PRINTER'S NO. 1040
No. 928 Session of 1991
INTRODUCED BY F. TAYLOR, GALLEN, KREBS, REINARD, McCALL, GEIST,
LaGROTTA, CARLSON, D. R. WRIGHT, BUNT, O'BRIEN, BARLEY, COY,
GLADECK, G. SNYDER, VAN HORNE, PRESTON, HAGARTY, OLASZ,
S. H. SMITH, COLE, RYAN, GODSHALL, NOYE, CAPPABIANCA,
LANGTRY, LEE, CIVERA, CHADWICK, CESSAR, KENNEY, PERZEL,
FARGO, NAILOR, SERAFINI, RAYMOND, RITTER, STEIGHNER,
LESCOVITZ, FARMER, FLICK, LUCYK, COLAFELLA, MARKOSEK, PESCI,
LAWLESS, WOZNIAK, WOGAN AND MAYERNIK, APRIL 2, 1991
REFERRED TO COMMITTEE ON BUSINESS AND COMMERCE, APRIL 2, 1991
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; authorizing direct extensions of credit to
19 finance installment sales of goods and services to be made
20 through sellers and contractors as intermediaries; providing
21 special rules for transaction accounts of individuals; and
22 providing for compliance with Federal law regarding
23 availability of withdrawal of items deposited.
24 (a) The General Assembly makes the following findings as the
25 basis for this act:
1 (1) The Pennsylvania statutes and regulations which
2 govern direct and indirect extensions of credit by banks to
3 individuals and unincorporated entities have become
4 voluminous and intricate by reason of separate amendments and
5 supplements over several years and, in conjunction with
6 Federal statutes and regulations, have failed to provide a
7 stable basis for the offering of credit by banks. Such
8 statutes and regulations have imposed a costly, confusing and
9 needless complexity in the compliance requirements that banks
10 must satisfy without providing a proportionate benefit to
11 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
15 of 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
19 rates may be adjusted to reflect interest rate levels in the
20 national economy. Pennsylvania law generally does not provide
21 the same flexibility for interest rates on direct and
22 indirect extensions of credit.
23 (4) States contiguous to Pennsylvania, as well as most
24 other states of the United States, have changed bank lending
25 laws in order to maintain a consistent availability of
26 credit. A consequence of these changes has been that
27 financial institutions located in other states have become
28 the sources of a substantial and increasing percentage of the
29 personal credit business in Pennsylvania, detrimentally
30 affecting employment, business and tax revenues in this
19910H0928B1040 - 2 -
1 State.
2 (5) The accelerating development of interstate banking
3 will increase the significance of State laws which govern
4 bank extensions of credit and their effect on the choice of
5 places where activities will be located. The loss of jobs in
6 Pennsylvania directly caused by its outdated credit laws will
7 inevitably increase with changes in the banking industry
8 unless those laws offer the same opportunities for
9 competition by Pennsylvania organizations as do the laws of
10 other states.
11 (6) The interests of individuals and unincorporated
12 entities in continuing credit availability from banks located
13 in this State, the interests of the State in augmenting
14 employment and business of its residents and the interests of
15 the State and political subdivisions in State and local taxes
16 resulting from such employment and business will be promoted
17 by simplification and flexibility of bank lending laws so
18 that credit can be offered at market rates and competitive
19 terms.
20 (b) On the basis of these findings, the purposes of this act
21 are to provide:
22 (1) Uniform, adequate and simplified disclosure by
23 adoption of the comprehensive Federal rules governing
24 disclosure in consumer credit transactions.
25 (2) Availability from Pennsylvania banks of credit at
26 competitive market rates of interest and charges so that
27 customers may benefit from decreases in market rates and
28 Pennsylvania banks may continue to offer credit, and compete
29 with banks from other states, during periods of both
30 increases and decreases in interest rates.
19910H0928B1040 - 3 -
1 (3) Maintenance of credit services for Pennsylvania
2 customers at local banks so that customer alternatives will
3 not be restricted to out-of-state companies as in the case of
4 past periods of high interest rates.
