ASSEMBLY, No. 2139

 

STATE OF NEW JERSEY

 

INTRODUCED JUNE 10, 1996

 

 

By Assemblyman GARCIA

 

 

An Act concerning revolving credit and amending various parts of statutory law.

 

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

    1. Section 5 of P.L.1985, c.81 (C.17:3B-8) is amended to read as follows:

    5. If the agreement governing the revolving credit plan [so] provides[,]that the periodic percentage rates of interest under the plan may increase or decrease , the increase or decrease shall take place only in correspondence with the movement of the market interest rate index specified in the revolving credit plan agreement, which index shall be readily verifiable by the borrower and beyond the control of the lender. Periodic percentage rate increases, based on a rise in the interest rate index, may be made at the option of the lender. Periodic percentage rate decreases shall be made whenever there is a decrease in the interest rate index which results in an interest rate which is less than the interest rate then applicable to the note or loan, except that the revolving credit plan agreement may stipulate a percentage decrease in the interest rate index below which a corresponding decrease in the periodic percentage rate need not be made by the lender, provided that the index decrement shall be the same as the index increment used for interest rate increases. Interest rate increases may, and interest rate decreases shall, apply to all outstanding unpaid indebtedness under the plan on or after the effective date of the rate variation, as provided in the plan agreement.

(cf: P.L.1985, c.81, s.5)

 

    2. Section 12 of P.L.1985, c.81 (C.17:3B-15) is amended to read as follows:

    12. a. A lender may, if the agreement governing a revolving credit plan so provides, at any time amend the terms of the agreement [with respect to the periodic percentage rates used to calculate interest, the method of computing the outstanding unpaid indebtedness to which those rates are applied, and the terms of the installment repayment schedule,]subject to the limitations of subsection b. of this section.

    b. The lender shall notify each affected borrower of any amendment pursuant to subsection a. by mailing or delivering to the borrower, at least [30] 15 days before the effective date of the amendment, a clear and conspicuous written notice which shall describe the amendment and the existing terms of the agreement affected by the amendment and shall also set forth the effective date of the amendment and the pertinent information contemplated by the following provisions of this section. If the amendment has the effect of increasing the interest or other charges to be paid by the borrower [by changing the method of calculating interest] or changes the index used to calculate the interest, the amendment shall become effective only if the borrower uses the plan after a date specified in the notice which is at least [30] 15 days after the giving of the notice, but which need not be the date the amendment becomes effective, by making a purchase or obtaining a loan, or if the borrower indicates to the lender in writing the borrower's express agreement to the amendment, and the amendment may become effective as to a particular borrower as of the first day of the billing period during which the borrower so used the borrower's account or so indicated agreement to the amendment. Any borrower who fails to use the borrower's account or so to indicate agreement to an amendment shall be permitted to pay the outstanding unpaid indebtedness in the borrower's account under the plan in accordance with the terms of the agreement governing the plan at the time of the giving of the notice without giving effect to the amendment.

    For purposes of this section: (1) a variation in periodic percentage rates of interest in accordance with the terms of the index established in the revolving credit plan agreement and notice provided pursuant to section 25 of P.L.1985, c.81 (C.17:3B-28) shall not be considered to be an amendment; and (2) if a borrower accepts a revolving credit plan which provides for an initial introductory indexed periodic percentage rate of interest which, at a later date specified in the plan, is followed by a percentage rate of interest established pursuant to the requirements of section 5 of P.L.1985, c.81 (C.17:3B-5) either using the same index with a different margin or using a different index, the change from the introductory rate to the agreed upon subsequent rate shall not be considered an amendment.

(cf: P.L.1985, c.81, s.12)

 

    3. Section 6 of P.L.1959, c.91 (C.17:9A-59.6) is amended to read as follows:

    6. A. Notwithstanding the provisions of R.S.31:1-1 or any other law to the contrary, the rate or rates of interest on advance loans shall be as agreed to by the bank and the borrower. Interest may be reckoned according to any method authorized by R.S.31:1-1.

    The contract may provide that [the interest rate may be increased, or may be decreased, or both, from time to time; provided, however, that no increase in interest shall be effective unless: (a) at least 90 days prior to the effective date of the first such increase, or 30 days prior to the effective date of any subsequent increase, a written notice has been mailed or delivered to the borrower that clearly and conspicuously describes such change and the indebtedness to which it applies and 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 the increase specified in the notice shall constitute acceptance of the increase and (b) either the borrower agrees in writing to the increase or the borrower or another person authorized by him incurs such further indebtedness on or after the effective date of the increase stated in the notice.] the bank may at any time, or from time to time, change the terms of the contract, provided however, that:

    (1) the periodic interest rate shall not be changed more than once in each billing cycle;

    (2) any change in the periodic interest rate shall correspond to the movement of a market interest rate index specified in the contract which is readily verifiable by the borrower and beyond the control of the bank;

