PRINTER'S NO. 432
No. 402 Session of 1985
INTRODUCED BY F. E. TAYLOR, L. E. SMITH, D. R. WRIGHT, RYAN,
DOMBROWSKI, CALTAGIRONE, COY, BRANDT, COLE, DORR, TRELLO,
AFFLERBACH, CESSAR, SEVENTY, SWEET, McVERRY, PICCOLA,
DeVERTER, MOWERY, O'BRIEN, BURD, SIRIANNI, McCLATCHY,
GLADECK, DUFFY, OLASZ, CLARK, MAIALE, MANMILLER, PRESTON,
LESCOVITZ, HOWLETT, LANGTRY, NOYE, GALLEN, E. Z. TAYLOR,
CORNELL, DAWIDA, GEIST, PISTELLA, KOSINSKI, LETTERMAN,
VAN HORNE, DONATUCCI, KENNEDY, COSLETT, DISTLER AND
MACKOWSKI, FEBRUARY 13, 1985
REFERRED TO COMMITTEE ON BUSINESS AND COMMERCE,
FEBRUARY 13, 1985
AN ACT
1 Amending the act of November 30, 1965 (P.L.847, No.356),
2 entitled "An act relating to and regulating the business of
3 banking and the exercise by corporations of fiduciary powers;
4 affecting persons engaged in the business of banking and
5 corporations exercising fiduciary powers and affiliates of
6 such persons; affecting the shareholders of such persons and
7 the directors, trustees, officers, attorneys and employes of
8 such persons and of the affiliates of such persons; affecting
9 national banks located in the Commonwealth; affecting persons
10 dealing with persons engaged in the business of banking,
11 corporations exercising fiduciary powers and national banks;
12 conferring powers and imposing duties on the Banking Board,
13 on certain departments and officers of the Commonwealth and
14 on courts, prothonotaries, clerks and recorders of deeds;
15 providing penalties; and repealing certain acts and parts of
16 acts," providing for certain direct and indirect extensions
17 of credit to individuals, partnerships and unincorporated
18 associations; and authorizing direct extensions of credit to
19 finance installment sales of goods and services to be made
20 through sellers and contractors as intermediaries.
21 The General Assembly of the Commonwealth of Pennsylvania
22 hereby enacts as follows:
23 Section 1. The General Assembly makes the following findings
1 as the basis for this act:
2 (1) The Pennsylvania statutes and regulations which govern
3 direct and indirect extensions of credit by banks to individuals
4 and unincorporated entities have become voluminous and intricate
5 by reason of separate amendments and supplements over several
6 years and, in conjunction with Federal statutes and regulations,
7 have failed to provide a stable basis for the offering of credit
8 by banks. Such statutes and regulations have imposed a costly,
9 confusing and needless complexity in the compliance requirements
10 that banks must satisfy without providing a proportionate
11 benefit to their customers.
12 (2) The interests of the public and the interests of the
13 State have been adversely affected by economic limitations on
14 direct and indirect extensions of credit under restrictions of
15 Pennsylvania law.
16 (3) Recent changes in Federal laws regulating interest
17 payable on deposits have enabled the public to obtain market
18 rates of interest on funds deposited with banks, and such rates
19 may be adjusted to reflect interest rate levels in the national
20 economy. Pennsylvania law generally does not provide the same
21 flexibility for interest rates on direct and indirect extensions
22 of credit.
23 (4) States contiguous to Pennsylvania, as well as most other
24 states of the United States, have changed bank lending laws in
25 order to maintain a consistent availability of credit. A
26 consequence of these changes has been that financial
27 institutions located in other states have become the sources of
28 a substantial and increasing percentage of the personal credit
29 business in Pennsylvania, detrimentally affecting employment,
30 business and tax revenues in this State.