5 (4) Unification and simplification of rules governing
6 bank credit to promote efficiency and to increase borrower
7 comprehension of the terms of credit.
8 (c) The provisions of this statute shall be liberally
9 construed to accomplish the foregoing purposes.
10 The General Assembly of the Commonwealth of Pennsylvania
11 hereby enacts as follows:
12 Section 1. The act of November 30, 1965 (P.L.847, No.356),
13 known as the Banking Code of 1965, is amended by adding a
14 section to read:
15 Section 322. Extensions of Credit to Individuals, Partnerships
16 and Unincorporated Associations
17 (a) Definitions--As used in this section, the following
18 words and phrases shall have the meanings given to them in this
19 subsection:
20 "Credit device"--any card, check, identification code or
21 other means of identification contemplated by the agreement
22 governing a plan.
23 "Loans"--cash advances or loans to be paid to or for the
24 account of the customer.
25 "Plan" or "open-end credit plan"--a plan contemplating the
26 extension of credit under an account governed by an agreement
27 between an institution and a customer pursuant to which:
28 (i) the institution permits the customer and, if the
29 agreement governing the plan so provides, persons acting on
30 behalf of or with authorization from the customer from time
19910H0928B1040 - 4 -
1 to time to make purchases or to obtain loans, or both, by use
2 of a credit device,
3 (ii) the amounts of purchases made and loans obtained
4 are charged to the customer's account under the plan,
5 (iii) the customer is required to pay the institution
6 the amounts of all purchases and loans charged to the
7 customer's account under the plan but has the privilege of
8 paying the amounts outstanding from time to time in full or
9 installments, and
10 (iv) interest may be charged and collected by the
11 institution from time to time on the outstanding unpaid
12 indebtedness under such plan.
13 "Purchases"--payments for property of whatever nature, real
14 or personal, tangible or intangible, and payments for services,
15 licenses, taxes, official fees, fines, private or governmental
16 obligations, or any other thing of value.
17 "Truth in Lending"--the Federal Truth in Lending Act (Public
18 Law 90-321, 15 U.S.C. § 1601 et seq.) and regulations
19 promulgated thereunder as in effect from time to time. The terms
20 "finance charge," "annual percentage rate," "credit card,"
21 "open-end credit" and "closed-end credit" have the same coverage
22 and meanings as the definitions of those terms under Truth in
23 Lending.
24 (b) Coverage--This section shall govern all direct and
25 indirect extensions of credit by an institution for personal,
26 family, household, business or agricultural purposes to an
27 individual, a partnership or an unincorporated association,
28 whether as closed-end credit or open-end credit, except
29 extensions of credit:
30 (i) which are secured by a first-lien, purchase money,
19910H0928B1040 - 5 -
1 residential real estate mortgage,
2 (ii) which are student loans guaranteed by the
3 Pennsylvania Higher Education Assistance Agency, or
4 (iii) which are not subject to a maximum rate of
5 interest or finance charge, or as to which the pleading of
6 usury as a defense is prohibited, pursuant to Federal or
7 State law.
8 (c) Disclosures--In connection with an extension of credit,
9 an institution shall make applicable disclosures required by
10 Truth in Lending in lieu of any disclosure requirement which may
11 be imposed by Pennsylvania law.
