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Facts About Lending

Facts About Lending. The Cost of Credit. Consumer Credit Transactions. Consumer Credit Sales – Finance the purchase of goods or services (autos, furniture, dental work, etc.) Consumer Loans – Loan of Money ($$$). Consumer Credit Sales.

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Facts About Lending

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  1. Facts About Lending The Cost of Credit

  2. Consumer Credit Transactions • Consumer Credit Sales – Finance the purchase of goods or services (autos, furniture, dental work, etc.) • Consumer Loans – Loan of Money ($$$)

  3. Consumer Credit Sales • Maximum Credit Service Charge (interest) the greater of: • 24% on unpaid balance up to $1,750, and • 18% on balance from $1,750 - $5,000, and • 12% on unpaid balance over $5,000; or • 18% on unpaid balance of amount deferred

  4. Consumer Loans (over $350) • Maximum Loan Finance Charges for Consumer Loans (R.S. 9:3519) • 36% on loan amounts up to $1,400 • 27% on loan amounts from $1,400 to $4,000 • 24% on loan amounts from $4,000 to $7,000 • 21% on loan amounts over $7,000

  5. Additional Fees and Charges • Consumer Loans may include fees in addition to the interest (R.S. 9:3530) • $50 Origination Fee • $20 Documentation Fee These fees are included in the amount financed and not considered finance charges when calculating interest. However, these fees are finance charges according to the federal Truth-In-Lending Act (Reg Z) and are included in the APR calculation.

  6. Consumer Credit Sales andConsumer Loans • What is the common element in both types of loan agreements?

  7. Federal Truth-In-Lending Disclosures ITEMIZATION OF AMOUNT FINANCED • AMOUNT GIVEN TO BORROWER $ _______ • FEES AND CHARGES (PREPAID) $ _______ • INSURANCE (Credit Life, Property) $ _______ • AMOUNTS PAID TO OTHERS $ _______ Number, Amount and Due Dates of Monthly Payments

  8. What is the Annual Percentage Rate (APR)? • The federal Truth-In-Lending Act through Regulation Z requires disclosure of the finance charge in the form of an annualized rate that includes interest and other fees imposed by the creditor as a condition of the extension of credit.

  9. Interest Rate vs. APR (present value or actuarial method of calculating interest) ITEMIZATION OF AMOUNT FINANCED • AMOUNT GIVEN TO BORROWER ……………$1,000 • ORIGINATION FEE……………………................$ 50 • DOCUMENTATION FEE………………………… $ 20 • TOTAL AMOUNT BORROWED ………………...$1,070 • 36% interest on $1,070 for 12 months = $219.93 • 12 Monthly Payments: 11 at $107.49 and 1 at $107.54

  10. Other Fees on Consumer Loans NOT Finance Charges Fees must be included in the Itemization • Prepayment Penalties ($25) • NSF Check Charges (the greater of 5% or $25) • Delinquency Charges (the greater of 5% or $10) • Notary Fees ($15 for non-real estate loans) • Convenience Fees ($18 for tag agent on auto secured loans) • Insurance (credit life, AD&D, property)

  11. Deferred Presentment and Small Loan Act, R.S. 9:3578.1 et seq. (Payday Loans) Definition of Deferred Presentment – A consumer loan made pursuant to a written agreement whereby a licensee: • Accepts a check from the issuer (borrower), • Agrees to hold the check for a period of time not to exceed 30 days prior to presentment, and • Pays the issuer the amount of the check less the permissible fees. The amount paid to the issuer of the check may not exceed $350.

  12. Deferred Presentment and Small Loan Act, R.S. 9:3578.1 et seq. (Payday Loans) • Definition of Small Loan – A consumer loan of three hundred and fifty dollars or less, made for a term of sixty days or less.

  13. Finance Charge and Fees on Payday Loans • A licensee may charge a fee not to exceed 16.75% of the face amount of the check issued, not to exceed $45 plus a documentation fee up to $10 on each loan transaction. • Other fees allowed: • R.S. 9:3529 ($25 NSF check charge); and • R.S. 9:3527, a delinquency charge of 5% of the unpaid amount after 10 days of the maturity date, or • Interest after default at the rate of 36% per annum for the first year and 18% per annum thereafter. • Reasonable attorney fees and costs awarded by a court.

  14. The Cost of a 14-Day Payday Loan Amount Borrowed $350 • Interest $ 45 • Documentation Fee $ 10 • Total Payoff $405

  15. Payday Loan Prohibitions A payday lender shall not refuse a partial payment of $50 or more; A payday lender shall not renew or roll over a deferred presentment transaction or small loan. However, a licensee may accept a partial payment of 25% of the amount advanced plus fees charged and enter into a new deferred presentment transaction or renew the small loan for the remaining balance owed.

  16. Other Issues • Internet Lenders from out-of-state are not required to apply for a license and are not under the jurisdiction of OFI. However, to enforce a contract in LA, the creditor shall reduce the charges to those permitted in LA pursuant to R.S. 9:3511(B).

  17. Other Issues Debt Relief Companies offer to help consumers with multiple payday loans or other financial difficulties. Usually these companies collect up-front fees and do little to resolve financial problems. Most of these companies are scams.

  18. Louisiana Pawnshop Act • The pawnbroker takes possession of the pledged item for 3 months as required by R.S. 37:1781 et seq.

  19. Where to go for Assistance • See handout for important agencies, names, addresses, phone numbers and web sites.

  20. QUESTIONS? John J. Braud, CPA Compliance Examiner Deputy Chief Louisiana Office of Financial Institutions • (225) 925-7762 (Direct) • jbraud@ofi.la.gov • (225) 925-4660 (Main Office) • (888) 525-9414 (Toll Free)

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