SB0862sam001 95TH GENERAL ASSEMBLY

Sen. Jacqueline Y. Collins

Filed: 4/2/2008

09500SB0862sam001 LRB095 05603 MJR 48666 a

AMENDMENT TO SENATE BILL 862

AMENDMENT NO. ______. Amend Senate Bill 862 by replacing everything after the enacting clause with the following:

"Section 5. The Consumer Installment Loan Act is amended by changing Sections 1, 2, 15, 15d, and 16 and by adding Sections 17.3, 17.5, and 20.2 as follows:

(205 ILCS 670/1) (from Ch. 17, par. 5401)

Sec. 1. License required to engage in business. No person, partnership, association, limited liability company, or corporation shall make or offer to make engage in the business of making loans of money in a principal amount not exceeding $40,000 $25,000, and charge, contract for, or receive on any such loan a greater rate of interest, discount, or consideration therefor than the lender would be permitted by law to charge if he were not a licensee hereunder, except as authorized by this Act after first obtaining a license from the Director of Financial Institutions (hereinafter called the Director).

(Source: P.A. 89-400, eff. 8-20-95; 90-437, eff. 1-1-98.)

(205 ILCS 670/2) (from Ch. 17, par. 5402)

Sec. 2. Application; fees; positive net worth. Application for such license shall be in writing, and in the form prescribed by the Director. Such applicant at the time of making such application shall pay to the Director the sum of $300 as an application fee and the additional sum of $1,000 $450 as an annual license fee, for a period terminating on the last day of the current calendar year; provided that if the application is filed after June 30th in any year, such license fee shall be 1/2 of the annual license fee for such year.

Before the license is granted, every applicant shall prove in form satisfactory to the Director that the applicant has and will maintain a positive net worth of a minimum of $30,000. Every applicant and licensee shall maintain a surety bond in the principal sum of $25,000 issued by a bonding company authorized to do business in this State and which shall be approved by the Director. Such bond shall run to the Director and shall be for the benefit of any consumer who incurs damages as a result of any violation of the Act or rules by a licensee. If the Director finds at any time that a bond is of insufficient size, is insecure, exhausted, or otherwise doubtful, an additional bond in such amount as determined by the Director shall be filed by the licensee within 30 days after written demand therefor by the Director. "Net worth" means total assets minus total liabilities.

(Source: P.A. 92-398, eff. 1-1-02; 93-32, eff. 7-1-03.)

(205 ILCS 670/15) (from Ch. 17, par. 5415)

Sec. 15. Charges permitted.

(a) (Blank). Every licensee may lend a principal amount not exceeding $40,000 and may charge, contract for and receive thereon interest at the rate agreed upon by the licensee and the borrower, subject to the provisions of this Act.

(b) For purpose of this Act Section, the following terms shall have the meanings ascribed herein.

"Applicable interest" for a precomputed loan contract means the amount of interest attributable to each monthly installment period. It is computed as if each installment period were one month and any interest charged for extending the first installment period beyond one month is ignored. The applicable interest for any monthly installment period is that portion of the precomputed interest that bears the same ratio to the total precomputed interest as the balances scheduled to be outstanding during that month bear to the sum of all scheduled monthly outstanding balances in the original contract.

"Insufficient fund fee" means a fee not to exceed $25 that may be collected by a licensee from a borrower if the borrower has insufficient funds to pay a check, Automatic Clearing House (ACH) debit, or other form of payment on the day of presentment. Only one fee may be collected by the lender with respect to a particular check, ACH debit, or form of payment even if it has been deposited and returned more than once. A licensee shall present the check, ACH debit, or other form of payment for payment not more than twice. An insufficient fund fee is a licensee's exclusive charge for late payment.

"Interest-bearing loan" means a loan in which the debt is expressed as a principal amount plus interest charged on actual unpaid principal balances for the time actually outstanding.

"Precomputed loan" means a loan in which the debt is expressed as the sum of the original principal amount plus interest computed actuarially in advance, assuming all payments will be made when scheduled.

"Small consumer loan" means a loan with a principal amount of $10,000 or less.

(c) Every licensee may lend a principal amount not exceeding $40,000.