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1 (5) The accelerating development of interstate banking will
2 increase the significance of State laws which govern bank
3 extensions of credit and their effect on the choice of places
4 where activities will be located. The loss of jobs in
5 Pennsylvania directly caused by its outdated credit laws will
6 inevitably increase with changes in the banking industry unless
7 those laws offer the same opportunities for competition by
8 Pennsylvania organizations as do the laws of other states.
9 (6) The interests of individuals and unincorporated entities
10 in continuing credit availability from banks located in this
11 State, the interests of the State in augmenting employment and
12 business of its residents and the interests of the State and
13 political subdivisions in State and local taxes resulting from
14 such employment and business will be promoted by simplification
15 and flexibility of bank lending laws so that credit can be
16 offered at market rates and competitive terms.
17 Section 2. On the basis of these findings, the purposes of
18 this act are to provide:
19 (1) Uniform, adequate and simplified disclosure by adoption
20 of the comprehensive Federal rules governing disclosure in
21 consumer credit transactions.
22 (2) Availability from Pennsylvania banks of credit at
23 competitive market rates of interest and charges so that
24 customers may benefit from decreases in market rates and
25 Pennsylvania banks may continue to offer credit, and compete
26 with banks from other states, during periods of both increases
27 and decreases in interest rates.
28 (3) Maintenance of credit services for Pennsylvania
29 customers at local banks so that customer alternatives will not
30 be restricted to out-of-state companies as in the case of past
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1 periods of high interest rates.
2 (4) Unification and simplification of rules governing bank
3 credit to promote efficiency and to increase borrower
4 comprehension of the terms of credit.
5 The provisions of this statute shall be liberally construed to
6 accomplish the foregoing purposes.
7 Section 3. The act of November 30, 1965 (P.L.847, No.356),
8 known as the Banking Code of 1965, is amended by adding a
9 section to read:
10 Section 322. Extension of Credit to Individuals, Partnerships
11 and Unincorporated Associations
12 (a) Definitions--As used in this section, the following
13 words and phrases shall have the meanings given to them in this
14 subsection:
15 "Credit device"--any card, check, identification code or
16 other means of identification contemplated by the agreement
17 governing the plan.
18 "Loans"--cash advances or loans to be paid to or for the
19 account of the customer.
20 "Plan" or "open-end credit plan"--a plan contemplating the
21 extension of credit under an account governed by an agreement
22 between an institution and a customer pursuant to which:
23 (i) the institution permits the customer and, if the
24 agreement governing the plan so provides, persons acting on
25 behalf of or with authorization from the customer, from time
26 to time to make purchases or to obtain loans, or both, by use
27 of a credit device,
28 (ii) the amounts of purchases made and loans obtained
29 are charged to the customer's account under the plan,
30 (iii) the customer is required to pay the institution
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1 the amounts of all purchases and loans charged to the
2 customer's account under the plan but has the privilege of
3 paying the amounts outstanding from time to time in full or
4 installments, and
5 (iv) interest may be charged and collected by the
6 institution from time to time on the outstanding unpaid
7 indebtedness under such plan.
8 "Purchases"--payments for property of whatever nature, real
9 or personal, tangible or intangible, and payments for services,
10 licenses, taxes, official fees, fines, private or governmental
11 obligations, or any other thing of value.
12 "Truth in Lending"--the Federal Truth in Lending Act (15
13 U.S.C. § 1601 et seq.) and regulations promulgated thereunder as
14 in effect from time to time. The terms "finance charge," "annual
15 percentage rate," "open-end credit" and "closed-end credit" have
16 the same coverage and meanings as the definitions of those terms
17 under Truth in Lending.
18 (b) Coverage--This section shall govern all direct and
19 indirect extensions of credit by an institution for personal,
20 family, household, business or agricultural purposes to an
21 individual, a partnership or an unincorporated association,
22 whether as closed-end credit or open-end credit, except
23 extensions of credit:
24 (i) which are secured by a first-lien, purchase money,
25 residential real estate mortgage,
26 (ii) which are student loans guaranteed by the
27 Pennsylvania Higher Education Assistance Agency, or
28 (iii) which are not subject to a maximum rate of
29 interest or finance charge, or as to which the pleading of
30 usury as a defense is prohibited, pursuant to Federal or
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1 State law.
