New York Laws > Banking > Article 3 > § 108 - Rates of interest; installment obligations; personal loan departments
Current as of: 2010 ยง 108. Rates of interest; installment obligations; personal loan departments. 1. Except as otherwise provided in this section, no bank or trust company shall take, receive, reserve or charge on any loan or discount made, or upon any note, bill of exchange or other evidence of debt, negotiable or otherwise, interest, as computed pursuant to this subdivision, at a rate greater than the rate prescribed by the banking board pursuant to section fourteen-a of this chapter, or, if no rate has been so prescribed, six per centum per annum, or two dollars if the interest so computed is less than that amount. Such interest may be taken in advance, reckoning the days for which the note, bill or evidence of debt has to run. If interest is so taken in advance and the maturity of the debt is accelerated and judgment is obtained, or the debt is otherwise paid prior to its normal date of maturity, the bank or trust company shall refund to the obligor or his legal representative, as the case may be, the unearned interest previously deducted and the unused portion of any premiums charged for insuring the obligor under a group credit insurance policy, such refund to be calculated in accordance with the method described in paragraph (e) of subdivision four of this section. A reasonable charge by a bank or trust company for the collection of a bona fide bill of exchange, note or other evidence of debt payable at a place other than the place where purchased, discounted or sold, in addition to the interest, shall not be considered interest for the purpose of any law regulating the maximum rate of interest which may be charged, taken or received. Anything contained in this subdivision to the contrary notwithstanding, the charging of interest or discount on a loan or discount made outside this state at a rate allowed by the laws of the jurisdiction where such loan is made, or the acquisition by a bank or trust company of a part interest or the entire interest in any loan or discount heretofore or hereafter made by a bank or trust company or any other banking institution, shall not be a violation of this section. 2. Any bank or trust company may purchase or otherwise acquire from the payee, owner or holder thereof any obligation in writing to pay in installments all or part of the price of personal property or that of the performance of services, whether that obligation be a negotiable promissory note or other evidence of debt, or any accounts receivable, whether or not they are obligations in writing, or any lease of personal property, and may lease personal property acquired by it, doing so for such price or rentals or other consideration and upon such additional terms and conditions as may be mutually agreeable. 3. Upon advances of money, repayable on demand, to an amount not less than five thousand dollars, made upon documents of title within article seven of the uniform commercial code or negotiable instruments within article three or article eight of the uniform commercial code pledged as collateral security for such repayment, any bank or trust company may receive or contract to receive and collect as compensation for making such advances any sum which may be agreed upon by the parties to such transaction. 4. (a) A bank or trust company may operate a personal loan department at all or at any one or more of its authorized places of business in accordance with the requirements of this subdivision. The records of such department shall be kept in such form as the superintendent may from time to time prescribe. The superintendent may, after giving notice of the contemplated action and reasonable opportunity to be heard, order that the operation of such department be discontinued if he shall find that the bank or trust company has failed to conform to any requirement of this subdivision. The superintendent may forthwith, and for a period not to exceed thirty days pending further investigation, order that the operation of any such department be temporarily discontinued if he shall have reasonable cause to believe that the requirements of this subdivision are not having compliance. Such order of discontinuance or temporary discontinuance may apply to one or more of the authorized places of business of a bank or trust company. The superintendent may terminate or modify such orders if he shall be satisfied that such department will be operated in accordance with the requirements of this subdivision. No order of discontinuance or temporary order of discontinuance shall impair or affect the obligation of any preexisting lawful loan or advance from a bank or trust company to any borrower. (b) A bank or trust company which operates a personal loan department may make loans and charge interest thereon, which may be calculated on the actual unpaid principal balances of the loan or in the case of a loan commitment from the date of each advance thereunder for the actual time outstanding, according to a generally accepted actuarial method at a fixed or variable rate in accordance with the provisions of the evidence of the indebtedness, or taken in advance, computed from the date of the loan, or in the case of a loan commitment from the date of each advance thereunder, to the date of the last installment payable thereunder, at the rate or rates agreed to by the bank or trust company and the borrower, with respect to any loan which is repayable at regular periodic intervals of not more than one month over a period from the date of the loan not exceeding (i) thirty-seven months, if the face amount of the loan is for not more than twelve hundred dollars, or (ii) any number of months agreed to by the bank or trust company and the borrower, (A) if the face amount of the loan is for more than twelve hundred dollars, (B) if the loan is for more than twelve hundred dollars, and is made for a commercial or business use or purpose or for investment in or purchase of an unincorporated business or commercial enterprise, (C) if the loan or loan commitment is made for educational purposes as specified in subdivision five-b of