12 (d) Agreements for extension of credit--An institution may
13 extend credit pursuant to this section on the basis of a written
14 agreement. Such agreement, including related statements, notices
15 and documents (a completed copy of each of which shall be given
16 to the customer), shall have the form and contents required by
17 Truth in Lending and shall, in addition, provide if applicable:
18 (i) the amounts of available credit and the procedure or
19 means by which it may be obtained,
20 (ii) maturity provisions, installment payment
21 requirements, prepayment privileges and rebates of unearned
22 interest upon prepayment,
23 (iii) either the amounts or rates of interest, which may
24 be fixed or variable rates, or the basis for determining such
25 amounts or rates, subject to subsection (m),
26 (iv) the method of determining balances of unpaid
27 indebtedness to which periodic rates of interest are
28 applicable which, in the case of an open-end credit plan,
29 may, if the agreement governing the plan so provides, include
30 the amount of any interest and other charges, including
19910H0928B1040 - 6 -
1 delinquency charges, which have accrued in the account,
2 (v) charges which may be imposed in addition to
3 interest, in such amounts as the agreement provides, or as
4 established in the manner the agreement provides, such as,
5 but not limited to, minimum charges, check charges and
6 maintenance charges related to extensions of credit pursuant
7 to overdraft check plans, delinquency charges for each
8 installment or payment which is in default and fees,
9 extension charges and charges that may be incurred on
10 default, including attorney fees, court and other collection
11 costs. Such additional charges may include a daily, weekly,
12 monthly, annual or other periodic charge for the privileges
13 made available to the customer under an open-end credit plan,
14 transaction charges for each separate purchase or loan under
15 the plan and a minimum charge for each scheduled billing
16 period under the plan, during any portion of which there is
17 an outstanding unpaid indebtedness under the plan,
18 (vi) collateral security and provisions relating
19 thereto, except that there may not be any authorization for
20 entry of judgment by confession, and
21 (vii) insurance coverages and premiums therefor.
22 Such agreements shall be valid and enforceable and an
23 institution may impose and collect the interest and other
24 charges provided therein.
25 (e) Computation of interest--A fixed rate of interest
26 included in a finance charge shall be computed either on a
27 simple interest basis by a generally accepted actuarial method,
28 including a method permitted for determination of an annual
29 percentage rate under Truth in Lending or, as to an extension of
30 credit with an initial maturity of not more than sixty months,
19910H0928B1040 - 7 -
1 which is made within two years after the effective date of this
2 section, on an add-on or discount basis. The maximum amount that
3 may be charged on the basis of a variable rate of interest shall
4 be computed in accordance with or with reference to a schedule
5 or formula, at the times and for the periods provided in the
6 agreement. The periodic rate of interest, as so varied, will be
7 applicable to all outstanding unpaid indebtedness under the
8 agreement from the effective date of the variation if so
9 provided in the agreement.
10 (f) Changes in terms--An institution may change the terms of
11 the agreement if:
12 (i) the agreement so provides,
13 (ii) there is compliance with applicable notice
14 requirements of Truth in Lending prior to the effective date
15 of the change,
16 (iii) such notice states that a customer for whose
17 account a change in terms does not become effective may pay
18 all outstanding amounts pursuant to the agreement as in
19 effect prior to the notice, and
20 (iv) in the case of an increase in a fixed rate of
21 interest or other charges payable by the customer under an
22 open-end credit plan, the customer incurs additional
23 indebtedness after the effective date of the change of terms.
24 If the agreement governing the plan so provides, a change of
25 terms pursuant to this subsection may, on and after the date it
26 becomes effective as to an account, apply to all then
27 outstanding unpaid indebtedness. A change in the amount of
28 interest imposed in accordance with or with reference to a
29 schedule or formula for a variable rate of interest shall not be
30 deemed to be a change in terms but a change in such schedule or
19910H0928B1040 - 8 -
1 formula shall be deemed to be a change in terms. No change may
2 be made in a fixed rate of interest or other charges payable
3 with respect to the outstanding balance of indebtedness or in
4 the amount or due dates of required installment payments on
5 closed-end credit unless there is written consent of the
6 customer at the time of the change except for an extension of
7 any due date or an option granted by the institution to the
8 customer to omit payments and except as may be otherwise
9 provided in an agreement for an extension of credit which is not
10 for personal, family or household purposes.
11 (g) Prepayment--
12 (i) A borrower or buyer may prepay an extension of
13 credit in full at any time without any prepayment charge.