2 (c) Disclosures--In connection with an extension of credit,
3 an institution shall make applicable disclosures required by
4 Truth in Lending in lieu of any disclosure requirement which may
5 be imposed by Pennsylvania law.
6 (d) Agreements for extension of credit--An institution may
7 extend credit pursuant to this section on the basis of a written
8 agreement. Such agreement, including related statements, notices
9 and documents, shall have the form and contents required by
10 Truth in Lending and may, in addition, provide where applicable:
11 (i) the amounts of available credit and the procedure or
12 means by which it may be obtained,
13 (ii) maturity provisions, installment payment
14 requirements, prepayment privileges and rebates of unearned
15 interest upon prepayment,
16 (iii) either the amounts or rates of interest, which may
17 be fixed or variable rates, or the basis for determining such
18 amounts or rates,
19 (iv) the method of determining balances of unpaid
20 indebtedness to which periodic rates of interest are
21 applicable which, in the case of an open-end credit plan,
22 may, if the agreement governing the plan so provides, include
23 the amount of any interest and other charges, including
24 delinquency charges, which have accrued in the account,
25 (v) charges which may be imposed in addition to
26 interest, in such amounts as the agreement provides, or as
27 established in the manner the agreement provides, such as,
28 but not limited to, minimum charges, check charges and
29 maintenance charges related to extensions of credit pursuant
30 to overdraft check plans, delinquency charges for each
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1 installment or payment which is in default and fees,
2 extension charges and charges that may be incurred on
3 default, including attorney fees, court and other collection
4 costs. Such additional charges may include a daily, weekly,
5 monthly, annual or other periodic charge for the privileges
6 made available to the customer under an open-end credit plan,
7 transaction charges for each separate purchase or loan under
8 the plan and a minimum charge for each scheduled billing
9 period under the plan, during any portion of which there is
10 an outstanding unpaid indebtedness under the plan,
11 (vi) collateral security and provisions relating
12 thereto, and
13 (vii) insurance coverages and premiums therefor.
14 Such agreements shall be valid and enforceable and an
15 institution may impose and collect the interest and other
16 charges provided therein.
17 (e) Computation of interest--A fixed rate of interest
18 included in a finance charge shall be computed either on a
19 simple interest basis by a method permitted for determination of
20 an annual percentage rate under Truth in Lending or, as to an
21 extension of credit with an initial maturity of not more than
22 sixty months, on an add-on or discount basis. The maximum amount
23 that may be charged on the basis of a variable rate of interest
24 shall be computed in accordance with or with reference to a
25 schedule or formula, at the times and for the periods provided
26 in the agreement. The periodic rate of interest, as so varied,
27 will be applicable to all outstanding unpaid indebtedness under
28 the agreement from the effective date of the variation if so
29 provided in the agreement.
30 (f) Changes in terms--If the agreement so provides, an
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1 institution may change the terms of the agreement in compliance
2 with applicable notice requirements of Truth in Lending prior to
3 the effective date of the change on the condition that, in the
4 case of an increase in a fixed rate of interest or other charges
5 payable by the customer under an open-end credit plan, the
6 customer incurs additional indebtedness after the effective date
7 of the change of terms. If the agreement governing the plan so
8 provides, a change of terms may, on and after the date it
9 becomes effective as to an account, apply to all then
10 outstanding unpaid indebtedness. A change in the amount of
11 interest imposed in accordance with or with reference to a
12 schedule or formula for a variable rate of interest shall not be
13 deemed to be a change in terms but a change in such schedule or
14 formula shall be deemed to be a change in terms. No change may
15 be made in a fixed rate of interest or other charges payable
16 with respect to the outstanding balance of indebtedness or in
17 the amount or due dates of required installment payments on
18 closed-end credit unless there is written consent of the
19 customer except for an extension of any due date or an option of
20 the customer to omit payments granted by the institution and
21 except as may be otherwise provided in an agreement for an
22 extension of credit other than for personal, family or household
23 purposes.
