May 11, 2004

Indiana Department of Financial Institutions

30 South Meridian StreetSuite 300Indianapolis, Indiana 46204-2759 (317) 232-3955, (800) 382-4880FAX (317) 232-7655WEB SITE: www.in.gov/dfi/

May 11, 2004

Opening Remarks

Charles Phillips,

Director

May 11, 2004

Opening Remarks

J. Philip Goddard,

Deputy Director and General Counsel

May 11, 2004

Overview

Mark Tarpey,

Division Supervisor

May 11, 2004

Definitions and Income Requirements

Donna Kaye,

Assistant to Division Supervisor

May 11, 2004

IC 24-4.5-7 Chapter 7

Changed “consumer” to “borrower” in all

subsections of Chapter 7.

Clarifies that written authorization to debit

borrower’s account is allowed.

May 11, 2004

Definition “small loan”

Changed principal loan amount to at least

fifty dollars ($50) and not more than five

hundred dollars ($500).

See IC 24-4.5-7-104

May 11, 2004

Definition “monthly gross income”

Changed definition from net to “monthly gross income”;

Income received by the borrower in the thirty (30) day period preceding the borrower’s application.

Exclusive of any income other than regular gross pay received.

See IC 24-4.5-7-110

May 11, 2004

Consumer Income Requirements

Total payable amount of the small loan cannot exceed 15% of gross monthly income.

See IC 24-4.5-7-402

May 11, 2004

Renewal - now prohibited

A lender shall not enter into a renewal with a borrower. If a loan is paid in full, a

subsequent loan is not a renewal.See IC 24-4.5-7-402(6)Each loan must be paid in full by cash, deposit of

check, or debit of the borrower’s account.

The borrower can still make payments prior to maturity.

May 11, 2004

Finance Charges, Fees, Disclosure

Rick Bane,

Field Supervisor

May 11, 2004

Small Loan Finance Charges

15% on the first $250 of a small loan;

13% on the amount of a small loan greater than $250 and less than or equal to $400; and,

10% of the amount over ($400) and less than or equal to five hundred dollars ($500).

See IC 24-4.5-7-201

May 11, 2004

Rates Applied to Principal

Rates are applied to the amount financed, or principal, to determine the finance charge.

The rates are not applied to the face amount of the check or authorization to debit the account of the borrower, which already includes finance charges.

May 11, 2004

Maximum Rate on Principal

Principal Rate

$50 to $250 15%

$250.01 to $400.00 13%

$400.01 to $500.00 10%

May 11, 2004

Small Loan Finance ChargesEffective July 1, 2004

Amount Of Loan

Maximum Finance Charge

Annual Percentage Rate*

Monthly Gross Income Required

50.00$ 7.50$ 391.07% 383.33$

100.00$ 15.00$ 391.07% 766.67$

150.00$ 22.50$ 391.07% 1,150.00$

200.00$ 30.00$ 391.07% 1,533.33$

250.00$ 37.50$ 391.07% 1,916.67$

300.00$ 44.00$ 382.38% 2,293.33$

350.00$ 50.50$ 376.17% 2,670.00$

400.00$ 57.00$ 371.52% 3,046.67$

450.00$ 62.00$ 359.21% 3,413.33$

500.00$ 67.00$ 349.36% 3,780.00$

*14 Day Term

May 11, 2004

Monthly Gross Income

15% of monthly gross income is the limit for the total repayable on a small loan.

See IC 24-4.5-7-402

May 11, 2004

Additional Fees

Delinquency Charge was removed.

The only additional fee that may be contracted for and received by the lender on a small loan is a charge not to exceed twenty dollars ($20) for each NSF item.

See IC 24-4.5-7-202

May 11, 2004

NSF Fee Limitations

The NSF charge can be assessed only one time regardless of how many times a check or electronic debit is submitted by the lender.

May 11, 2004

Disclosure of “Warning”

Removes language related to “Renewing”

Added language related to pamphlet approved by the department that describes:        (a) the availability of debt management and credit counseling services; and        (b) the borrower's rights and responsibilities in the transaction.

See IC 24-4.5-7-301

May 11, 2004

Limitations of Loans

Robert Benbow,

Field Supervisor

May 11, 2004

Term of a Small Loan 1

A small loan may not be made for a term of less than 14 days - remains the same.

See IC 24-4.5-7-401

May 11, 2004

Term of a Small Loan 2

After the borrower's initial loan, and five subsequent consecutive small loans, another small loan may not be made to the borrower within seven days after the due date of the fifth consecutive small loan.

