GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2001
H	2
HOUSE BILL 599
 Committee Substitute Favorable 4/5/01

Short Title:	Revise Consumer Finance Act.	()	
Sponsors:	     	
Referred to:	     	
March 14, 2001

A BILL TO BE ENTITLED
AN ACT TO MODIFY THE CONSUMER FINANCE ACT TO INCREASE THE AMOUNT OF LOANABLE ASSETS REQUIRED BEFORE AN ENTITY IS LICENSED TO ENGAGE IN BUSINESS IN THE STATE, TO REVISE THE AMOUNT OF, AND MAXIMUM RATE OF INTEREST FOR, SMALL LOANS, TO REVISE THE COLLECTION OF INTEREST UNDER CERTAIN CIRCUMSTANCES, TO ESTABLISH A LOAN PROCESSING FEE, TO ALLOW LENDERS TO CHARGE A LATE PAYMENT PENALTY UNDER CERTAIN CIRCUMSTANCES, TO REQUIRE DISCLOSURE ON SOLICITATION OF LOANS BY FACSIMILE OR NEGOTIABLE CHECKS, TO ALLOW LENDERS TO MAINTAIN CERTAIN RECORDS IN THE FORM OF OPTICAL IMAGE DISKS, TO REPEAL OBSOLETE PROVISIONS OF THE GENERAL STATUTES, AND TO MAKE CONFORMING CHANGES TO THE GENERAL STATUTES. 

The General Assembly of North Carolina enacts:
SECTION 1.  G.S. 53‑168 reads as rewritten:
"§ 53‑168.  License required; showing of convenience, advantage and financial responsibility; investigation of applicants; hearings; existing businesses; contents of license; transfer; posting.
(a)	Necessity for License; Prerequisites to Issuance. – No person shall engage in or offer to engage in the business regulated by this Article unless and until a license has been issued by the Commissioner of Banks, and the Commissioner shall not issue any such license unless and until  the Commissioner finds:
(1)	That authorizing the applicant to engage in such business will promote the convenience and advantage of the community in which the applicant proposes to engage in business; and
(2)	That the financial responsibility, experience, character and  general fitness of the applicant are such as to command the confidence of the public and to warrant the belief that the business will be operated lawfully and fairly, within the purposes of this Article; and
(3)	That the applicant has available for the operation of such business at the specified location loanable assets of at least  fifty thousand dollars ($50,000).(b)	Investigation of Applicants. – Upon the receipt of an application, the Commissioner shall investigate the facts. If the Commissioner determines from such preliminary investigation that the applicant does not satisfy the conditions set forth in subsection (a),  the Commissioner shall so notify the applicant who shall then be entitled to an informal hearing thereon provided he so requests in writing within 30 days after the Commissioner has caused the above‑referred to notification to be mailed to the applicant. In the event of a hearing, to be held in the offices of the Commissioner of Banks in Raleigh, the Commissioner shall reconsider the application and, after the hearing, issue a written order granting or denying such application. At the time of making such application, the applicant shall pay the Banking Department the sum of two hundred fifty dollars ($250.00) as a fee for investigating the application, which shall be retained irrespective of whether or not a license is granted the applicant.
	(d)	Required Assets Available. – Each licensee shall continue at all times to have available for the operation of the business at the specified location loanable assets of at least  fifty thousand dollars ($50,000). The requirements and standards of this subsection and subsection (a)(2) of this section shall be maintained throughout the period of the license and failure to maintain such requirements or standards shall be grounds for the revocation of a license under the provisions of G.S. 53‑171 of this Article.
(e)	License, Posting, Continuing. – Each license shall state the address at which the business is to be conducted and shall state fully the name of the licensee, and if the licensee is a copartnership, or association, the names of the members thereof, and if a corporation, the date and place of its incorporation. Transfer or assignment of a license by one person to another by sale or otherwise is prohibited without the prior approval of the Commissioner. Each license shall be kept posted in the licensed place of business. Each license shall remain in full force and effect until surrendered, revoked, or suspended as hereinafter provided."
