement in at least ten-point type:
29 A deferred deposit loan is not intended to meet long-term
30 financial needs. A deferred deposit loan should be used
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1 only to meet short-term cash needs. Renewing the deferred
2 deposit loan rather than paying the debt in full will
3 require additional finance charges.
4 Section 303. Authorized finance charge.
5 A lender may charge a finance charge for each deferred
6 deposit loan that may not exceed 20% of the first $300 loaned
7 plus 7.50% of any amount loaned in excess of $300. The charge
8 shall be deemed fully earned as of the date of the transaction.
9 The lender may charge only those charges authorized in this act
10 in connection with a deferred deposit loan.
11 Section 304. Maximum loan amount.
12 (a) General rule.--No lender may lend an amount greater than
13 $500 nor shall the amount financed exceed $500 at any time to a
14 consumer. No instrument held as a result of a deferred deposit
15 loan shall exceed $575.
16 (b) Right to rescind.--A consumer shall have the right to
17 rescind a deferred deposit loan on or before 5 p.m. the next
18 business day following the loan transaction.
19 Section 305. Multiple outstanding transactions notice.
20 A lender shall provide the following notice in a prominent
21 place on each deferred deposit loan agreement in at least ten-
22 point type:
23 State law prohibits deferred deposit loans exceeding $500
24 total debt plus applicable finance charges permitted by
25 law from a deferred deposit lender. Exceeding this amount
26 may create financial hardships for you and your family.
27 You have the right to rescind this transaction by 5 p.m.
28 the next business day following this transaction.
29 Section 306. Renewal.
30 (a) General rule.--A deferred deposit loan may not be
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1 renewed more than once. After such renewal, the consumer must
2 pay the debt in cash or its equivalent. If the consumer fails to
3 pay the debt, then the lender may deposit the consumer's
4 instrument.
5 (b) Additional finance charge limitation.--Upon renewal of a
6 deferred deposit loan, the lender may assess additional finance
7 charges not to exceed 20% of the first $300 loaned plus 7.50% of
8 any amount loaned in excess of $300.
9 (c) Completion of transaction.--A transaction is completed
10 when the lender presents the instrument for payment or the
11 consumer redeems the instrument by paying the full amount of the
12 instrument to the holder. Once the consumer has completed the
13 deferred deposit transaction, the consumer may enter into a new
14 deferred deposit agreement with the lender.
15 (d) Construction.--Nothing in this section shall be
16 construed to prohibit a lender from refinancing a deferred
17 deposit loan as a supervised loan subject to the provisions of
18 law.
19 Section 307. Form of loan proceeds.
20 A lender may pay the proceeds from a deferred deposit loan to
21 the consumer in the form of a business instrument, money order
22 or cash. No lender may charge the consumer an additional finance
23 charge or fee for cashing the lender's business instrument.
24 Section 308. Endorsement of instrument.
25 No lender may negotiate or present an instrument for payment
26 unless the instrument is endorsed with the actual business name
27 of the lender.
28 Section 309. Redemption of instrument.
29 Prior to the lender negotiating or presenting the instrument,
30 the consumer shall have the right to redeem any instrument held
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1 by a lender as a result of a deferred deposit loan if the
2 consumer pays the full amount of the instrument to the lender.
3 Section 310. Authorized dishonored instrument charge.
4 If an instrument held by a lender as a result of a deferred
5 deposit loan is returned to the lender from a payor financial
6 institution due to insufficient funds, a closed account or a
7 stop-payment order, the lender:
8 (1) Shall have the right to exercise all civil means
9 authorized by law to collect the face value of the
10 instrument.
11 (2) May contract for and collect a returned instrument
12 charge not to exceed $25 plus court costs and reasonable
13 attorney fees as awarded by a court and incurred as a result
14 of the default. Such attorney fees may not exceed the loan
15 amount.
16 (3) May not collect any other fees as a result of this
17 default. A returned instrument charge shall not be allowed if
18 the loan proceeds instrument is dishonored by the financial
19 institution or the consumer places a stop-payment order due
20 to forgery or theft.
