HF 2293

2nd Engrossment - 88th Legislature (2013 - 2014) Posted on 04/24/2014 03:47pm

A bill for an act
relating to commerce; regulating payday lending; amending Minnesota Statutes
2012, sections 47.59, subdivision 2; 47.601, subdivisions 1, 2, 3; 53.05.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2012, section 47.59, subdivision 2, is amended to read:

Subd. 2.

Application.

Extensions of credit or purchases of extensions of credit by
financial institutions under sections 47.20, 47.21, 47.201, 47.204, 47.58, deleted text begin 47.60, deleted text end 48.153,
48.185, 48.195, 59A.01 to 59A.15, 334.01, 334.011, 334.012, 334.022, 334.06, and
334.061 to 334.19 may, but need not, be made according to those sections in lieu of
the authority set forth in this section to the extent those sections authorize the financial
institution to make extensions of credit or purchase extensions of credit under those
sections. If a financial institution elects to make an extension of credit or to purchase an
extension of credit under those other sections, the extension of credit or the purchase of an
extension of credit is subject to those sections and not this section, except this subdivision,
and except as expressly provided in those sections. A financial institution may also
charge an organization a rate of interest and any charges agreed to by the organization
and may calculate and collect finance and other charges in any manner agreed to by that
organization. Except for extensions of credit a financial institution elects to make under
section 334.01, 334.011, 334.012, 334.022, 334.06, or 334.061 to 334.19, chapter 334
does not apply to extensions of credit made according to this section or the sections listed
in this subdivision. This subdivision does not authorize a financial institution to extend
credit or purchase an extension of credit under any of the sections listed in this subdivision
if the financial institution is not authorized to do so under those sections. A financial
institution extending credit under any of the sections listed in this subdivision shall
specify in the promissory note, contract, or other loan document the section under which
the extension of credit is made.

Sec. 2.

Minnesota Statutes 2012, section 47.601, subdivision 1, is amended to read:

Subdivision 1.

Definitions.

(a) For the purposes of this section, the terms defined in
this subdivision have the meanings given.

(b) new text begin "Advertise" means to solicit business through any means or medium.
new text end

new text begin (c) new text end "Borrower" means an individual who obtains new text begin or seeks to obtain new text end a consumer
short-term loan primarily for personal, family, or household purposes.

deleted text begin (c) deleted text end new text begin (d) new text end "Commissioner" means the commissioner of commerce.

deleted text begin (d) deleted text end new text begin (e) new text end "Consumer short-term loan" means a loan to a borrower which has a principal
amount, or an advance on a credit limit, of $1,000 or less and requires a minimum
payment within 60 days of loan origination or credit advance of more than 25 percent of
the principal balance or credit advance. For the purposes of this section, each new advance
of money to a borrower under a consumer short-term loan agreement constitutes a new
consumer short-term loan. A "consumer short-term loan" does not include any transaction
made under chapter 325J or a loan made by a consumer short-term lender where, in the
event of default on the loan, the sole recourse for recovery of the amount owed, other than
a lawsuit for damages for the debt, is to proceed against physical goods pledged by the
borrower as collateral for the loan.

deleted text begin (e) deleted text end new text begin (f) new text end "Consumer short-term lender" means an individual or entity engaged in the
business of making new text begin , offering, new text end or arranging consumer short-term loans, other than a state or
federally chartered bank, savings bank, or credit union.

new text begin (g) "Debt-to-income ratio" means the ratio of the borrower's total monthly debt
obligations to the borrower's gross monthly income. For purposes of this paragraph, "total
monthly debt obligations" consists of the sum of a borrower's rent or mortgage-related
obligations, any other secured or unsecured debt obligations, and payments for child
support and alimony.
new text end

Sec. 3.

Minnesota Statutes 2012, section 47.601, subdivision 2, is amended to read:

Subd. 2.

Consumer short-term loan contract.

(a) No contract or agreement
between a consumer short-term loan lender and a borrower residing in Minnesota may
contain the following:

(1) a provision selecting a law other than Minnesota law under which the contract
is construed or enforced;

(2) a provision choosing a forum for dispute resolution other than the state of
Minnesota; or

(3) a provision limiting class actions against a consumer short-term lender for
violations of subdivision 3 or for making consumer short-term loans:

(i) without a required license issued by new text begin , or a required registration with, new text end the
commissioner; or

(ii) in which interest rates, fees, charges, or loan amounts exceed those allowable
under section deleted text begin 47.59, subdivision 6, or deleted text end 47.60, subdivision 2 deleted text begin , other than by de minimis
amounts if no pattern or practice exists deleted text end .

(b) Any provision prohibited by paragraph (a) is void and unenforceable.

(c) A consumer short-term loan lender must furnish a copy of the written loan
contract to each borrower. The contract and disclosures must be written in the language in
which the loan was negotiated with the borrower and must contain:

(1) the name; address, which may not be a post office box; and telephone number of
the lender making the consumer short-term loan;

(2) the name and title of the individual employee or representative who signs the
contract on behalf of the lender;

(3) an itemization of the fees and interest charges to be paid by the borrower;

(4) in bold, 24-point type, the annual percentage rate as computed under United
States Code, chapter 15, section 1606; and

(5) a description of the borrower's payment obligations under the loan.

(d) The holder or assignee of a check or other instrument evidencing an obligation of
a borrower in connection with a consumer short-term loan takes the instrument subject to
all claims by and defenses of the borrower against the consumer short-term lender.

Sec. 4.