    (3) a change in any term of the contract including the periodic interest rate may be permitted to apply to any then-outstanding unpaid indebtedness in the borrower's account including any indebtedness which shall have arisen from advance loans obtained prior to the effective date of the change, provided that fact is clearly and conspicuously disclosed in the contract;

    (4) if the contract provides for the possibility of change in any term of the contract including the interest rate, that fact shall be clearly described in plain language, in at least 8-point bold face type on the face of the written notice;

    (5) no change in any term of the contract or of the index specified in the contract shall be effective unless: (a) at least 15 days prior to the effective date of the change, a written notice has been mailed or delivered to the borrower that clearly and conspicuously describes the change and the indebtedness to which it applies and states that the incurrence by the borrower or another person authorized by him of any further indebtedness under the law to which the contract relates on or after the effective date of the change specified in the notice shall constitute acceptance of the change; and (b) either the borrower agrees in writing to the 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, which indebtedness may include outstanding balances; and

    (6) any borrower who, after receipt of a written notice pursuant to paragraph (5) of this subsection A., chooses not to use the borrower's account or chooses not to indicate acceptance of a change in any term of the contract or of the index specified in the contract, shall be permitted to pay any outstanding unpaid indebtedness in the borrower's account under the plan in accordance with the terms of the contract governing the plan at the time the notice was sent without giving effect to the change.

    If a borrower accepts an advance loan contract which provides for an initial introductory indexed interest rate which, at a later date specified in the contract, is followed by an interest rate established pursuant to the requirements of this subsection either using the same index with a different margin or using a different index, the provisions of paragraph (6) of this subsection shall not apply with respect to the the change from the introductory indexed interest rate to the agreed upon subsequent interest rate.

    The provisions of this [paragraph] subsection 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. If the contract provides for the possibility of an increase or decrease, or both, in the rate, that fact shall be clearly described in plain language, in at least 8-point boldface type on the face of the contract.

    B. For the purposes of this section, charges for premiums advanced by the bank for credit life insurance, or credit accident and health insurance, or both, shall be treated as part of the principal balance owing on an advance loan, but no such charge shall be included in determining the maximum permissible indebtedness as limited by section 11 of [this act] P.L.1959, c.91 (C.17:9A-59.11).

    C. Notwithstanding the provisions of any other law to the contrary, a bank which issues a credit card in connection with an advance loan contract in effect between the bank and the borrower as authorized by this act may charge the borrower a fee not exceeding $15.00 per annum on an annual or monthly basis; except that, if under the advance loan contract, the bank may lend the borrower an amount of $5,000.00 or more, the bank may charge the borrower a fee not exceeding $50.00 per annum on an annual or monthly basis. The charge so made (1) may be collected in advance, (2) shall be in addition to and not in substitution of any other fee or charge authorized by this act, and (3) shall not be deemed to be an interest charge.

(cf: P.L.1984, c.225, s.1)

 

    4. R.S.17:10-14 is amended to read as follows:

    17:10-14. a. Notwithstanding the provisions of R.S.31:1-1 or any other law to the contrary, every licensee hereunder may loan any sum of money not exceeding $15,000 repayable in installments, and may charge, contract for and receive thereon interest at an annual percentage rate or rates agreed to by the licensee and the borrower.

    b. A closed-end loan contract may provide for a variation in the rate of interest in which adjustments to the interest rate shall correspond directly to the movement of an interest rate index which is readily available to and verifiable by the borrower and is beyond the control of the lender. No increase during the entire loan term shall result in an interest rate of more than 6% per annum over the rate applicable initially, nor shall the rate be raised more than 3% per annum during any 12-month period. The lender shall not be obligated to decrease the interest rate more than 6% over the term of the loan, nor more than 3% per annum during any 12-month period. If a rate increase is applied to the loan, the lender shall also be obligated to adopt and implement uniform standards for decreasing the rate. If the contract provides for the possibility of an increase or decrease, or both, in the rate, that fact shall be clearly described in plain language, in at least 8-point bold face type on the face of the contract. No rate increase shall take effect during the first three years of the term of the loan, or thereafter,[(a)](1) unless at least 90 days prior to the effective date of the first such increase, or 30 days prior to the effective date of any subsequent increase, a written notice has been mailed or delivered to the borrower that clearly and conspicuously describes such increase, and[(b)](2) unless at least 365 days have elapsed without any increase in the rate. No increase during the entire loan shall result in an interest rate of more than 6% per annum over the rate applicable initially, nor shall the rate be raised more than 3% per annum during any 12-month period. Where the loan contract so provides for an increase or decrease in the rate of interest, the provision of R.S.17:10-13 requiring that no installment be substantially greater in amount than any preceding installment shall not apply.

    c. An open-end loan agreement may provide that the lender may at any time, or from time to time, change the terms of the agreement, including the terms governing the periodic interest rate, calculation of interest or the method of computing the required amount of periodic installment payments, provided however, that:

    [a.](1) the periodic interest rate shall not be changed more than once in each billing cycle;