(d) With respect to a loan with a principal amount of more than $10,000, a licensee may charge no more than, contract for, and receive thereon interest at the rate agreed upon by the licensee and the borrower, subject to the provisions of this Act.

(e) With respect to a small consumer loan:

(1) A licensee may charge no more than $.50 per $100 loaned per day of the loan term, inclusive of all finance charges, interest, fees, penalties, including prepayment penalties, or other charges of any sort for any purpose except for an insufficient fund fee and the extra charges as defined in Section 15d of this Act.

(2) Small consumer loans must be fully amortized and repayable in substantially equal installments.

(3) When a small consumer loan is paid in full one month or more before the final installment due date, a licensee shall refund or credit the obligor with the unearned portion of the finance charge calculated on a straight-line amortization basis.

(f) (c) Loans may be interest-bearing or precomputed.

(g) (d) To compute time for either interest-bearing or precomputed loans for the calculation of interest and other purposes, a month shall be a calendar month and a day shall be considered 1/30th of a month when calculation is made for a fraction of a month. A month shall be 1/12th of a year. A calendar month is that period from a given date in one month to the same numbered date in the following month, and if there is no same numbered date, to the last day of the following month. When a period of time includes a month and a fraction of a month, the fraction of the month is considered to follow the whole month. In the alternative, for interest-bearing loans, the licensee may charge interest at the rate of 1/365th of the agreed annual rate for each day actually elapsed.

(h) (e) With respect to interest-bearing loans:

(1) Interest shall be computed on unpaid principal balances outstanding from time to time, for the time outstanding, until fully paid. Each payment shall be applied first to the accumulated interest and the remainder of the payment applied to the unpaid principal balance; provided however, that if the amount of the payment is insufficient to pay the accumulated interest, the unpaid interest continues to accumulate to be paid from the proceeds of subsequent payments and is not added to the principal balance.

(2) Interest shall not be payable in advance or compounded. However, if part or all of the consideration for a new loan contract is the unpaid principal balance of a prior loan, then the principal amount payable under the new loan contract may include any unpaid interest which has accrued. The unpaid principal balance of a precomputed loan is the balance due after refund or credit of unearned interest as provided in paragraph (f), clause (3). The resulting loan contract shall be deemed a new and separate loan transaction for all purposes.

(3) Loans may be payable as agreed between the parties, including payment at irregular times or in unequal amounts and rates that may vary with an index that is independently verifiable and beyond the control of the licensee.

(4) The lender may collect an insufficient fund fee as defined in subsection (b) of this Section. The lender or creditor may, if the contract provides, collect a delinquency or collection charge on each installment in default for a period of not less than 10 days in an amount not exceeding 5% of the installment on installments in excess of $200, or $10 on installments of $200 or less, but only one delinquency and collection charge may be collected on any installment regardless of the period during which it remains in default.

(i) (f) With respect to precomputed loans:

(1) Loans shall be repayable in substantially equal and consecutive monthly installments of principal and interest combined, except that the first installment period may be longer than one month by not more than 15 days, and the first installment payment amount may be larger than the remaining payments by the amount of interest charged for the extra days; and provided further that monthly installment payment dates may be omitted to accommodate borrowers with seasonal income.

(2) Payments may be applied to the combined total of principal and precomputed interest until the loan is fully paid. Payments shall be applied in the order in which they become due, except that any insurance proceeds received as a result of any claim made on any insurance, unless sufficient to prepay the contract in full, may be applied to the unpaid installments of the total of payments in inverse order.

(3) When any loan contract is paid in full by cash, renewal or refinancing, or a new loan, one month or more before the final installment due date, a licensee shall refund or credit the obligor with the total of the applicable interest for all fully unexpired installment periods, as originally scheduled or as deferred, which follow the day of prepayment; provided, if the prepayment occurs prior to the first installment due date, the licensee may retain 1/30 of the applicable interest for a first installment period of one month for each day from the date of the loan to the date of prepayment, and shall refund or credit the obligor with the balance of the total interest contracted for. If the maturity of the loan is accelerated for any reason and judgment is entered, the licensee shall credit the borrower with the same refund as if prepayment in full had been made on the date the judgement is entered.

