CHAPTER 7. SMALL LOANS
IC 24-4.5-7
Chapter 7. Small Loans
IC 24-4.5-7-101
Citation
Sec. 101. This chapter shall be known and may be cited asUniform Consumer Credit Code _ Small Loans.
As added by P.L.38-2002, SEC.1.
IC 24-4.5-7-102
Applicability; loans otherwise subject to Uniform Consumer CreditCode
Sec. 102. (1) Except as otherwise provided, all provisions of thisarticle applying to consumer loans apply to small loans, as definedin this chapter.
(2) This chapter applies to:
(a) a lender or to any person who facilitates, enables, or acts asa conduit for any person who is or may be exempt fromlicensing under IC 24-4.5-3-502;
(b) a bank, savings association, credit union, or other state orfederally regulated financial institution except those that arespecifically exempt regarding limitations on interest rates andfees; or
(c) a person, if the department determines that a transaction is:
(i) in substance a disguised loan; or
(ii) the application of subterfuge for the purpose of avoidingthis chapter.
(3) A loan that:
(a) does not qualify as a small loan under section 104 of thischapter;
(b) is for a term shorter than that specified in section 401(1) ofthis chapter; or
(c) is made in violation of section 201, 401, 402, 404, or 410 ofthis chapter;
is subject to this article. The department may conform the financecharge for a loan described in this subsection to the limitations setforth in IC 24-4.5-3-508.
As added by P.L.38-2002, SEC.1. Amended by P.L.10-2006, SEC.11and P.L.57-2006, SEC.11; P.L.213-2007, SEC.21; P.L.217-2007,SEC.20; P.L.35-2010, SEC.82.
IC 24-4.5-7-103
Definitions
Sec. 103. The following definitions apply to this chapter:
"Small loan" Section 7-104
"Principal" Section 7-105
"Check" Section 7-106
"Renewal" Section 7-107
"Consecutive small loan" Section 7-108
"Paid in full" Section 7-109 "Monthly gross income" Section 7-110
"Lender" Section 7-111
As added by P.L.38-2002, SEC.1. Amended by P.L.2-2005, SEC.61;P.L.10-2006, SEC.12 and P.L.57-2006, SEC.12.
IC 24-4.5-7-104
Small loan
Sec. 104. (1) .Small loan. means a loan:
(a) with a principal loan amount that is at least fifty dollars($50) and not more than five hundred fifty dollars ($550); and
(b) in which the lender holds the borrower's check or receivesthe borrower's written authorization to debit the borrower'saccount under an agreement, either express or implied, for aspecific period before the lender:
(i) offers the check for deposit or presentment; or
(ii) exercises the authorization to debit the borrower'saccount.
(2) The amount of five hundred fifty dollars ($550) in subsection(1)(a) is subject to change under the provisions on adjustment ofdollar amounts (IC 24-4.5-1-106). However, notwithstandingIC 24-4.5-1-106(1), the Reference Base Index to be used under thissubsection is the Index for October 2006.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.17;P.L.213-2007, SEC.22; P.L.217-2007, SEC.21.
IC 24-4.5-7-105
Principal
Sec. 105. "Principal" means the total of:
(a) the net amount paid to, receivable by, or paid or payablefrom the account of the borrower; and
(b) to the extent that the payment is deferred, the additionalcharges permitted by this chapter that are not included insubdivision (a).
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.18.
IC 24-4.5-7-106
Check
Sec. 106. For purposes of this chapter, "check" has the meaningset forth in IC 26-1-3.1-104.
As added by P.L.38-2002, SEC.1.
IC 24-4.5-7-107
Renewal
Sec. 107. "Renewal" refers to a small loan that takes the place ofan existing small loan by:
(a) renewing;
(b) repaying;
(c) refinancing; or
(d) consolidating;
a small loan with the proceeds of another small loan made to the
same borrower by a lender.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.19.
IC 24-4.5-7-108
Consecutive small loan
Sec. 108. "Consecutive small loan" means a new small loanagreement that the lender enters with the same borrower not laterthan seven (7) calendar days after a previous small loan made to thatborrower is paid in full.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.20.