SECTION 2.  G.S. 53‑173 reads as rewritten:
"§ 53‑173.  Maximum rate of  interest and fee; computation of  interest; limitation on interest after judgment; limitation on interest after maturity of the loan.
(a)	Maximum Rate of  Interest. – Every licensee hereunder may contract for, compute, and receive on any loan of money, not exceeding  six thousand dollars ($6,000) in amount,  interest at rates not exceeding  thirty percent (30%) per annum on that part of the unpaid principal balance of any loan not in excess of  one thousand eight hundred dollars ($1,800) and eighteen percent (18%) per annum on any remainder of such unpaid principal balance. Interest shall be contracted for and collected at the single simple interest rate applied to the outstanding balance that would earn the same amount of interest as the above rates for payment according to schedule.
(a1)	Maximum Fee. – In addition to the interest authorized in subsection (a) of this section, a licensee making loans under this section may collect from the borrower a fee for processing the loan equal to five percent (5%) of the cash advance, not to exceed fifty dollars ($50.00), provided that such charges may not be assessed more than twice in any 12-month period. The Commission may review charges assessed pursuant to this subsection and may adopt appropriate rules in accordance with G.S. 53-185.
(b)	Computation of  Interest. –  Interest on loans made pursuant to this section shall not be paid, deducted, or received in advance. Such  interest  shall not be compounded but  interest on loans shall (i) be computed and paid only as a percentage of the unpaid principal balance or portion thereof and (ii) computed on the basis of the number of days actually elapsed; provided, however, if part or all of the consideration for a loan contract is the unpaid principal balance of a prior loan, then the principal amount payable under the loan contract may include any unpaid  interest on the prior loan which have accrued within 90 days before the making of the new loan contract. For the purpose of computing  interest, a day shall equal 1/365th of a year. Any payment made on a loan shall be applied first to any accrued interest and then to principal, and any portion or all of the principal balance may be prepaid at any time without penalty.
(c)	Limitation on Interest after Judgment. – If judgment be obtained against any party on any loan made under the provisions of this section neither the judgment nor the loan shall carry, from the date of the judgment, any interest in excess of eight percent (8%) per annum.
(d)	Limitation of Interest after Maturity of Loan. – After the maturity date of any loan contract made under the provisions of this section and until the loan contract is paid in full by cash, new loan, refinancing or otherwise, no charges other than interest at eight percent (8%) per annum shall be computed or collected from any party to the loan upon the unpaid principal balance of the loan.
(e)	Repealed by Session Laws 1989, c. 17, s. 3.
	"
SECTION 3.  G.S. 53‑165(a) reads as rewritten:
"(a)	"Amount of the loan" shall mean the aggregate of the cash advance and the  interest authorized by G.S. 53‑173."
SECTION 4.  G.S. 53‑176 reads as rewritten:
"§ 53‑176.  Optional rates, maturities and amounts.
(a)	In lieu of making loans in the amount and at the  interest stated in G.S. 53‑173 and for the terms stated in G.S. 53‑180, a licensee may at any time elect to make loans in installments not exceeding ten thousand dollars ($10,000) and which shall not be repayable in less than six months or more than 84 months and which shall not be secured by deeds of trust or mortgages on real estate and which are repayable in substantially equal consecutive monthly payments and to charge and collect interest in connection therewith which shall not exceed 	the actuarial rates of twenty-eight percent (28%) per annum on that part of the unpaid principal balance not exceeding two thousand dollars ($2,000) and eighteen percent (18%) per annum on the remainder of the unpaid principal balance. Interest shall be contracted for and collected at the single simple interest rate applied to the outstanding balance that would earn the same amount of interest as the above rates for payment according to schedule.
	(b)	In addition to the interest permitted in this section, a licensee may assess at closing a  fee for processing the loan equal to five percent (5%) of the cash advance, not to exceed  fifty dollars ($50.00), provided that such charges may not be assessed more than twice in any 12‑month period. The  Commission may review charges assessed pursuant to this  subsection and may adopt appropriate rules in accordance with G.S. 53‑185.
(c)	The provisions of G.S. 53‑173(b), (c) and (d) and G.S. 53‑180(b), (c), (d), (e), (f), (g), (h) and (i) shall apply to loans made pursuant to this section.