(4) The lender may collect an insufficient fund fee as defined in subsection (b) of this Section. The lender or creditor may, if the contract provides, collect a delinquency or collection charge on each installment in default for a period of not less than 10 days in an amount not exceeding 5% of the installment on installments in excess of $200, or $10 on installments of $200 or less, but only one delinquency or collection charge may be collected on any installment regardless of the period during which it remains in default.

(5) If the parties agree in writing, either in the loan contract or in a subsequent agreement, to a deferment of wholly unpaid installments, a licensee may grant a deferment and may collect a deferment charge as provided in this Section. A deferment postpones the scheduled due date of the earliest unpaid installment and all subsequent installments as originally scheduled, or as previously deferred, for a period equal to the deferment period. The deferment period is that period during which no installment is scheduled to be paid by reason of the deferment. The deferment charge for a one month period may not exceed the applicable interest for the installment period immediately following the due date of the last undeferred payment. A proportionate charge may be made for deferment for periods of more or less than one month. A deferment charge is earned pro rata during the deferment period and is fully earned on the last day of the deferment period. Should a loan be prepaid in full during a deferment period, the licensee shall credit to the obligor a refund of the unearned deferment charge in addition to any other refund or credit made for prepayment of the loan in full.

(6) If two or more installments are delinquent one full month or more on any due date, and if the contract so provides, the licensee may reduce the unpaid balance by the refund credit which would be required for prepayment in full on the due date of the most recent maturing installment in default. Thereafter, and in lieu of any other default or deferment charges, the agreed rate of interest may be charged on the unpaid balance until fully paid.

(7) Fifteen days after the final installment as originally scheduled or deferred, the licensee, for any loan contract which has not previously been converted to interest-bearing under paragraph (f), clause (6), may compute and charge interest on any balance remaining unpaid, including unpaid default or deferment charges, at the agreed rate of interest until fully paid. At the time of payment of said final installment, the licensee shall give notice to the obligor stating any amounts unpaid.

(Source: P.A. 93-264, eff. 1-1-04.)

(205 ILCS 670/15d) (from Ch. 17, par. 5419)

Sec. 15d. Extra charges prohibited; exceptions. No amount in addition to the charges authorized by this Act shall be directly or indirectly charged, contracted for, or received, except (1) lawful fees paid to any public officer or agency to record, file or release security; and (2) (i) costs and disbursements actually incurred in connection with a real estate loan, for any title insurance, title examination, abstract of title, survey, or appraisal, or paid to a trustee in connection with a trust deed, and (ii) in connection with a real estate loan those charges authorized by Section 4.1a of the Interest Act, whether called "points" or otherwise, which charges are imposed as a condition for making the loan and are not refundable in the event of prepayment of the loan. ; (3) costs and disbursements, including reasonable attorney's fees, incurred in legal proceedings to collect a loan or to realize on a security after default; (4) an amount not exceeding $25, plus any actual expenses incurred in connection with a check or draft that is not honored because of insufficient or uncollected funds or because no such account exists; and (5) a document preparation fee not to exceed $25 for obtaining and reviewing credit reports and preparation of other documents. This Section does not prohibit the receipt of a commission, dividend, charge, or other benefit by the licensee or by an employee, affiliate, or associate of the licensee from the insurance permitted by Sections 15a and 15b of this Act or from insurance in lieu of perfecting a security interest provided that the premiums for such insurance do not exceed the fees that otherwise could be contracted for by the licensee under this Section. Obtaining any of the items referred to in clause (i) of item (2) of this Section through the licensee or from any person specified by the licensee shall not be a condition precedent to the granting of the loan.

(Source: P.A. 89-400, eff. 8-20-95; 90-437, eff. 1-1-98.)

(205 ILCS 670/16) (from Ch. 17, par. 5420)

Sec. 16. Disclosure of Terms of Contract. In any loan transaction under this Act, the licensee must disclose the following items to the obligor of the loan before the transaction is consummated:

(a) The amount and date of the loan contract;

(b) The amount of the loan using the term "amount financed";

(c) Any deduction from the amount financed or payment made by the obligor for insurance and the type of insurance for which each deduction or payment was made;

(d) Any additional deduction from the loan or payment made by the obligor in connection with obtaining the loan;

(e) The date on which the finance charge begins to accrue if different from the date of the transaction;

(f) The total amount of the loan charge with a description of each amount included using the term "finance charge";

(g) The finance charge expressed as an annual percentage rate using the term "annual percentage rate".