IC 24-4.5-7-109
Paid in full
Sec. 109. "Paid in full" means the termination of a small loanthrough:
(1) the presentment of the borrower's check for payment by thedrawee bank or the exercise by the lender of an authorization todebit an account of the borrower; or
(2) the return of a check to a borrower who redeems it forconsideration.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.21;P.L.10-2006, SEC.13 and P.L.57-2006, SEC.13.
IC 24-4.5-7-110
Monthly gross income
Sec. 110. "Monthly gross income" means the income received bythe borrower in the thirty (30) day period preceding the borrower'sapplication for a small loan under this chapter and exclusive of anyincome other than regular gross pay received, or as otherwisedetermined by the department.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.22.
IC 24-4.5-7-111
Lender
Sec. 111. "Lender" means a person licensed by the department offinancial institutions under this chapter to engage in small loans.
As added by P.L.10-2006, SEC.14 and P.L.57-2006, SEC.14.
IC 24-4.5-7-112
Lender not considered a financial institution
Sec. 112. A lender is not considered a financial institution, exceptfor purposes of IC 28-1.
As added by P.L.10-2006, SEC.15 and P.L.57-2006, SEC.15.
IC 24-4.5-7-201
Finance charges
Sec. 201. (1) Finance charges on the first two hundred fifty dollars($250) of a small loan are limited to fifteen percent (15%) of theprincipal.
(2) Finance charges on the amount of a small loan greater than
two hundred fifty dollars ($250) and less than or equal to fourhundred dollars ($400) are limited to thirteen percent (13%) of theamount over two hundred fifty dollars ($250) and less than or equalto four hundred dollars ($400).
(3) Finance charges on the amount of the small loan greater thanfour hundred dollars ($400) and less than or equal to five hundredfifty dollars ($550) are limited to ten percent (10%) of the amountover four hundred dollars ($400) and less than or equal to fivehundred fifty dollars ($550).
(4) The amount of five hundred fifty dollars ($550) in subsection(3) is subject to change under the provisions on adjustment of dollaramounts (IC 24-4.5-1-106). However, notwithstandingIC 24-4.5-1-106(1), the Reference Base Index to be used under thissubsection is the Index for October 2006.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.23;P.L.141-2005, SEC.3; P.L.213-2007, SEC.23; P.L.217-2007,SEC.22.
IC 24-4.5-7-202
Fee for dishonored check or debit authorization
Sec. 202. (1) Notwithstanding any other law, the only fee that maybe contracted for and received by the lender or an assignee on a smallloan is a charge, not to exceed twenty-five dollars ($25), for each:
(a) return by a bank or other depository institution of a:
(i) dishonored check;
(ii) negotiable order of withdrawal; or
(iii) share draft;
issued by the borrower; or
(b) time an authorization to debit the borrower's account isdishonored.
This additional charge may be assessed one (1) time regardless ofhow many times a check or an authorization to debit the borrower'saccount may be submitted by the lender and dishonored.
(2) A lender may:
(a) present a borrower's check for payment; or
(b) exercise a borrower's authorization to debit the borrower'saccount;
not more than three (3) times.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.24;P.L.213-2007, SEC.24; P.L.217-2007, SEC.23; P.L.90-2008,SEC.14.
IC 24-4.5-7-301
Disclosures; informational brochure
Sec. 301. (1) For purposes of this section, the lender shall discloseto the borrower to whom credit is extended with respect to a smallloan the information required by the Federal Consumer CreditProtection Act.
(2) In addition to the requirements of subsection (1), the lendermust conspicuously display in bold type a notice to the public both
in the lending area of each business location and in the loandocuments the following statement:
"WARNING: A small loan is not intended to meet long termfinancial needs. A small loan should be used only to meet shortterm cash needs. The cost of your small loan may be higher thanloans offered by other lending institutions. Small loans areregulated by the State of Indiana Department of FinancialInstitutions.