    [b.](2) any change in the periodic interest rate shall correspond to the movement of a market interest rate index specified in the agreement which is readily verifiable by the borrower and beyond the control of the lender;

    [c.](3) a change in any term of the agreement, including the periodic interest rate, may be permitted to apply to any then-outstanding unpaid indebtedness in the borrower's account including any indebtedness which shall have arisen from advances obtained prior to the effective date of the change, provided that fact is clearly and conspicuously disclosed in the agreement;

    [d.](4) if the agreement provides for the possibility of change in any term of the agreement including the rate, that fact shall be clearly described in plain language, in at least 8-point bold face type on the face of the written notice; [and]

    [e.](5) no change in any term of the agreement or of the index specified in the agreement shall be effective unless:[(1)](a) at least [30] 15 days prior to the effective date of the change, a written notice has been mailed or delivered to the borrower that clearly and conspicuously describes the change and the indebtedness to which it applies and states that the incurrence by the borrower or another person authorized by him of any further indebtedness under the law to which the agreement relates on or after the effective date of the change specified in the notice shall constitute acceptance of the change; and[(2)](b) either the borrower agrees in writing to the 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 such notice, which indebtedness may include outstanding balances; and

    (6) any borrower who, after receipt of a written notice pursuant to paragraph (5) of this subsection c., chooses not to use the borrower's account or chooses not to indicate acceptance of a change in any term of the agreement or of the index specified in the agreement, shall be permitted to pay any outstanding unpaid indebtedness in the borrower's account under the plan in accordance with the terms of the agreement governing the plan at the time the notice was sent without giving effect to the change.

    If a borrower accepts an open-end loan agreement which provides for an initial introductory indexed periodic interest rate which, at a later date specified in the plan, is followed by a periodic interest rate established pursuant to the requirements of this subsection either using the same index with a different margin or using a different index, the provisions of paragraph (6) of this subsection shall not apply with respect to the change from the introductory indexed periodic interest rate to the agreed upon subsequent periodic interest rate.

    d. The lender shall notify each affected borrower of any change in the manner set forth in the closed-end and open-end agreement governing the plan and in compliance with the requirements of the federal Truth in Lending Act (15 U.S.C.§1601 et seq.) and regulations promulgated thereunder, as in effect from time to time, if applicable.

    e. The interest and periodic payments for loans at these rates shall be computed from standard tables based on the actuarial or annuity method which conforms to the so-called "United States Rule of Partial Payments," which provides that interest shall be calculated whenever a payment is made and the payment shall be first applied to the payment of interest and if it exceeds the interest due, the balance is to be applied to diminish principal. If the payment is insufficient to pay the entire amount of interest, the balance of interest due shall not be added to principal, so as to produce interest thereon.

    f. No interest shall be paid, deducted, or received in advance. Interest shall not be compounded and shall be computed only on unpaid principal balances. For the purpose of computing interest, all installment payments shall be applied on the date of receipt, and interest shall be charged for the actual number of days elapsed at the daily rate of 1/365 of the yearly rate.

    g. No licensee shall induce or permit any person nor any husband and wife, jointly or severally, to become obligated, directly or contingently or both, under more than one contract of loan at the same time for the purpose of obtaining a higher rate of interest than would otherwise be permitted by this section. This prohibition shall not apply to any loan made pursuant to any other law of this State.

    h. In addition to the interest herein provided for, no further or other charge, or amount whatsoever for any examination, service, brokerage, commission, expense, fee, or bonus or other thing or otherwise shall be directly or indirectly charged, contracted for, or received, except for any amount actually paid by a licensee to a public official for the recording of a security interest in connection with security given for the loan and (1) amounts for insurance obtained or provided by the licensee in accordance with the provisions of this chapter; (2) on actual sale of the security in foreclosure proceedings or upon the entry of judgment; (3) a returned check fee not to exceed $20 which the licensee may charge the borrower if a check of the borrower is returned to the licensee uncollected due to insufficient funds in the borrower's account; and (4) an annual fee on open-end accounts which may not exceed an amount equal to one percent of the line of credit or $50, whichever is less. If any interest, consideration or charges in excess of those permitted by this chapter are charged, contracted for or received, except as the result of a good faith error, the contract of loan shall be void and the licensee shall have no right to collect or receive any principal, interest, or charges whatsoever, and the borrower shall be entitled to recover from the lender any such sums paid or returned to the lender by the borrower on account of or in connection with the loan.

(cf: P.L.1995, c.53, s.3)

 

    5. Section 48 of P.L.1963, c.144 (C.17:12B-48) is amended to read as follows:

    48. Specific powers. Without limiting the generality of the foregoing, every association shall have power to:

    (1) Have succession by its corporate name for the period limited in its charter or certificate of incorporation, and when no period is limited, perpetually.

    (2) Sue and be sued in any court.

    (3) Adopt and use a corporate seal and alter the same.

    (4) Purchase and otherwise acquire, hold, mortgage, pledge, lease, exchange, sell, convey and otherwise dispose of any real and personal property, necessary or incidental to its operations and consistent with its powers and purposes.