21 Section 311. Posting of charges.
22 A lender offering a deferred deposit loan shall post at any
23 place of business where deferred deposit loans are made a notice
24 of the charges imposed for deferred deposit loans.
25 Section 312. Notice on assignment or sale of instruments.
26 Prior to sale or assignment of instruments held by the lender
27 as a result of a deferred deposit loan, the lender shall place a
28 notice on the instrument in at least ten-point type to read:
29 This is a deferred deposit loan instrument.
30 CHAPTER 5
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1 ADMINISTRATIVE AND LICENSURE PROVISIONS
2 Section 501. Records and annual reports.
3 (a) General rule.--A lender shall maintain records and file
4 an annual report in accordance with this section and regulations
5 of the department.
6 (b) Maintenance of records.--The recordkeeping system of a
7 lender shall be sufficient if the lender makes the required
8 information reasonably available. The records need not be kept
9 in the place of business where deferred deposit loans are made
10 if the department is given free access to the records wherever
11 located. The records pertaining to any deferred deposit loan
12 shall be preserved for not less than four years after making the
13 final entry relating to the deferred deposit loan.
14 (c) Contents of annual report.--On or before December 1 of
15 each year, a lender shall file with the department an annual
16 report in the form prescribed by the department relating to all
17 deferred deposit loans made by the lender and satisfactory proof
18 of financial responsibility. Information contained in the annual
19 report shall be confidential and may be published only in
20 composite form. The department may, by rule, determine the types
21 and amounts of financial responsibility deemed to be
22 satisfactory.
23 (d) Failure to comply.--If a lender fails to file the annual
24 report or proof of financial responsibility by January 1, the
25 department may impose a penalty of $5 per day from January 2 to
26 the date the filing is postmarked. However, if a lender fails to
27 file and pay the appropriate penalty by January 15, its license
28 shall automatically expire.
29 Section 502. License requirement.
30 (a) General rule.--No person shall engage in the business of
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1 deferred deposit loans without having first obtained a deferred
2 deposit lender's license pursuant to this section. A separate
3 license shall be required for each location where such business
4 is conducted.
5 (b) License requirements.--The department shall receive and
6 act on all applications for licenses to make deferred deposit
7 loans under this act within 60 days after receiving an
8 application for a license. Applications shall be filed in the
9 manner prescribed by the department and shall contain such
10 information as the department may reasonably require. No license
11 shall be issued without payment of a nonrefundable license fee
12 of $500 per location. The license year shall be the calendar
13 year.
14 (c) Qualifications.--No license shall be issued unless the
15 department, upon investigation, finds that the financial
16 responsibility, character and fitness of the applicant and of
17 the members, managers, partners, officers and directors thereof
18 are such as to warrant belief that the business will be operated
19 honestly and fairly within the purposes of this act.
20 (d) Request for hearing.--Upon written request, the
21 applicant is entitled to a hearing on the question of the
22 applicant's qualifications for a license if:
23 (1) the department notified the applicant in writing
24 that his or her application has been denied; or
25 (2) the department has not issued a license within 60
26 days after the application for the license was filed.
27 (e) Time period for request for hearing.--A request for a
28 hearing may not be made more than 60 days after the department
29 has mailed a writing to the applicant notifying the applicant
30 that the application has been denied and stating in substance
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1 the department's findings supporting denial of the application.
2 (f) Public notification.--Every licensee shall post its
3 license for each location in a place where it is in full view of
4 the public at all times.
5 (g) Change of place of business.--No licensee shall change
6 the location of any place of business or license without giving
7 the department at least 30 days' prior written notice. The
8 department may by regulation establish an administrative fee for
9 such a change of address.
10 (h) Prohibited activities.--A licensee shall not engage in
11 the business of making supervised loans at any place of business
12 for which the licensee does not hold a license, nor shall a
13 licensee engage in business under any other name than that in
14 the license. The department may by regulation establish an
15 administrative fee for such a change of name.