14 (ii) If interest has been precomputed, then, in the
15 event of prepayment of an extension of credit, the
16 institution shall refund to the customer the unearned portion
17 of the precomputed interest. The refund shall be in an amount
18 not less than the amount of the unearned precomputed interest
19 calculated in accordance with a generally accepted actuarial
20 method including a method permitted for determination of an
21 annual percentage rate under Truth in Lending, except that
22 the amount of the unearned interest on an extension of credit
23 with an initial maturity of not more than sixty months which
24 is made within two years after the effective date of this
25 section for which interest is computed on an add-on or
26 discount basis as permitted by subsection (e) may be
27 calculated in accordance with the "sum of the balances"
28 method, and except that the customer shall not be entitled to
29 a refund which results in a net minimum charge of less than
30 an amount equal to the interest that would accrue in the
19910H0928B1040 - 9 -
1 first month the extension of credit was scheduled to be
2 outstanding. The institution shall not be required to refund
3 the unearned portion of the interest if such amount is less
4 than one dollar ($1).
5 (iii) The amount of a refund under the "sum of the
6 balances" method is determined by multiplying the precomputed
7 interest by a fraction, the numerator of which is the sum of
8 the balances, including interest, of the extension of credit
9 scheduled to be outstanding after deducting the first of the
10 payments scheduled to be made on or after the date of
11 prepayment, and the denominator of which is the sum of all
12 the unpaid balances, including interest, of the extension of
13 credit scheduled to be outstanding from its inception to, and
14 including the maturity of the final installment. Intervals
15 between scheduled payments must be regular periods of one
16 month or less except that the interval between the inception
17 of an extension of credit and the due date of the first
18 scheduled payment may be:
19 (A) one month and fifteen days when the regular
20 payment interval is a month,
21 (B) one month when the regular payment interval is
22 less than a month but more than a week, or
23 (C) eleven days when the regular payment interval is
24 a week or less.
25 (h) Insurance--The agreement may provide for life, health,
26 accident, loss-of-income or other permissible insurance related
27 to an extension of credit under a group or individual policy
28 subject to the option of the customer to furnish required
29 insurance through an authorized insurer of the customer's choice
30 as provided in section 11 of the act of September 2, 1961
19910H0928B1040 - 10 -
1 (P.L.1232, No.540), known as the "Model Act for the Regulation
2 of Credit Life Insurance and Credit Accident and Health
3 Insurance," and, if premiums for such insurance are paid to the
4 institution, provisions shall be made for rebates of unearned
5 premiums, if any, upon prepayment. An institution may require
6 that insurance be maintained, from an insurer acceptable to the
7 institution, against loss or damage to property which is
8 collateral security for the extension of credit and against
9 liability arising out of the ownership or use of such property.
10 An institution may grant an extension of credit to finance the
11 premiums for such insurance.
12 (i) Extensions of credit through intermediaries--An
13 extension of credit to finance a sale of a motor vehicle, other
14 than through an open-end credit plan, may be made by an
15 institution through a seller licensed as an installment seller
16 under the act of June 28, 1947 (P.L.1110, No.476), known as the
17 "Motor Vehicle Sales Finance Act," as an intermediary if:
18 (i) the agreement governing the extension of credit
19 conspicuously provides that the extension of credit is made
20 by the institution to the buyer and is subject to the
21 provisions of this section, and
22 (ii) either the institution has made a commitment to
23 make the extension of credit or the agreement is subject to
24 acceptance by the institution within two business days after
25 the date of the agreement and the institution upon such
26 acceptance sends written notice thereof to the buyer. The
27 terms and conditions under which the seller acts as an
28 intermediary between the institution and the buyer shall be
29 determined by written agreement between the institution and
30 the seller.
19910H0928B1040 - 11 -
1 An extension of credit made through an intermediary pursuant to
2 this section shall be subject to this act and other acts
3 governing transactions between banks and their customers and
4 shall not be subject to the provisions or requirements of any
5 other regulatory statute, rule or regulation and neither a
6 seller who acts as an intermediary for an institution with
7 respect to such an extension of credit nor an institution which
8 makes such an extension of credit through a seller as an
9 intermediary shall be deemed to be in violation of licensing or
10 other requirements of any other regulatory statute, rule or
11 regulation that would be applicable to extensions of credits by
12 such a seller or contractor to its customers.