    (5) Insure its members' accounts with the Federal [Savings and Loan] Deposit Insurance Corporation, and comply with conditions necessary to obtain and maintain such insurance.

    (6) Become a member of or stockholder in a Federal Home Loan Bank and to that end to comply with all conditions of membership therein.

    (7) Act as agent for the United States or the State of New Jersey or any instrumentality of either of them, when designated for that purpose, and perform such reasonable duties as such agent as may be required of it.

    (8) Join any cooperative league organized for the purpose of protecting and promoting the welfare of associations and their members and comply with all conditions of membership therein.

    (9) Borrow money from any source in or out of the State, on the note, bond and mortgage or other obligation of the association upon such terms and conditions as the board may from time to time prescribe by resolution adopted by at least a majority of all the members of the board and duly recorded on the minutes and to pledge, assign or transfer mortgages, owned by the association and the obligations secured by such mortgages, together with the shares, if any, pledged as collateral security therefor, or any real or other personal property, as security for the repayment of money so borrowed. No association shall borrow money if by doing so the aggregate of its indebtedness for borrowed money other than to the Federal Home Loan Bank will exceed 20% of its capital, except with the approval of the commissioner.

    (10) (Deleted by amendment.)

    (11) Require an advance payment of interest for a period of one month on any loan; and accept advance payments of interest, if made at the option of the debtor, for any period on any loan. None of such payments shall be deemed usurious.

    (12) Where shares are issued, charge an admission fee, not to exceed $0.25 per share, which shall include the cost of membership or share certificate and account book.

    (13) Impose charges upon a member for failure to make any payment to the association when due, but only as provided in this paragraph. Where the association issues installment share accounts it may impose such charge upon any member holding such an account or any borrower upon a sinking fund mortgage not in excess of 1% a month upon the amount in arrears, except for the first month's arrearage or the amount by which such first month's arrearage may be increased by subsequent arrearage, in which case a charge not in excess of 5% may be imposed. Such charges shall be subject to the further limitations that no such charge shall be deducted from any amount actually paid by a member upon an account nor shall the total of any such charges against any account in any fiscal year exceed the amount that may be charged for failure to make any payments for a 6-month period nor shall any charge for default be made on a charge for default. Otherwise an association may impose a charge for failure to make any required payment to it when due upon any loan or contract for the resale of real estate to a member, not to exceed 4% of the amount of each payment in arrears, but no more than one such charge may be made with respect to any one payment in arrears. An association may impose a reasonable service charge against any member who tenders to such association, for collection or as payment, a check or other instrument of any type which subsequently is not honored by the institution or person upon which such check or other instrument is drawn. None of such charges shall be deemed usurious.

    (14) Compute interest upon any direct reduction loan, on designated payment dates, and add the same to the unpaid balance of such loan.

    (15) Act as agent for any person where such agency will further the interests of the association and its members, subject to such limitations as may be prescribed by the commissioner.

    (16) Upon application to and approval by the commissioner, to act as custodian or trustee within the contemplation of the Federal Self-Employed Individuals Tax Retirement Act of 1962, as amended and supplemented, and the [Employee Retirement Income Security Act of 1974] federal "Employee Retirement Income Security Act of 1974," 29 U.S.C.§1001 et seq., as amended and supplemented, and as custodian, trustee or manager of any such investment fund the authorized investments of which include, but need not be limited to, savings accounts or real estate loans, and the beneficial interests in which may be represented by transferable shares or certificates. Associations exercising the powers authorized by this subsection shall segregate all funds held in such fiduciary capacities from the general assets of the association and shall keep a separate set of books and records showing in detail all transactions made under authority of this subsection. If individual records are kept for each self-employed individual's retirement plan and each such investment fund, then all such funds held in such fiduciary capacities by an association may be commingled for appropriate purposes of investment. No funds held in such fiduciary capacities shall be used by an association in the conduct of its business; however, such funds may be invested in savings accounts of the association in the event that the custodial, trust or other plan does not prohibit such investment. In granting or refusing the association's application the commissioner shall take into consideration the investment policies, amount, type and adequacy of reserves, fidelity bonds and any legally required deposits of the applicant and other pertinent facts and circumstances.

    (17) Upon compliance with subsection (5) of this section, accept from its members accounts to be repaid upon such terms, not inconsistent with this act, as are approved by the Commissioner of Banking, by regulation or otherwise, provided that no account shall exceed the limitations established by section 78 of P.L.1963, c.144 (C.17:12B-78), and provided further that no account shall be accepted or issued in the name of any corporation, association or partnership or in the name of any individual for use in trade or business. An association issuing such accounts may honor demands for withdrawal of such accounts in the form of negotiable checks, drafts or orders in the form of electronic fund transfers and may become a member of a clearing facility and satisfy reasonable conditions required for its qualification and pay reasonable expenses therefor. Such accounts may be either interest-bearing or noninterest-bearing; provided, however, that the payment of interest on such accounts be permitted by federal law. An association accepting accounts pursuant to this subsection shall, at all times, maintain reserves against such accounts as shall be prescribed in regulations issued by the commissioner in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) but such reserves shall be equal in nature and amount to those required of savings banks in this State against similar accounts. Such reserves shall be maintained in cash or deposits in one or more reserve depositories as authorized by the Commissioner of Banking. Regulations of the commissioner may also provide that associations issuing such type of accounts maintain a general reserve account, federal insurance reserve account and undivided profits of specified minimum amounts and provide for minimum standards of office facilities in connection therewith. An insured association may impose a reasonable service charge for providing and maintaining such accounts for the benefit of its members.