A borrower may rescind a small loan without cost by paying thecash amount of the principal of the small loan to the lender notlater than the end of the business day immediately following theday on which the small loan was made.".
(3) The statement required in subsection (2) must be in:
(a) 14 point bold face type in the loan documents; and
(b) not less than one (1) inch bold print in the lending area ofthe business location.
(4) When a borrower enters into a small loan, the lender shallprovide the borrower with a pamphlet approved by the departmentthat describes:
(a) the availability of debt management and credit counselingservices; and
(b) the borrower's rights and responsibilities in the transaction.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.25;P.L.35-2010, SEC.83.
IC 24-4.5-7-401
Term of loan; consecutive small loans; extended payment plans
Sec. 401. (1) A small loan may not be made for a term of less thanfourteen (14) days.
(2) If five (5) consecutive small loans have been made to aborrower after the borrower's initial small loan, another small loanmay not be made to that borrower within seven (7) days after thefifth consecutive small loan is paid in full. After the borrower's fifthconsecutive small loan, the balance must be paid in full.
(3) Subject to subsection (4), whenever a borrower has enteredinto an initial small loan followed by three (3) consecutive smallloans, the lender shall offer the borrower the option to repay:
(a) the third consecutive small loan; and
(b) subject to subsection (2), any small loan entered into afterthe third consecutive small loan;
under an extended payment plan. At the time of execution of a smallloan described in subdivision (a) or (b), the lender shall disclose tothe borrower the extended payment plan option by providing theborrower a written description of the extended payment plan optionin a separate disclosure document approved by the director.
(4) A lender shall offer an extended payment plan undersubsection (3) under the following terms and conditions:
(a) A borrower shall be permitted to request an extendedpayment plan at any time during the term of a third orsubsequent consecutive small loan if the borrower has not
defaulted on the outstanding small loan.
(b) An extended payment plan must allow the outstanding smallloan to be paid in at least four (4) equal installments over aperiod of not less than sixty (60) days.
(c) The lender may not assess any fee or charge on a borrowerfor entering into an extended payment plan.
(d) An agreement for an extended payment plan must be inwriting and acknowledged by both the borrower and the lender.
(e) A borrower may not enter into another small loantransaction while engaged in an extended payment plan.
(5) An agreement for an extended payment plan under subsection(3):
(a) shall be considered an extension of the outstanding smallloan; and
(b) may not be considered a new loan.
As added by P.L.38-2002, SEC.1. Amended by P.L.258-2003, SEC.2;P.L.73-2004, SEC.26; P.L.10-2006, SEC.16 and P.L.57-2006,SEC.16; P.L.213-2007, SEC.25; P.L.217-2007, SEC.24.
IC 24-4.5-7-402
Limits based on borrower's income; payments; loan documents;rescission; renewals prohibited
Sec. 402. (1) A lender is prohibited from making a small loan toa borrower if the total of:
(a) the principal amount and finance charges of the small loanto be issued; plus
(b) any other small loan balances that the borrower hasoutstanding with any lender;
exceeds twenty percent (20%) of the borrower's monthly grossincome.
(2) A small loan may be secured by only one (1) check orauthorization to debit the borrower's account per small loan. Thecheck or electronic debit may not exceed the amount advanced to oron behalf of the borrower plus loan finance charges contracted forand permitted.
(3) A borrower may make partial payments in any amount on thesmall loan without charge at any time before the due date of thesmall loan. After each payment is made on a small loan, whether thepayment is in part or in full, the lender shall give a signed and datedreceipt to the borrower making a payment showing the amount paidand the balance due on the small loan.
(4) The lender shall provide to each borrower a copy of therequired loan documents before the disbursement of the loanproceeds.
(5) A borrower may rescind a small loan without cost by payingthe cash amount of the principal of the small loan to the lender notlater than the end of the business day immediately following the dayon which the small loan was made.
(6) A lender shall not enter into a renewal with a borrower. If aloan is paid in full, a subsequent loan is not a renewal.As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.27;P.L.213-2007, SEC.26; P.L.217-2007, SEC.25; P.L.35-2010,SEC.84.
