CHAPTER 137
An Act concerning bank revolving credit plans and supplementing Title 17 of the Revised Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
C.17:3B-29 Findings, declarations relative to bank revolving credit plans.
1. a. The Legislature finds and declares that:
(1) Interest that can be charged by issuers of bank credit cards may depend on the laws of the state under which a bank is chartered or in which a federally chartered bank has its principal office, or the laws of the state where such bank has a branch office;
(2) The United States Supreme Court has held, in accordance with the provisions of federal law, that a national bank issuer of a bank credit card can export the rate of interest allowed in its home state to other states, and this holding is now equally applicable to national and state banks;
(3) There has been significant and expensive litigation concerning the extent to which certain related charges constitute part of the exportable rate of interest, but federal and state courts and the Comptroller of the Currency have taken the expansive view that related charges constitute a part of the exportable rate of interest; and
(4) Consequently, issuers of bank credit cards have located and continue to locate in states which have the least restrictive laws regarding interest and related charges.
b. Therefore, the Legislature proposes to simplify State law with respect to interest on bank credit cards to make this State as equally attractive as other states for the location of bank credit card operations.
c. Moreover, since the rules applicable to revolving credit plans have been the subject of disputes by courts and regulators; since the New Jersey Department of Banking and Insurance has advised New Jersey-based banks that under State parity law there are no limits on late fees and related charges; and since any retroactive application of restrictions would impose upon New Jersey-based banks a competitive disadvantage, the Legislature proposes to "level the playing field" for New Jersey-based banks and to preclude potentially costly litigation by permitting this act to apply to all revolving credit plans entered into before and after the effective date of this act.
C.17:3B-30 Definitions relative to bank revolving credit plans.
2. As used in this act:
"Bank" means any state or federally charted bank, savings bank or savings and loan association.
"Borrower" means any corporation, partnership, association, government or governmental subdivision or agency, trust, individual or other entity.
"Individual borrower" means a borrower who is a natural person borrowing for personal, household or family purposes.
“Credit device” means any card, check, identification code or other means of identification contemplated by the agreement governing the plan.
“Loans” means cash advances or loans to be paid to or for the account of the borrower.
"Outstanding unpaid indebtedness" means, on any day, an amount not in excess of the total amount of purchases and loans charged to the borrower's account under the plan which is outstanding and unpaid at the end of the day, after adding the aggregate amount of any new purchases and loans charged to the account as of that day and deducting the aggregate amount of any payments and credits applied to that indebtedness as of that day and, if the agreement governing the plan so provides, may include the amount of any periodic interest, interest charges and other charges permitted by this act, including late or delinquency charges, which have accrued in the account and which are unpaid at the end of the day.
“Purchases” means payments for property of whatever nature, real or personal, tangible or intangible, and payments for services, licenses, taxes, official fees, fines, private or governmental obligations, or any other thing of value.
“Revolving credit plan” or “plan” means a plan contemplating the extension of credit under an account governed by an agreement between a bank and a borrower pursuant to which:
(1) the bank permits the borrower, and if the agreement governing the plan so provides, persons acting on behalf of or with authorization from the borrower, from time to time to make purchases or to obtain loans, or both, by use of a credit device;
(2) the amounts of purchases made and loans obtained are charged to the borrower’s account under the plan;
(3) the borrower is required to pay the bank the amounts of all purchases and loans charged to the borrower’s account under the plan, but has the privilege of paying the amounts outstanding from time to time in full or in installments; and
(4) interest may be charged and collected by the bank from time to time on the outstanding unpaid indebtedness under the plan.
C.17:3B-31 Bank permitted to offer credit under revolving credit plan.
3. A bank may, subject to any limitations on lending authority contained in its charter or otherwise imposed by law, and subject to other provisions of this act, offer and extend credit under a revolving credit plan to a borrower and in connection therewith may charge and collect periodic interest, interest charges and other charges permitted by this act and may take such security as collateral in connection therewith as may be acceptable to the bank. Without limitation of the foregoing, credit may be extended under a revolving credit plan by a bank's acquisition of obligations arising out of the honoring by a merchant, a bank or other financial institution, whether chartered or organized under the laws of this or any other state, the District of Columbia, the United States or any district, territory or possession of the United States, or any foreign country, or a government or governmental subdivision or agency, of a credit device made available to a borrower under a plan, whether directly or indirectly by means of telephone, point of sale terminal, automated teller machine or other electronic or similar device, or through the mails.
C.17:3B-32 Bank permitted to charge, collect periodic interest under revolving credit plan.