    (18) (a) Issue credit cards, extend credit in connection therewith, and otherwise engage in or participate in credit card operations subject to such regulations as the commissioner may prescribe. Any such regulations shall be in substantial conformity with similar rules and regulations of the [Federal Home Loan Bank Board] Office of Thrift Supervision subject to the limitations of paragraph (b) of this subsection.

    (b) The credit card agreement may provide that the association may at any time, or from time to time, change the terms of the agreement, including the terms governing the periodic interest rate, calculation of interest or the method of computing the required amount of periodic installment payments, provided however, that:

    (i) the periodic interest rate shall not be changed more than once in each billing cycle;

    (ii) any change in the periodic interest rate shall correspond to the movement of a market interest rate index specified in the contract which is readily verifiable by the borrower and beyond the control of the association;

    (iii) a change in any term of the contract including the periodic interest rate may be permitted to apply to any then-outstanding unpaid indebtedness in the borrower's account including any indebtedness which shall have arisen from advance loans obtained prior to the effective date of the change, provided that fact is clearly and conspicuously disclosed in the contract;

    (iv) if the contract provides for the possibility of change in any term of the contract including the rate, that fact shall be clearly described in plain language, in at least 8-point bold face type on the face of the written notice;

    (v) no change in any term of the contract or of the index specified in the contract shall be effective unless: at least 15 days prior to the effective date of the change, a written notice has been mailed or delivered to the borrower that clearly and conspicuously describes the change and the indebtedness to which it applies and states that the incurrence by the borrower or another person authorized by him of any further indebtedness under the law to which the contract relates on or after the effective date of the change specified in the notice shall constitute acceptance of the change; and either the borrower agrees in writing to the 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 such notice, which indebtedness may include outstanding balances; and

    (vi) any borrower who, after receipt of a written notice pursuant to subparagraph (v) of this paragraph (b), chooses not to use the borrower's account or chooses not to indicate acceptance of a change in any term of the contract or of the index specified in the contract, shall be permitted to pay any outstanding unpaid indebtedness in the borrower's account under the plan in accordance with the terms of the contract governing the plan at the time the notice was sent without giving effect to the change.

    If a borrower accepts a revolving credit plan which provides for an initial introductory indexed interest rate which, at a later date specified in the plan, is followed by an interest rate established pursuant to the requirements of this paragraph (b) either using the same index with a different margin or using a different index, the provisions of subparagraph (vi) of this paragraph shall not apply with respect to the change from the introductory indexed interest rate to the agreed upon subsequent interest rate.

    (19) (a) Apply to the commissioner for permission to act as trustee, executor, administrator, guardian, or in any other fiduciary capacity in which federal savings and loan associations doing business in this State are permitted to act. Associations exercising any or all of the powers enumerated in this [section] subsection shall segregate all assets held in any fiduciary capacity from the general assets of the association and shall keep a separate set of books and records showing in proper detail all transactions engaged in under authority of this [section] subsection. No association shall receive in its trust department deposits of current funds subject to check or the deposit of checks, drafts, bills of exchange, or other items for collection or exchange purposes. Funds deposited or held in trust by the association awaiting investment shall be carried in a separate account and shall not be used by the association in the conduct of its business unless it shall first set aside in the trust department United States bonds or other securities approved by the commissioner. In the event of the failure of such association, the owners of the funds held in trust for investment shall have a lien on the bonds or other securities so set apart, in addition to their claim against the estate of the association. Whenever the laws of this State require corporations acting in a fiduciary capacity to deposit securities with the State authorities for the protection of private or court trusts, associations so acting shall be required to make similar deposits and securities so deposited shall be held for the protection of private or court trusts, as provided by New Jersey law. Associations in such cases shall not be required to execute the bond usually required of individuals if New Jersey corporations under similar circumstances are exempt from this requirement. Associations shall have power to execute such bond when so required by the laws of New Jersey. In any case in which the laws of this State require that a corporation acting as trustee, executor, administrator, or in any capacity specified in this [section] subsection shall take an oath or make an affidavit, any officer, as defined in section 65 of P.L.1963, c.144 (C.17:12B-65), of such association may take the necessary oath or execute the necessary affidavit. It shall be unlawful for any association to lend any officer, director, or employee any funds held in trust under the powers conferred by this [section] subsection. Any officer, director, or employee making such loan, or to whom such loan is made, may be fined not more than $5,000.00, or imprisoned not more than 5 years, or may be both fined and imprisoned, in the discretion of the court. In passing upon applications for permission to exercise the powers enumerated in this [section] subsection, the commissioner may take into consideration the amount of capital and surplus of the applying association, whether or not such capital and surplus is sufficient under the circumstances of the case, the needs of the community to be served, and any other facts and circumstances that seem to him proper, and may grant or refuse the application accordingly, except that approval shall not be granted to any association having a capital and surplus less than the capital and surplus required by New Jersey law of State banks, trust companies, and corporations exercising such powers.