this section, or (D) if the loan or advance of credit is made for the purpose of financing alterations, repairs and improvements upon or in connection with, or as the superintendent may authorize the equipping of existing structures, and the building of new structures, upon urban, suburban, or rural real property (including the restoration, rehabilitation, rebuilding and replacement of such improvements which have been damaged or destroyed by earthquake, conflagration, tornado, hurricane, cyclone, flood or other catastrophe), by the owners thereof or by lessees of such real property under a lease expiring not less than six months after the maturity of the loan or advance of credit or by lessees under proprietary leases from corporations or partnerships formed for the purpose of the cooperative ownership of real estate. The total unpaid principal balances of any one or more loans made by such bank or trust company to the borrower pursuant to this subdivision shall be determined by agreement between such bank or trust company and the borrower. If the loan is made for a period of one year or more, provision may be made in the note, instrument or other evidence of debt, for the omission of payments during not more than any three specified months in any twelve-month period, but the maximum period of thirty-seven months, shall not be exceeded. On any loan with a variable rate of interest made pursuant to this paragraph, the rate shall be determined at regular intervals as set forth in the evidence of indebtedness and in accordance with such regulations as the banking board shall prescribe but said rate shall not vary more often than once in any three month period and shall be based on a published index that is (a) readily available, (b) independently verifiable, (c) beyond the control of the bank or trust company and (d) approved by the superintendent. The banking board shall adopt regulations, including but not limited to: (a) providing for disclosure to the borrower by the bank or trust company of the circumstances under which the rate may increase, any limitations on the increase, the effect of an increase and an example of the payment terms that would result from an increase; (b) providing for disclosure to the borrower by the bank or trust company of a history of the fluctuations of the index over a reasonable period of time; and (c) providing for notice to the borrower from the bank or trust company prior to any rate increase or change in the terms of payment. (c) The rate of interest authorized by this subdivision shall be inclusive of all charges incident to investigating and making any loan. No fee, commission, expense, or other charge whatsoever in addition thereto shall be taken, received, reserved, or contracted for, except (i) the fees payable to the appropriate public officer to perfect any lien or other security interest taken to secure the loan or the premium, not in excess of such filing fee, payable for any insurance in lieu of such filing; (ii) in case of default, and in accordance with the provisions of the instrument evidencing the obligation, either a fine in an amount not to exceed five cents per dollar on any installment which has become due and remained unpaid for a period in excess of ten days, but no such fine shall exceed five dollars and only one fine shall be collected on any such installment regardless of the period during which it remains in default, and provided further that should the aggregate of such fines collected in connection with any loan exceed two per centum of such loan, or in any event twenty-five dollars, the bank or trust company shall refund such excess to the borrower within sixty days after the loan is paid in full, or, subject to an allowance of unearned interest attributable to the amount in default, interest on each amount past due at a rate not in excess of the rate provided for in the instrument evidencing the obligation; (iii) the actual expenditures, including reasonable attorney's fees for necessary court process; and (iv) in case the bank or trust company insures a borrower under a credit unemployment insurance policy, group life insurance policy, group health insurance policy, group accident insurance policy, or group health and accident insurance policy, or requires insurance on personal property securing any such loan, an amount not in excess of the premiums chargeable in accordance with rate schedules then in effect and on file with the superintendent of insurance for such insurance by the insurer. No bank or trust company shall require a borrower to place any sum on deposit, or to make deposits in lieu of regular periodic installment payments, or to do or refrain from doing any other act which would entail additional expense or sacrifice, as a condition precedent to granting a loan under the authority of this subdivision except as provided in subdivision five-b of this section. Notwithstanding the provisions of this paragraph no refund of excess fines shall be required if it amounts to less than one dollar. (d) In each note, instrument or other evidence of debt given by a borrower to evidence a loan under this subdivision, where such loan is not subject to the provisions of the act of congress entitled "Truth in Lending Act" and the regulations thereunder, as such act and regulations may from time to time be amended, the rate of charge (stating any minimum as permitted by this subdivision four), shall be expressed either in accordance with the method prescribed by such act of congress or: (i) as a rate in dollars per annum discount per one hundred dollars face amount of loan, or (ii) as the rate or rates agreed to by the bank or trust company and the borrower. (e) A borrower may prepay the loan in full or, with the consent of the bank or trust company, may refinance the loan. If the interest is calculated on the actuarial basis, or if the evidence of the indebtedness provides that the rate of interest may vary from time to time, a borrower may prepay the loan in full without penalty. If the interest was taken in advance, in the event of such prepayment or refinancing, the bank or trust company shall refund: (1) the unearned portion of the interest to