4. A bank may charge and collect periodic interest under a revolving credit plan on outstanding unpaid indebtedness in the borrower's account under the plan at such daily, weekly, monthly, annual or other periodic percentage rate or rates as the agreement governing the plan provides or as established in the manner provided in the agreement governing the plan. If the applicable periodic percentage rate under the agreement governing the plan is other than daily, periodic interest may be calculated on an amount not in excess of the average outstanding unpaid indebtedness for the applicable billing period, determined by dividing the total of the amounts of outstanding unpaid indebtedness for each day in the applicable billing period by the number of days in the billing period. If the applicable periodic percentage rate under the agreement governing the plan is monthly, a billing period shall be deemed to be a month or monthly if the last day of each billing period is on the same day of each month or does not vary by more than four days therefrom.
C.17:3B-33 Periodic percentage rate, rates of interest may vary.
5. If the agreement governing the revolving credit plan so provides, the periodic percentage rate or rates of interest under the plan may vary in accordance with a schedule or formula. The periodic percentage rate or rates may vary from time to time as the rate determined in accordance with the schedule or formula varies and the periodic percentage rate or rates, as so varied, may be made applicable to all or any part of the outstanding unpaid indebtedness under the plan on or after the effective date of the variation, including any indebtedness arising out of purchases made or loans obtained prior to the variation in the periodic percentage rate or rates. Without limitation, a permissible schedule or formula hereunder may include provision in the agreement governing the plan for a change in the periodic percentage rate or rates of interest applicable to all or any part of outstanding unpaid indebtedness, whether by variation of the then applicable periodic percentage rate or rates of interest, variation of an index or margin or otherwise, or whether contingent upon the happening of any event or circumstance specified in the plan, which event or circumstance may include the failure of the borrower to perform in accordance with the terms of the plan.
C.17:3B-34 Additional interest, charges permitted.
6. In addition to or in lieu of interest at a periodic rate or rates as provided pursuant to sections 4 and 5 of this act, a bank may, if the agreement governing the revolving credit plan so provides, charge and collect as interest, in the manner or form as the plan may provide, one or more of the following:
a. A daily, weekly, monthly, annual or other periodic charge in the amount or amounts as the agreement may provide for the privileges made available to the borrower under the plan.
b. A transaction charge or charges in the amount or amounts as the agreement may provide for each separate purchase or loan under the act.
c. A minimum charge for each daily, weekly, monthly, annual or other scheduled billing period under the plan during any portion of which there is an outstanding unpaid indebtedness under the plan.
d. Reasonable fees for services rendered or for reimbursement of expenses incurred in good faith by the bank or its agents in connection with the plan, or other reasonable fees incident to the application for and the opening, administration, and termination of a plan, including, without limitation, commitment, application and processing fees, official fees and taxes, costs incurred by reason of examination of title, inspection, appraisal, recording, mortgage satisfaction or other formal acts necessary or appropriate to the security for the plan, and filing fees.
e. Returned payment charges.
f. Documentary evidence charges.
g. Stop payment fees.
h. Over limit charges.
i. Automated teller machine charges or similar electronic or interchange fees or charges.
j. Any other fee expressly disclosed to the borrower prior to the imposition of the fee.
C.17:3B-35 Imposition of different terms.
7. A bank may, if the agreement governing a revolving credit plan so provides, impose different terms, including without limitation, the terms governing the periodic percentage rate or rates used to calculate interest, the method of computing the outstanding unpaid indebtedness to which the rate or rates are applied, the amounts of other charges and the applicable installment repayment schedule, in respect of indebtedness arising out of purchases and loans made under the plan.
C.17:3B-36 Customary checking charges may be imposed.
8. If credit under a revolving credit plan is offered and extended in connection with a demand deposit account or other transaction account maintained by the borrower with the bank pursuant to an agreement or arrangement whereby the bank agrees to honor checks, drafts or other debits to the account, which if paid would create or increase a negative balance in the account, by making extensions of credit to the borrower under a revolving credit plan, any charges customarily imposed by the bank under the terms governing the demand deposit or other transaction account in the absence of any associated revolving credit plan, including, without limitation, check charges, monthly maintenance charges, checkbook charges, charges for a check drawn on funds in excess of an available line of credit and other similar charges, may continue to be imposed on the account without specific reference thereto or incorporation thereof by reference in the agreement governing the revolving credit plan and the amount of any charge, to the extent the balance in the demand deposit or other transaction account is insufficient to pay the charge, may be charged to the borrower's account under the plan as a loan thereunder and may be included in the outstanding unpaid indebtedness in accordance with the terms of the agreement governing the revolving credit plan.
C.17:3B-37 Omission of monthly installments.
9. A bank may at any time and from time to time unilaterally extend to a borrower under a revolving credit plan the option of omitting one or more monthly installments.