    (b) Any association desiring to surrender its right to exercise the powers granted under this [section] subsection, in order to relieve itself of the necessity of complying with the requirements of this [section] subsection, or to have returned to it any securities which it may have deposited with the State authorities for the protection of private or court trusts, or for any other purpose, may file with the commissioner a certified copy of a resolution of its board of directors signifying such desire. Upon receipt of such resolution, the commissioner, after satisfying himself that such association has been relieved in accordance with State law of all duties as trustee, executor, administrator, guardian or other fiduciary, under court, private or other appointments previously accepted under authority of this [section] subsection, may, in its discretion, issue to such association a certificate certifying that such association is no longer authorized to exercise the powers granted by this [section] subsection. Upon the issuance of such a certificate by the commissioner, such association (i) shall no longer be subject to the provisions of this [section] subsection or the regulations of the commissioner made pursuant thereto, (ii) shall be entitled to have returned to it any securities which it may have deposited with the State authorities for the protection of private or court trusts, and (iii) shall not exercise thereafter any of the powers granted by this [section] subsection without first applying for and obtaining approval to exercise such powers pursuant to the provisions of this [section] subsection.

    (c) The commissioner is authorized and empowered to promulgate such regulations as he may deem necessary to enforce compliance with the provisions of this [section] subsection and the proper exercise of the trust powers granted by this [section] subsection. Any such regulations shall be in substantial conformity with similar rules and regulations of the Federal [Home Loan Bank] Housing Finance Board.

    (20) In accordance with rules and regulations promulgated by the commissioner, issue and sell directly to subscribers or through underwriters mutual capital certificates. Such certificates shall constitute part of the general reserve and net worth of the issuing association. Such certificates-

    (a) Shall be subordinate to all savings accounts, savings certificates, and debt obligations;

    (b) Shall constitute a claim in liquidation on the general reserves, surplus, and undivided profits of the association remaining after the payment in full of all savings accounts, savings certificates, and debt obligations;

    (c) Shall be entitled to the payment of dividends; and

    (d) May have a fixed or variable dividend rate.

The commissioner is authorized and empowered to promulgate such regulations as he may deem necessary with respect to the powers granted by this [section] subsection. Any such regulations shall be in substantial conformity with similar rules and regulations of the Federal [Home Loan Bank] Housing Finance Board. The commissioner shall provide in his regulations for charging losses to the mutual capital certificates, reserves, and other net worth accounts.

    (21) If authorized by regulation of the commissioner, exercise any power, right, benefit, or privilege permitted to federal associations, provided that such power, right, benefit or privilege is not specifically prohibited by law, which regulation shall be in substantial conformity with similar rules and regulations of the Federal [Home Loan Bank] Housing Finance Board; and exercise any power, right, benefit or privilege under this section, modified by regulation of the commissioner, where the Federal [Home Loan Bank] Housing Finance Board has, by regulation, modified that power, right, benefit or privilege with respect to federal associations.

(cf: P.L.1983, c.5, s.1)

 

    6. Section 26 of P.L.1984, c.171 (C.17:13-104) is amended to read as follows:

    26. a. A credit union may make loans to its members, evidenced by a written instrument, upon terms and upon any security, including, but not limited to, the endorsement of a note by a surety, comaker, or guarantor, assignment of an interest in real or personal property, or assignment of shares, as the board may provide. The adequacy of any security shall be determined by the credit committee. No loan shall be made to any member when the aggregate amount of all that member's loans outstanding exceeds 10% of the credit union's total assets. The board, in its discretion, may fix a lower amount.

    b. Notwithstanding the provisions of R.S.31:1-1 to the contrary, a credit union may charge, contract for, and receive interest on loans at a rate or rates agreed to by the credit union and the member. A credit union may charge late fees and lawful fees paid to any public officer for filing, recording, or releasing a document, and may charge collection fees, not to exceed 20% of the principal balance and interest outstanding, which may be added to the principal balance of any loan placed for collection after default thereon.

    c. A credit union shall have a lien on the shares, share certificates, deposits, deposit certificates, and accumulated interest or dividends of a member in any individual, joint, or trust account, for any sum past due the credit union from the member or for any loan endorsed by him. The credit union shall have a right of immediate setoff with respect to these accounts.