the borrower the amount of which portion shall be determined according to a generally accepted actuarial method; provided, however, that if the amount of interest previously deducted (i) was less than ten dollars, no refund shall be required; or (ii) exceeded the sum of ten dollars and the earned interest is less than that amount, the bank or trust company may retain such an additional amount as will bring the earned interest to the sum of ten dollars and refund the remainder, and provided further, that unless the loan is refinanced, no refund shall be required if it amounts to less than one dollar; and (2) if a charge was made to the borrower for premiums for insuring the borrower under a credit unemployment insurance policy, group life insurance policy, or under a group health, group accident or group health and accident insurance policy, the excess of the charge to the borrower therefor over the premiums paid or payable by the bank or trust company, if such premiums were paid or payable by the bank or trust company periodically, or the refund for such insurance premium received or receivable by the bank or trust company, if such premium was paid or payable in a lump sum by the bank or trust company, provided that no such refund shall be required if it amounts to less than one dollar. In the event (i) the maturity of the loan is accelerated due to the default of the borrower or otherwise and judgment is obtained, or (ii) repayment is made pursuant to any such insurance policy, the borrower or his legal representative, as the case may be, shall be entitled to the same refund as if the loan had been prepaid in full on the date of acceleration or repayment. (f) A bank or trust company may, upon agreement with the borrower, extend the scheduled due date or defer the scheduled payment of all or any part of any installment or installments payable under the loan. The agreement for such extension or deferment must be in writing and signed by the borrower. The bank or trust company may charge and contract for the payment of an extension or deferral charge by the borrower and collect and receive the same, at the rate or rates agreed to by the bank or trust company and the borrower, on the amount of the installment or installments, or part thereof, extended or deferred for the period of extension or deferral. Such period shall not exceed the period from the date when such extended or deferred installment or installments, or part thereof, would have been payable in the absence of such extension or deferral, to the date when such installment or installments, or part thereof, are made payable under the agreement of extension or deferment; except that a minimum charge of one dollar for the period of extension or deferral may be made in any case where the extension or deferral charge, when computed at such rate, amounts to less than one dollar. Such agreement may also provide for the payment by the borrower of the additional cost to the bank or trust company of premiums for continuing in force, until the end of such period of extension or deferral, any insurance coverages provided in connection with the loan subject to the other provisions of this subdivision. (g) If the borrower is obligated in connection with the loan to maintain insurance on a motor vehicle securing the loan and if subsequent to the making of the loan the borrower fails to maintain the insurance, the bank or trust company may make advances to procure the equivalent limits of insurance for either the interests of the borrower and the bank or trust company or of either of them, and any amount so advanced may be the subject of an interest charge from the date of such advance as though such amount was part of the unpaid principal balance of the loan. Each amount so advanced shall be secured by the personal property if so provided in the security agreement covering the personal property and if the bank or trust company notifies the borrower in writing of the advance of such amount and of his or her option to repay such amount in any one of the following ways: (1) Full payment within ten days from the date of giving or mailing the notice; (2) Full amortization during the term of the insurance or the remaining term of the loan, at the option of the bank or trust company; (3) If offered by the bank or trust company, as a final balloon payment payable one month after the last scheduled payment in connection with the loan; (4) If offered by the bank or trust company, full amortization after the term of the loan, to be payable in instalments which do not exceed the average instalment payable in connection with the loan; or (5) If offered by the bank or trust company, any other amortization plan. If the borrower neither pays in full the amount so advanced nor notifies the bank or trust company in writing of his or her choice regarding amortization options before the expiration of ten days from the date of giving or mailing of the notice by the bank or trust company, the bank or trust company shall amortize the amount so advanced pursuant to subparagraph two of this paragraph. 5. (a) A bank or trust company which operates a personal loan department pursuant to paragraph (a) of subdivision four hereof may establish credits under written agreements with borrowers, pursuant to which one or more loans or advances to or for the account of a borrower may be made from time to time, by means of honoring one or more checks or other written, electronic or telephonic orders or requests of the borrower and may charge interest on such loans and advances at the rate permitted by paragraph (b) of this subdivision, provided such loans and advances comply with the provisions of this subdivision. This subdivision does not authorize any bank or trust company to make any loan or advance in connection with the purchase or lease of goods or services by means of a credit card as defined in section five hundred eleven of the general business law, except for a loan or advance resulting from the use of a card which may be used to access a deposit account and line of credit associated with that account. The records of such loans and advances shall be kept in such form as the superintendent