C.17:3B-38 Insurance for borrower requested, required.
10. a. A bank may request but not require an individual borrower to be insured with respect to a revolving credit plan under a life, health, accident, health and accident or other credit or other permissible insurance policy, whether group or individual. If an individual borrower's outstanding unpaid indebtedness under the plan is secured by an interest in real or personal property, a bank may require the borrower to obtain insurance, from an insurer acceptable to the bank, against loss of or damage to the property, or against liability arising out of the ownership or use of the property, and may finance the premiums for the insurance.
b. In the case of a borrower borrowing under a revolving credit plan for other than personal, household or family purposes, a bank may require the borrower to obtain insurance, from an insurer acceptable to the bank, under a life, health, accident, health and accident or other credit or other permissible insurance policy, whether group or individual. If the borrower's outstanding unpaid indebtedness under the plan is secured by an interest in real or personal property, the bank may require the borrower to obtain insurance, from an insurer acceptable to the bank, against loss of or damage to the property, or against liability arising out of the ownership or use of the property and may finance the premiums for the insurance.
c. The offer and placement of insurance under this section shall be subject in all respects to the applicable provisions of N.J.A.C.3:1-13.1 or 3:1-13.2, or both.
C.17:3B-39 Imposition of late, delinquency charge.
11. If the agreement governing a revolving credit plan so provides, a bank may impose, as interest, a late or delinquency charge upon any outstanding unpaid installment payments or portions thereof under the plan which are in default, except that: no more than one late or delinquency charge may be imposed with respect to any single installment payment or portion thereof regardless of the period during which it remains in default; and for the purpose only of the preceding proviso, all payments by the borrower shall be deemed to be applied to the satisfaction of installment payments in the order in which they become due. Nothing contained in this section shall limit, restrict or otherwise affect the right of the bank pursuant to section 5 of this act to change the periodic percentage rate or rates of interest applicable to the revolving credit plan between the bank and a borrower upon the occurrence of a delinquency or default or other failure of the borrower to perform in accordance with the terms of the plan.
C.17:3B-40 Default by borrower, attorney's, collection agency's fee.
12. If a borrower defaults under the terms of a plan and the bank refers the borrower's account for collection to an attorney or collection agency, not a regularly salaried employee of the bank, for collection, the bank may, if the agreement governing the revolving credit plan so provides, charge and collect from the borrower a reasonable attorney's or collection agency's fee and, in addition, if the agreement governing the plan so provides, the bank may recover from the borrower all court or other collection costs actually incurred by the bank.
C.17:3B-41 Terms of agreement, amendment.
13. a. A bank may, if the agreement governing a revolving credit plan so provides, at any time, or from time to time, amend the terms of the agreement, including without limitation, the terms governing the periodic percentage rate or rates used to calculate interest, the method of computing the outstanding unpaid indebtedness to which the rate or rates are applied, the amounts of other charges and the applicable installment repayment schedule, in accordance with the further provisions of this section.
b. (1) The bank shall notify each affected borrower of an amendment to the terms of the agreement in the manner set forth in the agreement governing the plan and in compliance with the requirements of the federal "Truth in Lending Act," 15 U.S.C. s.1601 et seq., and regulations promulgated thereunder, if applicable; except that if the amendment has the effect of increasing the periodic interest or interest charges to be paid by the borrower, the bank shall mail or deliver to the borrower, at least 30 days before the effective date of the amendment, a conspicuous written notice which shall clearly describe 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.
(2) If the amendment has the effect of increasing the periodic interest or interest charges to be paid by the borrower, the amendment shall, except as otherwise provided for in this section, become effective as to a particular borrower as of the first day of the billing cycle during which the effective date of the amendment occurs or as of any later date, in either case, in accordance with this section and as stipulated in the notice, so long as the borrower does not, within 30 days of the mailing or the delivery of the notice of the amendment, whichever is earlier, furnish written notice to the bank that the borrower does not agree to accept the amendment. The notice from the bank shall include: a statement that, absent the borrower's written notice to the bank, within 30 days of the earlier of the mailing or delivery of the notice of the amendment, that the borrower does not agree to accept the amendment, the proposed amendment will become effective and apply to the borrower and the borrower's account; and the address to which a borrower may send notice of the borrower's election not to accept the amendment. Any borrower who gives timely notice electing not to accept 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 without giving effect to the amendment; except that if the borrower does not agree to accept the proposed amendment, the bank may convert the borrower's account to a closed-end credit account on credit terms substantially identical to or more favorable to the borrower than those set forth in the then existing agreement governing the borrower's account and the borrower will continue to be subject to the terms of the existing agreement or the more favorable terms until the borrower's account balance is paid in full. As a condition to the effectiveness of any notice that a borrower does not accept the amendment, the bank may require the borrower to return all credit devices. If after 30 days from mailing or delivery by the bank of a proposed amendment, a borrower uses a credit device to obtain credit under a plan, notwithstanding that the borrower has, prior to the use, given the bank notice that the borrower does not accept an amendment, the amendment shall be deemed to have been accepted and shall become effective as to the borrower and the borrower's account as of the date that the amendment would have become effective but for the giving of notice by the borrower.