13 (j) Right of rescission--A person whose ownership interest
14 in that person's principal dwelling is subject to a lien or
15 security interest as collateral security for an extension of
16 credit subject to this section shall have a right of rescission
17 for the same types of transactions, on the same terms and
18 conditions and for the same time periods as those provided for
19 the right of rescission under Truth in Lending.
20 (k) Statement of account--Upon the written request of the
21 customer, an institution shall provide, within ninety days after
22 the end of each calendar year, a statement of the customer's
23 account showing payments made during such year, the amount
24 applied to interest and the balance of the account at the end of
25 such year.
26 (l) Waiver of provisions--No provision of this section which
27 confers rights on the customer or any other person may be waived
28 or modified except to the extent and in the circumstances in
29 which Truth in Lending permits a consumer to waive or modify the
30 right of rescission.
19910H0928B1040 - 12 -
1 (m) Maximum rates of interest for credit card purchases--The
2 maximum rate of interest from time to time that may be imposed
3 on amounts charged to a credit card account for purchases shall
4 be the index rate under this subsection in effect at the time
5 the interest is charged to the account and shall be applicable
6 to all balances in the account for purchases and, if the
7 agreement governing the account so provides, to interest and
8 other charges accrued on unpaid balances for purchases. The
9 index rate shall be determined for each calendar quarter
10 commencing on the first day of January, April, July and October
11 of each year. For the first calendar quarter which commences not
12 less than ninety days after the date of approval of this
13 subsection, the index rate shall be the sum of the average
14 annual percentage yield on U.S. Government securities for a
15 constant three-year maturity as published by the Board of
16 Governors of the Federal Reserve System rounded to the nearer
17 quarter of one percent ("U.S. Government three-year rate") for
18 the first full calendar month after such date of approval plus
19 eight percent. For each successive calendar quarter, the index
20 rate shall be the average U.S. Government three-year rate for
21 the second calendar month preceding such quarter plus eight
22 percent. The index rate for a calendar quarter shall be the
23 maximum rate of interest imposed in each billing cycle which
24 begins in such calendar quarter on balances subject to this
25 subsection. Notwithstanding any provision in this section or any
26 other act to the contrary, there shall be no limitation on the
27 rate, amount or manner of assessing or adjusting service
28 charges, finance charges, interest, annual or other periodic
29 fees or any other fees or charges imposed in connection with
30 credit cards issued by any bank, savings bank or savings and
19910H0928B1040 - 13 -
1 loan association located in Pennsylvania to cardholders
2 domiciled outside Pennsylvania: Provided, however, That the
3 rate, amount and manner of assessing and adjusting such service
4 charges, finance charges, interest, fees and charges shall be
5 set forth in writing and agreed to by the credit card issuer and
6 the cardholder. This subsection (m), the annual or other
7 periodic fees and any additional fees and charges, other than
8 the service charge, finance charge or interest, shall all be
9 deemed to be material to the determination of the rate of the
10 service charge, finance charge and interest for purposes of
11 Federal law. In determining whether a cardholder is domiciled in
12 Pennsylvania, a credit card issuer may conclusively assume that
13 such cardholder is domiciled outside Pennsylvania if the issuer
14 has not mailed any solicitation to the cardholder at a
15 Pennsylvania address, has not entered into a credit card
16 agreement with a cardholder pursuant to a personal meeting at an
17 office of the issuer in Pennsylvania and does not mail the
18 cardholder's monthly billing statements to a Pennsylvania
19 address.