(d)	Any licensee under this Article shall have the right to elect to make loans in accordance with this section by the filing of a written statement to that effect with the Commissioner and on date of such notification begin making loans regulated by this section for the following 12 months. Annually after such election a licensee may elect to make loans in accordance with this section unless the licensee notifies in writing the Commissioner of its intention to terminate such election.
(e)	The due date of the first monthly payment shall not be more than 45 days following the disbursement of funds under any such installment loan. A borrower under this section may prepay all or any part of a loan made under this section without penalty.
(f)	No individual, partnership, or corporate licensee and no corporation which is the parent, subsidiary or affiliate of a corporate licensee that is making loans under this Article except as authorized in this section, shall be permitted to make loans under the provisions of this section. Any corporate licensee or individual or partnership licensee that elects to make loans in accordance with the provisions of this section shall be bound by that election with respect to all of its offices and locations in this State and all offices and locations in this State of its parent, subsidiary or affiliated corporate licensee, or with respect to all of his or their offices and locations in this State.
(g)	A lender may charge a party to a loan or extension of credit governed by this section a late payment charge not to exceed five percent (5%) of the payment due or seven dollars ($7.00), whichever is greater, for any payment past due for 10 days or more; provided, in no case shall the late charge exceed the outstanding principal balance. If a late payment charge has been once imposed with respect to a late payment, no late charge shall be imposed with respect to any future payment which would have been timely and sufficient but for the previous default."
SECTION 5.  G.S. 53‑181(a) is amended by adding a new subdivision to read:
"(10)	In addition to any disclosures otherwise provided by law, a licensee soliciting loans using a facsimile or negotiable check shall disclose the following:
'THIS IS A SOLICITATION FOR A LOAN. READ THE ENCLOSED DISCLOSURES BEFORE SIGNING THIS AGREEMENT.'
This notice shall be printed in not less than 12-point bold type and shall appear conspicuously on the offer."
SECTION 6.  G.S. 53‑182(b) reads as rewritten:
"(b)	Upon payment of any loan in full, a licensee shall cancel and return to the borrower, within a reasonable length of time, originals or copies of any note, assignment, mortgage, deed of trust, or other instrument securing such loan, which no longer secures any indebtedness of the borrower to the licensee."
SECTION 7.  G.S. 53‑184(a) reads as rewritten:
"(a)	Each licensee shall maintain all books and records relating to loans made under this Article required by the Commissioner of Banks to be kept, and the Commissioner, his deputy, or duly authorized examiner or agent or employee is authorized and empowered to examine such records at any reasonable time. Such books and records may be maintained in the form of magnetic tape, magnetic  disk, optical disk, or other form of computer, electronic or microfilm media available for examination on the basis of computer printed reproduction, video display or other medium acceptable to the Commissioner of Banks; provided, however, that such books and records so kept must be convertible into clearly legible tangible documents within a reasonable time. Any licensee having more than one licensed office may maintain such books and records at a location other than the licensed office location if such location is approved by the Commissioner; provided that, upon such requirements as may be imposed by the Commissioner of Banks, there shall be available to the borrower at each licensed location or such other location convenient to the borrower, as designated by the licensee, complete loan information; and provided further that such books and records of each licensed office shall be clearly segregated. When a licensee maintains its books and records outside of North Carolina, the licensee shall make them available for examination at the place where they are maintained and shall pay for all reasonable and necessary expenses incurred by the Commissioner in conducting such examination. Where the data processing for any licensee is performed by a person other than the licensee, the licensee shall provide to the Commissioner of Banks a copy of a binding agreement between the licensee and the data processor which allows the Commissioner of Banks, his deputy, or duly authorized examiner or agent or employee to examine that particular data processor's activities pertaining to the licensee to the same extent as if such services were being performed by the licensee on its own premises; and, notwithstanding the provisions of G.S. 53‑167 and 53‑122, when billed by the Commissioner of Banks, the licensee shall reimburse the Commissioner of Banks for all costs and expenses incurred by  the Commissioner in such examination."
SECTION 8.  This act becomes effective July 1, 2001, and applies to loans made on or after that date.