24 (g) Prepayment--
25 (i) A borrower or buyer may prepay an extension of
26 credit in full at any time without any prepayment charge
27 except as may be provided in the agreement.
28 (ii) If interest has been precomputed on an add-on or
29 discount basis pursuant to subsection (e), then, in the event
30 of prepayment of the extension of credit, the institution
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1 shall refund to the customer the unearned portion of the
2 precomputed interest. The refund shall be in an amount not
3 less than the amount which would be refunded if the unearned
4 precomputed interest were calculated in accordance with the
5 "sum of the balances" method, except that the customer shall
6 not be entitled to a refund which results in a net minimum
7 charge of less than an amount equal to the interest that
8 would accrue in the first month the extension of credit was
9 scheduled to be outstanding. The institution shall not be
10 required to refund the unearned portion of the interest if
11 such amount is less than one dollar ($1).
12 (iii) The amount of a refund under the "sum of the
13 balances" method is determined by multiplying the precomputed
14 interest by a fraction, the numerator of which is the sum of
15 the balances, including interest, of the extension of credit
16 scheduled to be outstanding after deducting the first of the
17 payments scheduled to be made on or after the date of
18 prepayment, and the denominator of which is the sum of all
19 the unpaid balances, including interest, of the extension of
20 credit scheduled to be outstanding from its inception to, and
21 including the maturity of the final installment. Intervals
22 between scheduled payments must be regular periods of one
23 month or less except that the interval between the inception
24 of an extension of credit and the due date of the first
25 scheduled payment may be:
26 (A) one month and fifteen days when the regular
27 payment interval is a month,
28 (B) one month when the regular payment interval is
29 less than a month but more than a week, or
30 (C) eleven days when the regular payment interval is
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1 a week or less.
2 (h) Insurance--The agreement may provide for life, health,
3 accident, loss-of-income or other permissible insurance related
4 to an extension of credit under a group or individual policy
5 and, if premiums for such insurance are paid to the institution,
6 provisions shall be made for rebates of unearned premiums, if
7 any, upon prepayment. An institution may require that insurance
8 be maintained, from an insurer acceptable to the institution,
9 against loss or damage to property which is collateral security
10 for the extension of credit and against liability arising out of
11 the ownership or use of such property. An institution may grant
12 an extension of credit to finance the premiums for such
13 insurance.
14 (i) Extensions of credit through intermediaries--An
15 extension of credit to finance a sale of personal property or
16 the furnishing of services or both (other than through an open-
17 end credit plan) may be made by an institution through the
18 seller or contractor of such personal property or services as an
19 intermediary if:
20 (i) the agreement governing the extension of credit
21 conspicuously provides that the extension of credit is made
22 by the institution to the buyer and is subject to the
23 provisions of this section, and
24 (ii) either the institution has made a commitment to
25 make the extension of credit or the agreement is subject to
26 acceptance by the institution within two business days after
27 the date of the agreement and the institution upon such
28 acceptance sends written notice thereof to the buyer. The
29 terms and conditions under which the seller or contractor
30 acts as an intermediary between the institution and the buyer
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1 shall be determined by written agreement between the
2 institution and the seller or contractor. An extension of
3 credit made through an intermediary pursuant to this section
4 shall not be subject to the provisions or requirements of any
5 other regulatory statute, rule or regulation and neither a
6 seller or contractor who acts as an intermediary for an
7 institution with respect to such an extension of credit nor
8 an institution which makes such an extension of credit
9 through a seller or contractor as an intermediary shall be
10 deemed to be in violation of any other regulatory statute,
11 rule or regulation.
12 Section 4. All acts and parts of acts are repealed insofar
13 as they are inconsistent with this act.
14 Section 5. This act shall take effect immediately.
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