"Annual percentage rate" means the nominal annual percentage rate of finance charge determined in accordance with the actuarial method of computation with an accuracy at least to the nearest 1/4 of 1%; or at the option of the licensee by application of the United States rule so that it may be disclosed with an accuracy at least to the nearest 1/4 of 1%;

(h) The number, amount and due dates or periods of payments scheduled to repay the loan and the sum of such payments using the term "total of payments";

(i) The amount, or method of computing the amount of any default, delinquency or similar charges payable in the event of late payments;

(j) The right of the obligor to prepay the loan in full on any installment date and the fact that such prepayment in full will reduce the insurance charge for the loan;

(k) A description or identification of the type of any security interest held or to be retained or acquired by the licensee in connection with the loan and a clear identification of the property to which the security interest relates. If after-acquired property will be subject to the security interest, or if other or future indebtedness is or may be secured by any such property, this fact shall be clearly set forth in conjunction with the description or identification of the type of security interest held, retained or acquired;

(l) A description of any penalty charge that may be imposed by the licensee for prepayment of the principal of the obligation with an explanation of the method of computation of such penalty and the conditions under which it may be imposed;

(m) Identification and description of the method of computing any unearned portion of the finance charge in the event of prepayment of the loan, and if the licensee uses the "Rule of 78THS" method, including a statement explaining such method substantially as follows:

Unearned finance charges under the Rule of 78ths are computed by calculating for all fully unexpired monthly installment periods, as originally scheduled or deferred, which follow the day of prepayment, the portion of the precomputed interest that bears the same ratio to the total precomputed interest as the balances scheduled to be outstanding during that monthly installment period bear to the sum of all scheduled monthly outstanding balances originally contracted for.

The description shall also include an example of its application solely for purposes of illustration in substantially the following form:

PREPAYMENT - "RULE OF 78THS" Sum of balances due every month after Unearned = Original x prepayment Charge Charge* Sum of balances due every month of contract

*for Finance Charge (excluding any charges added for a first payment period of more than one month) or credit insurance charges.

Example: 12 monthly payments of $10 (balance is $120 1st month, $110 2nd month, and so on), $20 Finance Charge. If 5 payments are prepaid in full, unearned Finance Charge is:

$20 x _____________50+40+30+20+10___________ = $3.85

120+110+100+90+80+70+60+50+40+30+20+10

The terms "finance charge" and "annual percentage rate" shall be printed more conspicuously than other terminology required by this Section.

At the time disclosures are made, the licensee shall deliver to the obligor a duplicate of the instrument or statement by which the required disclosures are made and on which the licensee and obligor are identified and their addresses stated. All of the disclosures shall be made clearly, conspicuously and in meaningful sequence and made together on either:

(i) the note or other instrument evidencing the obligation. Where a creditor elects to combine disclosures with the contract, security agreement, and evidence of a transaction in a single document, the disclosures required under Section 16 shall be made on the face of the document, on the reverse side, or on both sides, provided that the amount of the finance charge and the annual percentage rate shall appear on the face of the document, and, if the reverse side is used, the printing on both sides of the document shall be equally clear and conspicuous, both sides shall contain the statement, "NOTICE: See other side for important information", and the place for the obligor's signature shall be provided following the full content of the document; or

(ii) One side of a separate statement which identifies the transaction.

The amount of the finance charge shall be determined as the sum of all charges, payable directly or indirectly by the obligor and imposed directly or indirectly by the licensee as an incident to or as a condition to the extension of credit, whether paid or payable by the obligor, any other person on behalf of the obligor, to the licensee or to a third party, including any of the following types of charges:

(1) Interest, time price differential, and any amount payable under a discount or other system of additional charges.

(2) Service, transaction, activity, or carrying charge.

(3) Loan fee, points, finder's fee, or similar charge.

(4) Fee for an appraisal, investigation, or credit report.