16 (i) Renewal of license.--Each license shall be renewed by
17 payment of a nonrefundable license fee of $500 and the filing of
18 a renewal form. The fee and renewal form shall be due each
19 January 31. If a licensee fails to pay the prescribed fee on or
20 before March 1, it shall pay a penalty of $5 per day per license
21 from March 2 to the date the payment is postmarked. However, if
22 a licensee fails to pay the appropriate renewal and penalty fees
23 by March 15, its license shall automatically expire.
24 Section 503. Examination and investigation.
25 A lender shall be examined and investigated in accordance
26 with regulations of the department. To assure compliance with
27 this act, the department shall examine the records of a licensee
28 and assess the licensee for costs associated with the
29 examination.
30 Section 504. Denial of license; discipline.
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1 (a) General rule.--The department may deny a license or
2 discipline a lender for any of the following reasons:
3 (1) the applicant or licensee has violated this act or
4 any regulation, rule or order lawfully made pursuant thereto;
5 (2) facts or conditions exist that would clearly have
6 justified the department in refusing to grant a license had
7 these facts or conditions been known to exist at the time the
8 application for the license was made;
9 (3) the applicant has failed to complete an application
10 for licensure;
11 (4) the applicant or licensee has failed to provide
12 information required by the department within a reasonable
13 time as fixed by the department;
14 (5) the applicant or licensee has failed to provide or
15 maintain proof of financial responsibility;
16 (6) the applicant or licensee is insolvent;
17 (7) the applicant or licensee has made, in any document
18 or statement filed with the department a false representation
19 of a material fact or has omitted to state a material fact;
20 (8) the applicant, licensee or its owners, partners,
21 members, officers or directors have been convicted of or
22 entered a plea of guilty or nolo contendere to a crime
23 involving fraud or deceit or to any similar crime under the
24 jurisdiction of any Federal court or court of another state;
25 (9) the applicant or licensee has failed to make,
26 maintain or produce records which comply with this act and
27 any regulation adopted by the department;
28 (10) the applicant or licensee has been the subject of
29 any disciplinary action by any Federal or State agency;
30 (11) a final judgment has been entered against the
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1 applicant or licensee for violations of this act, any Federal
2 or State law concerning consumer finance, banking or mortgage
3 brokers or lenders, or any Federal or State law prohibiting
4 deceptive or unfair trade or business practices; or
5 (12) the applicant or licensee has failed to, in a
6 timely manner as fixed by the department, take or provide
7 proof of the corrective action required by the department
8 subsequent to an examination or investigation pursuant to
9 this act.
10 (b) Notice of violations.--If the department finds that a
11 lender has violated this act, the department shall notify the
12 lender of such violations and the actions the lender must take
13 to cure the violations. The department shall allow the lender 30
14 days to cure the violations before taking disciplinary action.
15 If the department determines that the lender has performed such
16 actions contained in the notice, the lender shall not be liable
17 for the violations that have been cured.
18 Section 505. Criminal culpability.
19 A consumer shall not be subject to any criminal penalty for
20 entering into a deferred deposit loan agreement. A consumer
21 shall not be subject to any criminal penalty in the event the
22 instrument is dishonored unless the consumer's account on which
23 the instrument was written was closed before the agreed upon
24 date of negotiation subject to the provisions of 18 Pa.C.S. §
25 4105 (relating to bad checks).
26 Section 506. Unfair or deceptive practices.
27 No person shall engage in unfair or deceptive acts, practices
28 or advertising in connection with a deferred deposit loan.
29 CHAPTER 7
30 MISCELLANEOUS PROVISIONS
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1 Section 701. Rules and regulations.
2 The department may promulgate rules and regulations to
3 administer and enforce this act.
4 Section 702. Report to General Assembly.
5 Three years from the effective date of this act, the
6 department shall report to the General Assembly on the status of
7 the deferred deposit loan industry, including, but not limited
8 to, a summary of the number of loans issued, the average
9 deferred deposit loan amount and any other information as
10 determined by the department.
11 Section 703. Effective date.
12 This act shall take effect in 60 days.
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