Note: the balance must be paid in full by cash, deposit of check, or debit of the borrower’s account.

May 11, 2004

Term of a Small Loan 3

After the borrower's fifth consecutive small loan, the balance must be paid in full or the borrower and lender may agree to enter into a simple interest loan, payable in installments, under IC 24-4.5-3-508 (maximum APR of 36%) within seven (7) days after the due date of the fifth consecutive small loan.

May 11, 2004

Term of a Small Loan 4

The maximum Annual Percentage Rate is 36%, on amounts up to $990.00, as of July 1, 2004

Note: currently 36% APR on amounts up to $960.00

May 11, 2004

Payable in Installments

“Payable in installments” means that payment is required or permitted by written agreement to be made in more than four (4) installments, not including a down payment.

See IC 24-4.5-1-301(13)

May 11, 2004

Consecutive Small Loan

No change

A new small loan agreement that the lender enters with the same borrower not later than seven (7) calendar days after a previous small loan made to that borrower is paid in full.

See IC 24-4.5-7-108

May 11, 2004

Commercially reasonable method of verification

One (1) or more private consumer credit reporting services that the department determines to be capable of providing a lender with adequate verification information necessary to ensure compliance with subsection (4). (Borrower makes written statement regarding other loans and lender verifies)

See IC 24-4.5-7-404

May 11, 2004

Endorsed/Approved Vendors

DFI has not endorsed/approved any specific vendor. DFI will continue to monitor the issue of a third party reporting service useable by all payday lenders, similar to a typical credit reporting agency. At a minimum, lenders must be able to check all of their own, and affiliates, locations to ensure customers’ loans comply with

IC 24-4.5-7-404(3).

May 11, 2004

Loan with another lender

Changed total loan amounts allowed from four hundred dollars ($400) to five hundred dollars ($500) when face amount of checks written, or debits authorized, are combined into a single sum.

May 11, 2004

Change - with any other lender

Another lender, an affiliate of the lender or another lender, or a separate entity involved in a business association with the lender or another lender in making small loans.

May 11, 2004

Method of verification.

Commercially reasonable means

was changed to,

a commercially reasonable method of

verification.

May 11, 2004

Private consumer credit reporting services

The department shall monitor the effectiveness in Reporting. If methods of verification are available the DFI will:

Provide notice to all lenders identifying methods, and

Require lenders to use one method to comply with requirements.

May 11, 2004

Renewal or refinancing

Renewals are not allowed effective March

17, 2004, under IC 24-4.5-7-410(l)),

and,

Renewal sections repealed as of July 1,

2004.

See IC 24-4.5-7-407 and 7-408.

May 11, 2004

Department Compliance Advisory

The DFI will allow renewals until July 1, 2004, because of conflict in current statute and new statute.

Renewal enforcement will have the July 1 date.

May 11, 2004

Restrictions and Enforcement

Generally speaking, under 7-409 there is;No Surcharge after dishonorNo Penalty for stopping paymentNo Treble damages in civil actionsNo Attorney’s Fees

May 11, 2004

Civil Penalties for Violations under 7-409(4)

A person who violates this Chapter is subject to a civil penalty up to $2,000.00 imposed by the department, and

Is liable to the borrower for actual damages, statutory damages of $2,000.00 per violation.

May 11, 2004

Limitations 1

A lender making small loans shall not commit acts;

Using a device the department determines would have the effect of charging or collecting more than allowed by this chapter.

See IC 24-4.5-7-410(f)

May 11, 2004

Limitations 2

Includes new language under (f)(iv);Entering into transactions in which a

customer receives a purported cash rebate that is advanced by someone offering Internet content services, or some other product or service, when the cash rebate does not represent a discount or an adjustment of the purchase price for the product or service;

May 11, 2004

Examination Issues & Reminders

Mark Tarpey,

Division Supervisor

May 11, 2004

General Reminders 1

Intent of Chapter 7 was to restrict bad check charges on payday loans.

Finance Charges permitted under Chapter 7 were to cover collection costs.

Small claims court actions can be used to enforce the terms of the loan agreements. Court costs and post judgment interest can be awarded.

May 11, 2004

General Reminders 2

Bad check laws generally do not apply to payday loans.

Bad check laws allow retail merchants, who have no agreement with customers as lenders do, some recourse.

Licensee must maintain detailed records of collection activity, including all details of small claims court proceedings.

SEE IC 24-4.5-3-506

May 11, 2004

Questions and Answers