(5) Charges or premiums for credit life, accident, health, or loss of income insurance, written in connection with any credit transaction unless:

(i) the insurance coverage is not required by the licensee and this fact is clearly and conspicuously disclosed in writing to the obligor; and

(ii) any obligor desiring such insurance coverage gives specific dated and separately signed affirmative written indication of such desire after receiving written disclosure to him of the cost of such insurance.

(6) Charges or premiums for insurance, written in connection with any credit transaction, against loss of or damage to property or against liability arising out of the ownership or use of property unless a clear, conspicuous, and specific statement in writing is furnished by the licensee to the obligor setting forth the cost of the insurance if obtained from or through the licensee and stating that the obligor may choose the person through which the insurance is to be obtained.

(7) Premium or other charge for any other guarantee or insurance protecting the licensee against the obligor's default or other credit loss.

(8) Any charge imposed by a licensee upon another licensee for purchasing or accepting an obligation of an obligor if the obligor is required to pay any part of that charge in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.

An insufficient fund fee A late payment, delinquency, default, reinstatement or other charge is not a finance charge if imposed for actual unanticipated late payment, delinquency, default or other occurrence.

A licensee who complies with the federal Truth in Lending Act, amendments thereto, and any regulations issued or which may be issued thereunder, shall be deemed to be in compliance with the provisions of this Section, except with respect to the disclosure in paragraph (m), which may be set forth in any manner.

(Source: P.A. 90-437, eff. 1-1-98.)

(205 ILCS 670/17.3 new)

Sec. 17.3. Maximum number of loans. No small consumer loan may be made to a borrower who has an outstanding small consumer loan or outstanding payday loan, as defined by the Payday Loan Reform Act.

(205 ILCS 670/17.5 new)

Sec. 17.5. Default.

(a) No legal proceeding of any kind, including, but not limited to, a lawsuit or arbitration, may be filed or initiated against a consumer to collect on a loan until 28 days after the default date of the loan.

(b) Upon and after default, a lender shall not charge the consumer any finance charges, interest, fees, or charges of any kind, other than the insufficient fund fee described in Section 15 of this Act.

(205 ILCS 670/20.2 new)

Sec. 20.2. Prohibited acts. A licensee, unlicensed person, or entity offering or making loans under this Act may not commit, or have committed on behalf of the licensee or unlicensed person or entity, any of the following acts:

(1) Threatening to use or using the criminal process in this or any other state to collect on the loan.

(2) Using any device or agreement that would have the effect of charging or collecting more fees or charges than allowed by this Act, including, but not limited to, entering into a different type of transaction with the consumer.

(3) Engaging in unfair, deceptive, or fraudulent practices in the making or collecting of a loan.

(4) Charging any fees or charges other than those specifically authorized by this Act.

(5) Threatening to take any action against a consumer that is prohibited by this Act or making any misleading or deceptive statements regarding the loan or any consequences thereof.

(6) Making a misrepresentation of a material fact by an applicant for licensure in obtaining or attempting to obtain a license.

(7) Including any of the following provisions in loan documents:

(A) a confession of judgement clause;

(B) a waiver of the right to a jury trial, if applicable, in any action brought by or against a consumer, unless the waiver is included in an arbitration clause allowed under paragraph (C) of this item (7);

(C) a mandatory arbitration clause that is oppressive, unfair, unconscionable, or substantially in derogation of the rights of consumers; or

(D) a provision in which the consumer agrees not to assert any claim or defense arising out of the contract.

(8) Collecting a delinquency or collection charge on any installment regardless of the period in which it remains in default.

(9) Collecting treble damages on an amount owing from a loan.

(10) Charging for, or attempting to collect, attorney's fees, court costs, or arbitration costs incurred in connection with the collection of a loan.

(11) Making a loan in violation of this Act.

(12) Garnishing the wages or salaries of a consumer who is a member of the military.

(13) Failing to suspend or defer collection activity against a consumer who is a member of the military and who has been deployed to a combat or combat support posting.

(14) Contacting the military chain of command of a consumer who is a member of the military in an effort to collect on a payday loan.

Section 99. Effective date. This Act takes effect July 1, 2008.".