    d. Notwithstanding any other provision of law to the contrary, in the case of any loan in which a credit card is used to advance funds or to purchase goods or services, a credit card agreement may provide that the credit union may at any time, or from time to time, change the terms of the agreement, including the terms governing the periodic interest rate, calculation of interest or the method of computing the required amount of periodic installment payments, provided however, that:

    (1) the periodic interest rate shall not be changed more than once in each billing cycle;

    (2) any change in the periodic interest rate shall correspond to the movement of a market interest rate index specified in the contract which is readily verifiable by the borrower and beyond the control of the credit union;

    (3) a change in any term of the contract including the periodic interest rate may be permitted to apply to any then-outstanding unpaid indebtedness in the borrower's account including any indebtedness which shall have arisen from advance loans obtained prior to the effective date of the change, provided that fact is clearly and conspicuously disclosed in the contract;

    (4) if the contract provides for the possibility of change in any term of the contract including the rate, that fact shall be clearly described in plain language, in at least 8-point bold face type on the face of the written notice;

    (5) no change in any term of the contract or of the index specified in the contract shall be effective unless: (a) at least 15 days prior to the effective date of the change, a written notice has been mailed or delivered to the borrower that clearly and conspicuously describes the change and the indebtedness to which it applies and states that the incurrence by the borrower or another person authorized by him of any further indebtedness under the law to which the contract relates on or after the effective date of the change specified in the notice shall constitute acceptance of the change; and (b) either the borrower agrees in writing to the 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 such notice, which indebtedness may include outstanding balances; and

    (6) any borrower who, after receipt of a written notice pursuant to paragraph (5) of this subsection d., chooses not to use the borrower's account or chooses not to indicate acceptance of a change in any term of the contract or of the index specified in the contract, shall be permitted to pay any outstanding unpaid indebtedness in the borrower's account under the plan in accordance with the terms of the contract governing the plan at the time the notice was sent without giving effect to the change.

    If a borrower accepts a revolving credit plan which provides for an initial introductory indexed interest rate which, at a later date specified in the plan, is followed by an interest rate established pursuant to the requirements of this subsection either using the same index with a different margin or using a different index, the provisions of paragraph (6) of this subsection shall not apply with respect to the the change from the introductory indexed interest rate to the agreed upon subsequent interest rate.

(cf: P.L.1984, c.171, s.26)

 

    7. Section 17 of P.L.1971, c.409 (C.17:16C-44.1) is amended to read as follows:

    17. (a) Notwithstanding any other law to the contrary, a retail seller, sales finance company, banking institution or other holder may charge, receive and collect a time price differential in each billing period on obligations incurred pursuant to any retail charge account, which shall be determined as specified in the terms of the account, subject to the limitations provided herein. Such time price differential for each monthly billing period shall not exceed the amount resulting from applying the periodic rates provided herein to the greater of the following amounts (including unpaid time price differentials):

    [(i)](1) The average daily balance of the account for such billing period, or

    [(ii)](2) The balance of the account at the beginning or end of such billing period.

    (b) The periodic rate or rates shall not exceed an amount agreed to by the retail seller, sales finance company, banking institution, or other holder and the retail buyer.

    (c) The [terms of the] retail charge account may provide that the [time price differential may be increased or may be decreased or both from time to time] retail seller, sales finance company, banking institution, or other holder may at any time, or from time to time, change the terms of the retail charge account, including the terms governing the time price differential, calculation of the time price differential or the method of computing the required amount of periodic installment payments; provided, however, that [no increase shall be effective unless: (1) at least 90 days prior to the effective date of the first such increase, or 30 days prior to the effective date of any subsequent increase, a written notice has been mailed or delivered to the retail buyer that clearly and conspicuously describes such change and the indebtedness to which it applies and states that the incurrence by the retail buyer 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 the increase specified in the notice shall constitute acceptance of the increase and (b) either the retail buyer agrees in writing to the increase or the retail buyer or another person authorized by him incurs such further indebtedness on or after the effective date of the increase stated in the notice.]:

    (1) the time price differential shall not be changed more than once in each billing cycle;

    (2) any change in the time price differential shall correspond to the movement of a market interest rate index specified in the retail charge account which is readily verifiable by the retail buyer and beyond the control of the retail seller, sales finance company, banking institution, or other holder;

    (3) a change in any term of the retail charge account including the time price differential may be permitted to apply to any then-outstanding unpaid indebtedness in the retail buyer's account including any indebtedness which shall have arisen from advance loans obtained prior to the effective date of the change, provided that fact is clearly and conspicuously disclosed in the retail charge account;

    (4) if the retail charge account provides for the possibility of change in any term of the retail charge account including the time price differential, that fact shall be clearly described in plain language, in at least 8-point bold face type on the face of the written notice;

