SENATE, No. 1306

 

STATE OF NEW JERSEY

 

INTRODUCED JUNE 13, 1996

 

 

By Senator INVERSO

 

 

An Act concerning open and closed end loans and amending P.L.1985, c.81 and repealing section 25 of P.L.1985, c.81.

 

    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. Periodic percentage rates. 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 9 of P.L.1985, c.81 (c.17:3B-12) is amended to read as follows:

    9. Loans under a revolving credit plan. [A] If the agreement governing the revolving credit plan so provides, a lender may:

    a. Take personal or real property , or both, as security on a loan made under a revolving credit plan;

    b. Require that any property securing the loan be insured for the benefit of the lender against loss or damage of the security, and retain out of the proceeds of the loan the premium for the insurance;

    c. Require that all taxes, assessments and other governmental charges against [personal] property securing the loan be paid when due and that the security be maintained free of all executions, levies, encumbrances, and other charges which may adversely affect the value of the lender's interest in the security ;

    d. Charge and collect fees and charges, in addition to interest and fees and charges specifically permitted by P.L.1985, c.81 (C.17:3B-4 et seq.), in amounts as provided in the agreement or as established in the manner the agreement provides, such as, but not limited to, minimum charges, annual fees, check charges, maintenance charges, and late charges, except as may be specifically limited by P.L.1985, c.81 (C.17:3B-4 et seq.);

    e. On a secured loan, charge and collect the actual costs of filing or recording the instrument of security, or notice or abstract thereof, if the filing or recording is authorized by law.

(cf: P.L.1985, c.81, s.9)

 

    3. Section 10 of P.L.1985, c.81 (C.17:3B-13) is amended to read as follows:

    10. Revolving credit plan prohibitions. No revolving credit plan agreement shall contain:

    a. An acceleration clause under which any part or all of the balance, not yet matured, may be declared immediately due and payable because the lender deems himself to be insecure, which provision shall be void and unenforceable;

    b. A provision whereby the borrower waives any right of action or defense against the lender or other person acting on his behalf for any illegal act committed in the collection of the payments under the revolving credit plan, which provision shall be void and unenforceable; and

    c. A power of attorney to confess judgment or any other power of attorney, which provision shall be void and unenforceable[; and] .

    d. [A requirement that the credit be secured by real property.] (Deleted by amendment, P.L. , c. .)

(cf: P.L.1985, c.81, s.10)

 

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

    12. Changes in terms. 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 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 without giving effect to the amendment.

    For purposes of this section 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] shall not be considered to be an amendment.

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

 

    5. Section 15 of P.L.1985, c.81 (C.17:3B-18) is amended to read as follows:

    15. Periodic percentage rates. The periodic percentage rates of interest charged and collected with respect to a loan under a closed end credit agreement may, subject to any limitations set forth in the loan agreement, vary in accordance with the market interest rate index specified in the loan 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 loan agreement may stipulate a percentage decrease below which a corresponding decrease in the periodic percentage rate need not be made by the lender, provided 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 any outstanding and unpaid loan balances on or after the effective date of the rate variation. Upon an increase in the rate of interest, the term of the note shall be extended as necessary to provide for payment of the balance due without any increase in the amount of each of the borrower's periodic payments, except that the periodic payments may be increased, if either a. [the borrower, at his option within 20 days of the date of the notice provided by the lender pursuant to section 25, specifically requests the lender, in writing, to increase each periodic payment or the final payment, rather than extend the term] the agreement so provides or the parties agree to the increase in writing, or b. if the periodic payment amounts would not be sufficient to reduce the principal amount due, the lender, no sooner than [15] 30 days after notifying the borrower of that fact [pursuant to section 25], may require that the periodic payments be increased, or that there be a combination of an extended term and increased periodic payments.

(cf: P.L.1985, c.81, s.15)

 

    6. Section 16 of P.L.1985, c.81 (C.17:3B-19) is amended to read as follows:

    16. Additional charges. If the closed end loan agreement on a secured loan so provides, a lender may [, on a secured loan, charge] :

    a. Charge and collect the actual costs of filing or recording the instrument of security, or notice or abstract thereof, if the filing or recording is authorized by law.

    b. Charge and collect fees and charges, in addition to interest and fees and charges specifically permitted by P.L.1985, c.81 (C.17:3B-4 et seq.), in amounts as provided in the agreement or as established in the manner the agreement provides, such as, but not limited to, minimum charges, check charges and maintenance charges, and late charges, except as may be specifically limited by P.L.1985, c.81 (C.17:3B-4 et seq.).

(cf: P.L.1985, c.81, s.16)

 

    7. Section 18 of P.L.1985, c.81 (C.17:3B-21) is amended to read as follows:

    18. Insurance. A lender under a closed or open end credit agreement may:

    a. Subject to the terms of the loan agreement, require any property securing the loan to be insured for the benefit of the lender against loss or damage of the security;

    b. Offer credit life insurance or credit accident and health insurance, or both, on the borrower in accordance with the provisions of chapter 29 of Title 17B of the New Jersey Statutes.

    A lender may deduct and retain from the proceeds of the loan the amount of the premium for any insurance provided by the lender to the borrower pursuant to this section.

(cf: P.L.1985, c.81, s.18)

 

    8. Section 25 of P.L.1985, c.81 (C.17:3B-28) is repealed.

 

    9. This act shall take effect immediately.

 

 

STATEMENT

 

    This bill amends the "Market Rate Consumer Loan Act," P.L.1985, c.81 (C.17:3B-3 et seq.), to provide New Jersey financial institutions with the legal authority to effectively compete with bank credit card issuers not located in New Jersey.

    The bill provides that a revolving credit plan agreement may contain a provision that the periodic percentage rate may increase or decrease only if the increase or decrease takes place in relation to an increase or decrease in a market interest rate index specified in the plan, which index is readily verifiable by the borrower and beyond the control of the lender.

    The bill provides for revolving credit home equity loans by permitting a lender to take real property as security for such loans.

    The bill permits a lender to charge and collect fees and charges on closed and open end loans, in addition to interest and fees and charges already specifically permitted in the law if included in the agreement, such as, but not limited to, minimum charges, check charges, maintenance charges and late charges, and for open end loans, annual fees. In addition, on any secured loan under a revolving credit agreement, the bill provides that the lender may charge and collect the costs of filing or recording the instrument of security, if the filing or recording is authorized by law.

    With respect to a variable interest rate on closed end loans, if the rate of interest increases, the bill provides for an increase in the monthly payment if the agreement provides for such an increase or if the parties agree to an increase.

    The bill provides that a lender may require or offer, or both require and offer, certain kinds of insurance in relation to open or closed end loans and that the lender may deduct and retain from the proceeds of the loan the amount of any premium for any insurance provided by the lender to the borrower under the act.


                             

 

Makes certain changes in the "Market Rate Consumer Loan Act."