(3) Notwithstanding paragraph (2) of this subsection b., the bank may also amend the agreement governing the plan to require that any amendment shall become effective only if the borrower uses the plan after a date specified in the notice of the proposed amendment which is at least 30 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 bank the borrower's express agreement to the amendment. Any such amendment may become effective as to a particular borrower as of the first day of the billing period during which the borrower used the borrower's account or indicated agreement to the amendment. Any borrower who fails to use the borrower's account or 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 without giving effect to the amendment subject to the right of the bank to convert the borrower's account to a closed-end credit account as provided in paragraph (2) of this subsection b.
c. If the terms of the agreement governing the plan, as originally drawn or as amended pursuant to this section, so provide, any amendment may, on and after the date upon which it becomes effective as to a particular borrower, apply to all then outstanding unpaid indebtedness in the borrower's account under the plan, including any indebtedness which shall have arisen out of purchases made or loans obtained prior to the effective date of the amendment.
d. For purposes of this section, the following shall not be deemed an amendment which has the effect of increasing the interest to be paid by the borrower:
(1) A decrease in the required amount of a periodic installment payment.
(2) A change in the schedule or formula used under a variable rate plan under section 5 of this act so long as the initial interest rate resulting from the change is not an increase.
(3) A change from a daily periodic rate to a periodic rate other than daily or from a periodic rate other than daily to a daily periodic rate under section 4 of this act.
e. The procedure for amendment by a bank of the terms of a plan to which the borrower, other than an individual borrower, is a party may, in lieu of the foregoing provisions of this section, be as the agreement governing the plan may otherwise provide.
C.17:3B-42 Other laws not applicable; exceptions.
14. Any other law of this State limiting the rate or amount of interest, discount, points, finance charges, service charges or other charges which may be charged, taken, collected, received or reserved shall not apply to extensions of credit under a revolving credit plan operated in accordance with this act; except that the periodic percentage rate of interest which may be charged, taken, collected, received or reserved under a revolving credit plan operated in accordance with this act shall not exceed the percentage rate permitted pursuant to N.J.S.2C:21-19.
C.17:3B-43 Nonexclusivity of act.
15. The provisions of this act are not exclusive and a bank may extend credit either pursuant to this act or as otherwise provided by applicable law.
C.17:3B-44 Charges considered interest.
16. Notwithstanding the characterization of certain charges in the act as interest, all charges permitted by this act which may be deemed interest by any rules, regulations or interpretations of the Comptroller of the Currency for purposes of section 85 of "The National Bank Act," 12 U.S.C. s.85, shall be considered interest for purposes of this act.
C.17:3B-45 Laws of State govern revolving credit plan, conditions.
17. A revolving credit plan between a bank and an individual borrower shall be governed by the laws of this State if the plan so provides and the bank has its principal office in this State or makes its loans from a branch or other facility in this State.
C.17:3B-46 Provisions of act may apply to any revolving credit plans.
18. a. A bank may apply the provisions of this act to any of its revolving credit plans.
b. A bank may apply this act to a revolving credit plan entered into prior to the effective date of this act and the act shall govern any limitations on fees and charges assessed under that plan, both before and after the effective date of this act.
c. The Department of Banking and Insurance may request information from any bank which applies this act to a revolving credit plan on the bank's interest rates, fees and charges which are imposed by the bank with respect to its revolving credit plan. A bank shall provide the department with the information requested within 30 days of receipt of the request. The department shall make the information received pursuant to this subsection c. generally available to residents of the State and any newspapers of general circulation in this State.
d. (1) Any bank which is requested to provide the Department of Banking and Insurance with information pursuant to subsection c. of this section and fails to provide the information to the department within the time period required shall not be precluded from applying this act to its revolving credit plans, but shall be subject to a penalty of up to $25,000 for each revolving credit plan to which this act is applied, which shall be paid to the department within a month of verification by the department that the bank is subject to the provisions of subsection c. of this section.
(2) Any bank which knowingly and with reckless disregard for the truth misstates in the information provided the department, its interest rates, fees or charges shall be assessed by and pay to the department a penalty of not more than $25,000 for each misstatement.
19. This act shall take effect immediately.
Approved December 6, 1996.