may from time to time prescribe. (b) Such agreement may provide for interest on the unpaid aggregate principal amount of such loans and advances from time to time outstanding at the rate or rates agreed to by the bank or trust company and the borrower, as computed pursuant to this section, including, in accordance with the provisions of the agreement, rates that may vary from time to time reckoned on each loan or advance from the date thereof, calculated on any of the following bases: (i) on the unpaid principal amount of such loans and advances from time to time outstanding, or (ii) for each month on an average balance outstanding determined by dividing by two the sum of the balances of unpaid principal of such loans and advances outstanding on two dates during such month, as specified in such agreement; the first of which dates being not later than the fifteenth day of such month and the second being not earlier than the sixteenth day of such month and not less than ten nor more than twenty days after the first date, or (iii) for each month on a fixed amount selected from a schedule, which fixed amount may exceed the average daily balance under (i) above, or the average balance if determined under (ii) above, by a differential of not more than five dollars, provided the same fixed amount is also used for computing interest for any month for which such balance exceeds said fixed amount by any amount up to at least the same differential. For purposes of this subdivision, a month may but need not be a calendar month, and a bank or trust company computing interest on a daily basis may charge for each day one thirtieth of the monthly interest rate. No amendment to any agreement shall take effect unless at least 30 days prior to the effective date of such amendment, imposition or increase, a written notice has been mailed or delivered to the borrower that clearly and conspicuously describes such amendment, imposition or increase and the indebtedness to which it applies and if the amendment has the effect of increasing the rate of interest, either (a) the notice states that the incurrence by the borrower or another person authorized by him of any further indebtedness under the plan to which the agreement relates on or after the effective date of such change specified in the notice shall constitute acceptance of such change, and either the borrower agrees in writing to such change or the borrower or another person authorized by him incurs such further indebtedness on or after the effective date of the change stated in the notice, or (b) the notice advises the borrower that he has thirty days from the earlier of the mailing or delivery of the notice to advise the bank or trust company in writing that he does not accept such amendment, provided that such notice contains an address to which the borrower may send notice of his election not to accept the amendment and also provided that the notice specifies that the amendment will take effect absent receipt of the borrower's written objection to the amendment. Any borrower who has received a notice pursuant to clause (a) who does not agree in writing to the amendment and no further indebtedness is incurred under the plan to which the agreement relates, and any borrower who gives a timely notice, pursuant to clause (b), electing not to accept the amendment shall be permitted to pay his outstanding indebtedness in accordance with the terms of the agreement but the bank or trust company may terminate the amount of credit available to the borrower and may require the borrower to return all credit cards and checks issued in connection with the agreement. If such a borrower subsequently obtains credit under the agreement, such use shall constitute acceptance of the change of terms and shall be deemed to have been accepted and shall become effective as to the borrower as of the date such change would have become effective but for the giving of notice by the borrower. If notice is given pursuant to clause (b) and the borrower does not timely object in writing to the amendment, such amendment shall become effective without action on the part of the borrower; provided that in no event shall any such amendment or increase take effect with respect to (i) the unpaid aggregate principal amount of loans or advances representing indebtedness outstanding prior to January 1, 1981 and (ii) the unpaid aggregate principal amount of loans or advances representing indebtedness incurred, under or pursuant to an agreement in effect on December 1, 1980, between January 1, 1981, and the effective date of such amendment or increase specified in the first notice mailed or delivered pursuant to clause (a). Indebtedness outstanding prior to January 1, 1981, for purpose of clause (i) above and indebtedness outstanding prior to the effective date of an increase for purposes of clause (ii) above shall be determined on the basis of crediting payments and other credits first to that portion of any such indebtedness representing interest charges, insurance premiums, service charges and fines and then to that portion representing the principal amount of loans or advances in the order in which made. The provisions of this paragraph permitting an increase in a rate of interest shall not apply in the case of an agreement which expressly prohibits changing of interest rates or which provides limitations on changing of interest rates which are more restrictive than the requirements of this paragraph. An amendment to an agreement deleting a provision that the rate of interest may vary from time to time may not become effective within one year from the later of the effective date of the agreement or the effective date of an amendment to an agreement adding a variable rate provision. On any loans or advances with rates of interest that may vary from time to time made pursuant to this paragraph, such variable rates of interest shall be determined at regular intervals as set forth in the agreement and in accordance with such regulations as the banking board shall prescribe but said rate shall not vary more often than once in any three month period and shall be based on a published index that is (a) readily