IC 24-4.5-7-403
Security for loan
Sec. 403. A small loan may not be secured by personal propertyother than a check or electronic debit.
As added by P.L.38-2002, SEC.1.
IC 24-4.5-7-404
Limits and number and amounts of outstanding loans; lender'sverification; third party data base; civil penalties; excess financecharges; verification of Social Security number
Sec. 404. (1) As used in this section, .commercially reasonablemethod of verification. means a private consumer credit reportingservice that the department determines to be capable of providing alender with adequate verification information necessary to ensurecompliance with subsection (4).
(2) With respect to a small loan, no lender may permit a person tobecome obligated under more than one (1) loan agreement with thelender at any time.
(3) A lender shall not make a small loan that, when combined withthe outstanding balance on another outstanding small loan owed toanother lender, exceeds a total of five hundred fifty dollars ($550),excluding finance charges. A lender shall not make a small loan toa borrower who has two (2) or more small loans outstanding,regardless of the total value of the small loans. The amount of fivehundred fifty dollars ($550) in this subsection is subject to changeunder the provisions on adjustment of dollar amounts (IC24-4.5-1-106). However, notwithstanding IC 24-4.5-1-106(1), theReference Base Index to be used under this subsection is the Indexfor October 2006.
(4) A lender complies with subsection (3) if the lenderindependently verifies the total number of outstanding small loansand the total outstanding balance of those small loans for a customerthrough a commercially reasonable method of verification. A lender'smethod of verifying whether a borrower has any outstanding smallloans and the total outstanding balance of any loans will beconsidered commercially reasonable if the method includes a manualinvestigation or an electronic query of:
(a) the lender's own records, including both records maintainedat the location where the borrower is applying for thetransaction and records maintained at other locations within thestate that are owned and operated by the lender; and
(b) an available third party data base provided by a privateconsumer reporting service, subject to the identificationverification requirements set forth in subsection (12).
(5) The department shall monitor the effectiveness of privateconsumer credit reporting services in providing the verification
information required under subsection (4). If the departmentdetermines that a commercially reasonable method of verification isavailable, the department shall:
(a) provide reasonable notice to all lenders identifying thecommercially reasonable method of verification that isavailable; and
(b) require each lender to use, consistent with the policies of thedepartment, the identified commercially reasonable method ofverification as a means of complying with subsection (4).
(6) If a borrower presents evidence to a lender that a loan has beendischarged in bankruptcy, the lender shall cause the record of theborrower's loan to be updated in the data base described insubsection (4)(b) to reflect the bankruptcy discharge.
(7) A lender shall cause the record of a borrower's loan to beupdated in the data base described in subsection (4)(b) to reflect:
(a) presentment of the borrower's check for payment; or
(b) exercise of the borrower's authorization to debit theborrower's account.
If a check is returned or an authorization is dishonored because ofinsufficient funds in the borrower's account, the lender shall reenterthe record of the loan in the data base.
(8) A lender shall update information in a data base described insubsection (4)(b) to reflect partial payments made on an outstandingloan, the record of which is maintained in the data base.
(9) If a lender ceases doing business in Indiana, the director mayrequire the operator of the data base described in subsection (4)(b)to remove records of the lender's loans from the operator's data base.
(10) The director may impose a civil penalty not to exceed onehundred dollars ($100) for each violation of:
(a) this section; or
(b) any rule or policy adopted by the director to implement thissection.
(11) The excess amount of loan finance charge provided for inagreements in violation of this section is an excess charge forpurposes of the provisions concerning effect of violations on rightsof parties (IC 24-4.5-5-202) and the provisions concerning civilactions by the department (IC 24-4.5-6-113).
(12) If a borrower provides the borrower's Social Security numberto a lender in connection with any transaction or proposedtransaction under this chapter, the lender shall:
(a) maintain procedures to verify that the Social Securitynumber provided is legitimate and belongs to the borrower; and
(b) retain copies of any documents used to verify the borrower'sSocial Security number. Documentation under this subdivisionmay be in electronic form and the numbers may be truncated.