20 Section 2. Section 506(a)(vi), (vii) and (viii) of the act,
21 amended December 21, 1988 (P.L.1416, No.173), are amended and
22 the subsection is amended by adding a clause to read:
23 Section 506. Lending Powers; Direct Leasing of Personal
24 Property
25 (a) A savings bank may:
26 * * *
27 (vi) in the case of a savings bank which has elected to
28 exercise the conditional powers provided in section 513, make
29 secured or unsecured loans for personal, family or household
30 purposes, including loans reasonably incident to the
19910H0928B1040 - 14 -
1 provision of such credit, and subject to regulation by the
2 department, issue credit cards, extend credit in connection
3 therewith, and otherwise engage in or participate in credit
4 card operations, except that the total amount of such loans
5 or extensions of credit shall not exceed thirty percent of
6 the assets of such savings bank[. In any loan or extension of
7 credit made under the authority of this clause a savings bank
8 may charge or impose any rate or charge which could be
9 imposed by a bank in connection with any such loan or
10 extension of credit and shall be subject to the same
11 restrictions and limitations imposed upon a bank in
12 connection with such loan or extension of credit];
13 (vii) make overdraft loans specifically related to
14 deposits which are subject to withdrawal by check or by
15 negotiable order of withdrawal; [and]
16 (viii) make loans for the payment of educational
17 expenses; and
18 (ix) in any loan or extension of credit made under the
19 authority of this section, charge or impose any rate or
20 charge which could be imposed by a bank in connection with
21 any such loan or extension of credit, make agreements in the
22 same manner and with the same terms, provisions and
23 conditions as a bank and, in addition to the restrictions of
24 this section, shall be subject only to the same disclosure
25 and other requirements, restrictions and limitations imposed
26 upon a bank in connection with such loan or extension of
27 credit.
28 [A savings bank may not lend money or discount or purchase
29 evidences of indebtedness or agreements for the payment of money
30 except as provided in sections 504 and 505 and in this
19910H0928B1040 - 15 -
1 subsection (a).]
2 * * *
3 Section 3. The act is amended by adding a section to read:
4 Section 611. Compliance with Federal Law Regarding Availability
5 of Withdrawal of Items Deposited
6 An institution shall comply with the "Expedited Funds
7 Availability Act" (Public Law 100-86, 12 U.S.C. § 4001 et seq.)
8 and any amendments thereof and any regulations, interpretations
9 and rulings issued thereunder from the effective date thereof.
10 Section 4. The provisions of this act shall only govern
11 transactions between banks or savings banks and their customers
12 and, by reason of the references to "interest, finance charge,
13 rate, and/or terms" in section 701(a)(26) of the act of December
14 14, 1967 (P.L.746, No.345), known as the Savings Association
15 Code of 1967, transactions between savings associations and
16 their customers, and shall not affect acts and parts of acts
17 governing other creditors or sellers or contractors for goods or
18 services, or acts or parts of acts governing such other
19 creditors or sellers as to installment sales or contracts for
20 goods or services, including, but not limited to the act of June
21 28, 1947 (P.L.1110, No.476), known as the Motor Vehicle Sales
22 Finance Act, the act of August 14, 1963 (P.L.1082, No.464),
23 known as the Home Improvement Finance Act and the act of October
24 28, 1966 (Sp.Sess., P.L.55, No.7), known as the Goods and
25 Services Installment Sales Act, or acts and parts of acts
26 governing rights, duties and procedures for enforcement of
27 obligations upon default on an extension of credit, or acts and
28 parts of acts governing credit life insurance or the act of
29 December 17, 1968 (P.L.1224, No.387), known as the Unfair Trade
30 Practices and Consumer Protection Law, or 13 Pa.C.S. (relating
19910H0928B1040 - 16 -
1 to commercial code). This act shall not repeal any act governing
2 criminal usury, extortionate extensions of credit or
3 racketeering activity or repeal or affect any law relating to
4 the preservation against an assignee of a consumer's claims and
5 defenses arising out of an agreement for the purchase of goods
6 or services.
7 Section 5. All acts and parts of acts are repealed insofar
8 as they are inconsistent with the provisions of this act.
9 Section 6. This amendatory act shall be known and may be
10 cited as the Simplification and Availability of Bank Credit Act.
11 Section 7. This act shall take effect immediately.
A25L07JLW/19910H0928B1040 - 17 -