    (5) no change in any term of the retail charge account or of the index specified in the retail charge account shall be effective unless: (a) at least 15 days prior to the effective date of the change, a written notice has been mailed or delivered to the retail buyer that clearly and conspicuously describes the change and the indebtedness to which it applies and states that the incurrence by the retail buyer or another person authorized by him of any further indebtedness under the law to which the retail charge account relates on or after the effective date of the change specified in the notice shall constitute acceptance of the change; and (b) either the retail buyer agrees in writing to the change or the retail buyer or another person authorized by him incurs such further indebtedness on or after the effective date of the change stated in such notice, which indebtedness may include outstanding balances; and

    (6) any retail buyer who, after receipt of a written notice pursuant to paragraph (5) of this subsection (c), chooses not to use the retail buyer's account or chooses not to indicate acceptance of a change in any term of the retail charge account or of the index specified in the retail charge account, shall be permitted to pay any outstanding unpaid indebtedness in the retail buyer's account under the plan in accordance with the terms of the retail charge account governing the plan at the time the notice was sent without giving effect to the change.

    If a retail buyer accepts a retail charge account which provides for an initial introductory indexed time price differential which, at a later date specified in the account, is followed by a time price differential established pursuant to the requirements of this subsection either using the same index with a different margin or using a different index, the provisions of paragraph (6) of this subsection shall not apply with respect to the the change from the introductory indexed time price differential to the agreed upon subsequent time price differential.

    The provisions of this [paragraph] subsection permitting an increase in the time price differential shall not apply in the case of an agreement which expressly prohibits changing of the time price differential or which provides limitations on changing of the time price differential which are more restrictive than the requirements of this [paragraph] subsection. If the terms of the retail charge account provide for the possibility of an increase or decrease, or both, in the time price differential, that fact shall be clearly described in plain language, in at least 8-point bold face type on the face of the written notice.

    (d) Notwithstanding the foregoing limitation, if the terms of the account so provide, the time price differential may be computed on the median amount within a specified range. Such time price differential for each monthly billing period shall not exceed the amount resulting from applying the respective periodic rates specified [above] in subsection (a) to the median amount within the specified range in which the greater of the amounts specified in paragraphs[(i)](1) and [(ii)](2) of subsection (a) of this section is included; provided, subject to the classifications and differentiations as may reasonably be established by the retail seller, sales finance company, banking institution or other holder, the same time price differential is charged on all balances within the specified range and provided further that the time price differential determined by applying the respective periodic rates specified [above] in subsection (b) to the median amount within the range does not exceed by more than 8% the amount of the time price differential determined by applying the respective periodic rates specified [above] in subsection (b) to the lowest amount in the range.

    [(b)](e) If the billing period is not monthly, the maximum periodic rate shall be that rate which bears the same relation to the respective periodic rates per month specified above as the number of days in the billing period bears to 30.

    [(c)](f) Notwithstanding the [limitation] limitations provided in [(a) above] this section, for any monthly billing period in which a time price differential may be charged pursuant to the terms of the account a minimum time price differential of not more than $0.50 may be charged; if the billing period is not monthly, a minimum time price differential may be charged in such amount which bears the same relation to $0.50 as the number of days in the billing period bears to 30.

(cf: P.L.1981, c.103, s.14)


    8. This act shall take effect on the 120th day following enactment and shall apply to any contract or agreement entered into or renewed on or after the effective date.

 

 

STATEMENT

 

    This bill permits lenders under revolving credit agreements to change the terms of the agreement from time to time and to apply those changes to existing indebtedness provided that: no more than one change takes place in a billing period; the change corresponds to the movement of a market interest rate index specified in the contract which is readily varifiable by the borrower and out of the control of the lender; the contract informs the borrower in at least 8-point bold face type that the terms may be changed; and the lender informs the borrow of the change at least 15 days in advance of the change and informs the borrower of his options with respect to the change and with respect to indebtedness to which the change applies.

    The bill provides that any borrower, upon notification of a change, who does not want to accept the change in terms, may pay off any outstanding indebtedness under the terms of the contract in existence at the time the notice was sent out as long as the borrower or any person authorized by the borrower to use the account does not incur any futher indebtedness after the effective date of the change.

    Finally, the bill provides that if a borrower accepts an introductory revolving credit agreement under which there is an initial indexed periodic interest rate which, at a later date specified in the agreement, is followed by an interest rate based on the same index with a different margin or a different index as specified in the agreement, the option to pay off any outstanding indebtedness under the terms of the contract in existence at the time of the notice was sent out does not apply.

    This bill amends the "Market Rate Consumer Loan Act," P.L.1985, c.81 (C.17:3B-1 et seq.); "The Advance Loan Law of 1968," P.L.1968, c.64 (C.17:9A-59.1 et seq.); the "Consumer Loan Act," R.S.17:10-1 et seq.; the "Savings and Loan Act (1963)," P.L.1963, c.144 (C.17:12B-1 et seq.); "The Credit Union Act of 1984," P.L.1984, c.171 (17:13-79 et seq.); and the "Retail Installment Sales Act of 1960," P.L.1960, c.40 (17:16C-1 et seq.).

 

 

                             

 

Makes certain changes with respect to revolving credit agreements and options of borrowers.