If a borrower does not have a Social Security number, the lender mayrequire and accept another valid form of government issuedidentification, subject to the requirements of subdivisions (a) and (b)with respect to the government issued identification accepted.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.28;
P.L.10-2006, SEC.17 and P.L.57-2006, SEC.17; P.L.213-2007,SEC.27; P.L.217-2007, SEC.26; P.L.90-2008, SEC.15; P.L.35-2010,SEC.85.
IC 24-4.5-7-405
Conducting other business
Sec. 405. (1) This section does not apply to a business that islicensed by the department for a purpose other than consumer loans.
(2) A lender shall not conduct the business of making small loansunder this chapter within an office, suite, room, or place of businesswhere another business is solicited or engaged unless the lenderobtains a written opinion from the director of the department that theother business would not be contrary to the best interests ofconsumers.
As added by P.L.38-2002, SEC.1.
IC 24-4.5-7-406
Borrower's default; permissible and prohibited remedies; notice toborrower
Sec. 406. (1) An agreement with respect to a small loan may notprovide for charges as a result of default by the borrower other thanthose specifically authorized by this chapter. A provision in a smallloan agreement in violation of this section is unenforceable.
(2) A lender or an assignee of a small loan may seek only thefollowing remedies upon default by a borrower:
(a) Recovery of:
(i) the contracted principal amount of the loan; and
(ii) the loan finance charge.
(b) Collection of a fee for:
(i) a returned check, negotiable order of withdrawal, or sharedraft; or
(ii) a dishonored authorization to debit the borrower'saccount;
if contracted for under section 202 of this chapter.
(c) Collection of postjudgment interest, if awarded by a court.
(d) Collection of court costs, if awarded by a court.
(3) A lender or an assignee of a small loan may not seek any ofthe following damages or remedies upon default by a borrower:
(a) Payment of the lender's attorney's fees.
(b) Treble damages.
(c) Prejudgment interest.
(d) Damages allowed for dishonored checks under any statuteother than this chapter.
(e) Any damages or remedies not set forth in subsection (2).
(4) A contractual agreement in a small loan transaction mustinclude a notice of the following in 14 point bold type:
(a) The remedies available to a lender or an assignee undersubsection (2).
(b) The remedies and damages that a lender or an assignee isprohibited from seeking in a small loan transaction under
subsection (3).
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.29;P.L.10-2006, SEC.18 and P.L.57-2006, SEC.18; P.L.90-2008,SEC.16.
IC 24-4.5-7-407
Repealed
(Repealed by P.L.73-2004, SEC.48.)
IC 24-4.5-7-408
Repealed
(Repealed by P.L.73-2004, SEC.48.)
IC 24-4.5-7-409
Violations; remedies and damages; equitable relief; exhaustion ofadministrative remedies not required
Sec. 409. (1) This section applies to licensees and unlicensedpersons.
(2) A person who violates this chapter:
(a) is subject to the remedies provided in IC 24-4.5-5-202;
(b) commits a deceptive act under IC 24-5-0.5 and is subject tothe penalties listed in IC 24-5-0.5;
(c) has no right to collect, receive, or retain any principal,interest, or other charges from a small loan; however, thissubdivision does not apply if the violation is the result of anaccident or bona fide error of computation; and
(d) is liable to the borrower for actual damages, statutorydamages of two thousand dollars ($2,000) per violation, costs,and attorney's fees; however, this subdivision does not apply ifthe violation is the result of an accident or bona fide error ofcomputation.
The remedies described in this subsection are in addition to all otherremedies set forth in this article.
(3) The department may sue:
(a) to enjoin any conduct that constitutes or will constitute aviolation of this chapter; and
(b) for other equitable relief.