available, (b) independently verifiable, (c) beyond the control of the bank or trust company and (d) approved by the superintendent, (e) such loan rate shall be based on the index values, or the index numbers plus or minus additional percentage points provided, however, that variations in the rate must correspond directly to the movements of the index values plus or minus additional percentage points only. Once such rate is established no lending institution may add any factors to increase the rate other than variations in the established index without the prior approval of the banking board. For purposes of this paragraph, an adjustment in the rate of interest as a consequence of movement in the selected index shall not constitute an amendment to that agreement. A reduction in the grace period for the assessment of a fee on any installment not paid when due, shall be considered an amendment to an agreement as set forth in this paragraph. The banking board shall adopt regulations with respect to agreements that provide for a variable rate of interest, including but not limited to: (a) providing for disclosure to the borrower by the bank or trust company of the circumstances under which the rate may increase, any limitations on the increase, the effect of an increase and an example of the payment terms that would result from an increase; (b) providing for disclosure to the borrower by the bank or trust company of a history of the fluctuations of the index over a reasonable period of time; and (c) providing for notice to the borrower from the bank or trust company prior to any rate increase or change in the terms of payment. The regulations shall allow a bank or trust company after choosing an approved index to choose a spread and a minimum and maximum rate of interest at its discretion. A written agreement, whether it provides for a fixed or variable interest rate, may provide for an introductory rate of interest at either a fixed or a variable rate, provided that the terms of such introductory rate, including, if applicable, the date on which the introductory rate shall terminate, are disclosed to the borrower. Such disclosure shall be contained on an application form or pre-approved written solicitation as specified pursuant to subdivisions one and one-a of section five hundred twenty of the general business law. A change in the interest rate upon expiration of an introductory rate shall not be considered a variable rate or a change in terms. The interest rate in effect after expiration of an introductory rate may apply to all amounts due under the agreement regardless of when incurred and disclosure of the same shall be provided to the borrower in the written agreement. Any interest charge, whether assessed by a fixed or variable rate, may be reduced on such terms as the bank or trust company may determine, provided that the terms of such reduction, including, if applicable, the date on which the reduction will terminate, are disclosed to the borrower on the written notice announcing the reduction, prior to the effective date of the reduction. A new method of determining an interest charge is a reduction in the interest charge if the charge determined under the new method never exceeds the charge under the original method. The original interest charge or original method of determining the interest charge may be applied after the reduction ends to the entire outstanding indebtedness, including any indebtedness incurred when a reduced interest charge applied and disclosure of the same shall be provided to the borrower in the written notice announcing the reduction. A reduction to an interest charge, including the resumption of the original interest charge or the original method of determining the interest charge, shall not be considered an amendment of the agreement for purposes of this paragraph. (c) The aggregate unpaid principal amount of all such loans and advances to a borrower made pursuant to this subdivision by a bank or trust company at any one time outstanding shall be determined by agreement between such bank or trust company and the borrower except to the extent that such loans or advances are made pursuant to a written agreement providing for establishing credits for a primarily commercial or business use or purpose or for investment in or purchase of an interest in an unincorporated business or commercial enterprise. (d) The aggregate unpaid principal amount of all loans and advances outstanding at any time pursuant to this subdivision shall be repayable at regular periodic intervals of not more than one month and for such term as agreed upon by such bank or trust company and the borrower; provided, however, that nothing herein shall prohibit a bank or trust company from providing in any agreement for the omission of payments for three consecutive specified months during any consecutive twelve month period. The initial installment of any loan or advance may be deferred for a period of not more than sixty-five days from the date of such loan or advance; provided, however, that the installments payable during any such period on any prior loans or advances shall not be affected by any such deferment. Provided, however, that an agreement may require a minimum installment as agreed upon by the parties. The borrower may at any time prepay the amount owing in part or in full, with interest to the date of prepayment. Notwithstanding the foregoing provisions of this paragraph, each installment or other amount paid by the borrower to the bank or trust company may be applied to interest, insurance premiums, service charges, fines and principal in the order named, or in any such manner as the agreement may provide. The term "installment" may be deemed to include or exclude amounts to be applied to interest, insurance premiums, service charges and fines. (e) The fees and charges authorized by this paragraph and paragraph (b) of this subdivision shall be inclusive of all charges to the borrower incident to investigating and making any such loan or advance. No fee, commission, expense, or other ________________________________________________________________________
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