(4) The remedies provided in this section are cumulative but arenot intended to be the exclusive remedies available to a borrower. Aborrower is not required to exhaust any administrative remediesunder this section or any other applicable law.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.30;P.L.10-2006, SEC.19 and P.L.57-2006, SEC.19; P.L.90-2008,SEC.17.
IC 24-4.5-7-410
Prohibited acts by lender
Sec. 410. A lender making small loans, or an assignee of a smallloan, shall not commit nor cause to be committed any of thefollowing acts: (a) Threatening to use or using the criminal process in any stateto collect on a small loan.
(b) Threatening to take action against a borrower that isprohibited by this chapter.
(c) Making a misleading or deceptive statement regarding asmall loan or a consequence of taking a small loan.
(d) Contracting for or collecting attorney's fees on small loansmade under this chapter.
(e) Altering the date or any other information on a check or anauthorization to debit the borrower's account held as security.
(f) Using a device or agreement that the department determineswould have the effect of charging or collecting more fees,charges, or interest than allowed by this chapter, including, butnot limited to:
(i) entering a different type of transaction with the borrower;
(ii) entering into a sales/leaseback arrangement;
(iii) catalog sales;
(iv) entering into transactions in which a customer receivesa purported cash rebate that is advanced by someoneoffering Internet content services, or some other product orservice, when the cash rebate does not represent a discountor an adjustment of the purchase price for the product orservice; or
(v) entering any other transaction with the borrower that isdesigned to evade the applicability of this chapter.
(g) Engaging in unfair, deceptive, or fraudulent practices in themaking or collecting of a small loan.
(h) Charging to cash a check representing the proceeds of asmall loan.
(i) Except as otherwise provided in this chapter:
(i) accepting the proceeds of a new small loan as payment ofan existing small loan provided by the same lender; or
(ii) renewing, refinancing, or consolidating a small loan withthe proceeds of another small loan made by the same lender.
(j) Including any of the following provisions in a loandocument:
(i) A hold harmless clause.
(ii) A confession of judgment clause.
(iii) A mandatory arbitration clause, unless the terms andconditions of the arbitration have been approved by thedirector of the department.
(iv) An assignment of or order for payment of wages or othercompensation for services.
(v) A provision in which the borrower agrees not to assert aclaim or defense arising out of contract.
(vi) A waiver of any provision of this chapter.
(k) Selling insurance of any kind in connection with the makingor collecting of a small loan.
(l) Entering into a renewal with a borrower.
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.31;
P.L.10-2006, SEC.20 and P.L.57-2006, SEC.20; P.L.90-2008,SEC.18.
IC 24-4.5-7-411
Exemption of finance charges
Sec. 411. Finance charges made in compliance with this chapterare exempt from IC 24-4.5-3-508 and IC 35-45-7.
As added by P.L.38-2002, SEC.1.
IC 24-4.5-7-412
Endorsement of check
Sec. 412. Upon the receipt of a check from a borrower for a smallloan, unless the check is marked as void at the time of acceptance bythe lender, the lender shall immediately stamp the back of the checkwith an endorsement that states:
"This check is being negotiated as part of a small loan underIC 24-4.5, and any holder of this check takes it subject to theclaims and defenses of the maker.".
As added by P.L.38-2002, SEC.1. Amended by P.L.73-2004, SEC.32;P.L.35-2010, SEC.86.
IC 24-4.5-7-413
Bond requirement
Sec. 413. (1) A person engaged in making small loans under thischapter shall post a bond to the department in the amount of fiftythousand dollars ($50,000) for each location where small loans willbe made, up to a maximum bond in an amount determined by thedepartment.
(2) A bond posted under subsection (1) must continue in effect fortwo (2) years after the lender ceases operation in Indiana. The bondmust be available to pay damages and penalties to a consumerharmed by a violation of this chapter.
As added by P.L.38-2002, SEC.1. Amended by P.L.258-2003, SEC.3;P.L.35-2010, SEC.87.
IC 24-4.5-7-414
Rulemaking authority
Sec. 414. The department may adopt rules under IC 4-22-2 toimplement this chapter.
As added by P.L.38-2002, SEC.1.