Minnesota Statutes 2012, section 47.601, subdivision 3, is amended to read:

Subd. 3.

deleted text begin Debt collection deleted text end new text begin Requirements; prohibitions new text end .

new text begin (a) new text end A consumer short-term
lender collecting or attempting to collect on an indebtedness in connection with a
consumer short-term loan must not engage in the prohibited debt collection practices
referenced in section 332.37.

new text begin (b) No consumer short-term lender shall make a consumer short-term loan without
first determining and documenting that the borrower has a reasonable ability to repay the
loan. In determining whether the borrower has a reasonable ability to repay the loan,
the consumer short-term lender must, at a minimum, verify the borrower's current and
anticipated income and expenses, and the borrower's credit history. For purposes of
this paragraph, a borrower does not have the reasonable ability to repay the loan if the
payments for the proposed consumer short-term loan transaction cause the borrower to
have a debt-to-income ratio higher than 41 percent.
new text end

new text begin (c) A consumer short-term lender may not make a consumer short-term loan to a
borrower that will cause a borrower to have, as of the date of the loan and within the
immediately preceding 365 days:
new text end

new text begin (1) more than four consumer short-term loans, provided that the four loan limit does
not apply if the borrower attests that the borrower cannot obtain a loan through any other
legitimate means and that the failure to secure a consumer short-term loan will cause the
borrower to be late on or unable to make a scheduled student loan payment, a scheduled
mortgage or residential rent payment, or a child support payment provided that:
new text end

new text begin (i) under such circumstances, the interest rate a borrower may be charged shall not
exceed the maximum allowable interest rate under United States Code, title 10, section
987; and
new text end

new text begin (ii) if a borrower is an honorably discharged military veteran or falls beneath the
poverty threshold as set forth by the United States Department of Health and Human
Services (DHHS) in the Federal Register, the interest rate the borrower may be charged
shall not exceed the maximum allowable interest rate under United States Code, title
10, section 987; or
new text end

new text begin (2) consumer short-term loan debt totaling more than 90 days.
new text end

new text begin In determining the number of loans and days of indebtedness, a consumer
short-lender must aggregate the consumer short-term loan transaction for which the
determination is being made with all the consumer short-term loans the borrower has
taken from all consumer short-term lenders within the immediately preceding 365 days.
A consumer short-term lender may not make a consumer short-term loan to a borrower
if the lender is unable to verify the number of loans the borrower has taken or the days
the borrower has been indebted in total from all consumer short-term lenders within the
immediately preceding 365 days.
new text end

new text begin (d) A consumer short-term lender must independently verify the total number of
consumer short-term loans taken by the borrower and the number of days the borrower has
been indebted through consumer short-term loans within the immediately preceding 365
days. Verification must include:
new text end

new text begin (1) examination of the consumer short-term lender's own records, including records
maintained at the location at which the borrower is applying for the transaction and
records maintained at other locations within the state that are owned and operated by the
consumer short-term lender; and
new text end

new text begin (2) utilization of a private consumer reporting service.
new text end

new text begin For purposes of this subdivision, a "private consumer reporting service" means a
privately operated, real-time, electronically accessible service that the commissioner
determines to be capable of providing a consumer short-term lender with adequate
verification information necessary to ensure compliance with this paragraph.
new text end

new text begin (e) A consumer short-term lender shall have a duty to promptly report each consumer
short-term loan transaction to the private consumer credit reporting service.
new text end

new text begin (f) A consumer short-term lender shall have a duty to inquire whether the borrower
is a covered borrower, as that term is defined in Code of Federal Regulations, title 32,
section 232.3(c). No consumer short-term lender may make a consumer short-term loan to
a covered borrower:
new text end

new text begin (1) without first providing the disclosures required under Code of Federal
Regulations, title 32, section 232.5; and
new text end

new text begin (2) which violates any of the terms and conditions set forth in Code of Federal
Regulations, title 32, section 232.4, for the issuance of consumer credit, as that term is
defined in Code of Federal Regulations, title 32, section 232.3(b), except that for purposes
of this section, "consumer credit" includes open-end credit.
new text end

new text begin (g) A consumer short-term lender may not engage in any device or subterfuge to
evade the requirements of this section or section 47.60, including but not limited to:
new text end

new text begin (1) making, offering, or arranging a consumer short-term loan on terms that
otherwise would be prohibited by this section or section 47.60;
new text end

new text begin (2) making loans disguised as personal property sales and leaseback transactions; or
new text end

new text begin (3) disguising loan proceeds as cash rebates.
new text end

Sec. 5.

Minnesota Statutes 2012, section 53.05, is amended to read:

53.05 POWERS, LIMITATION.

No industrial loan and thrift company may do any of the following:

(1) carry demand banking accounts; use the word "savings" unless the institution's
investment certificates, savings accounts, and savings deposits are insured by the Federal
Deposit Insurance Corporation and then only if the word is not followed by the words
"and loan" in its corporate name; use the word "bank" or "banking" in its corporate name;
operate as a savings bank;

(2) have outstanding at any one time certificates of indebtedness, savings accounts,
and savings deposits 30 times the sum of capital stock and surplus of the company;

(3) accept trusts, except as provided in section 47.75, subdivision 1, or act as
guardian, administrator, or judicial trustee in any form;

(4) deposit any of its funds in any banking corporation, unless that corporation has
been designated by vote of a majority of directors or of the executive committee present at
a meeting duly called, at which a quorum was in attendance;

(5) change any allocation of capital made pursuant to section 53.03 or reduce or
withdraw in any way any portion of the capital stock and surplus without prior written
approval of the commissioner of commerce;

(6) take any instrument in which blanks are left to be filled in after execution;

(7) lend money in excess of 20 percent of the total of its capital stock and surplus at
all its authorized locations to a person primarily liable. Companies not issuing investment
certificates of indebtedness under section 53.04 need not comply with the requirement if
the amount of money lent does not exceed $100,000 of principal as defined by section
47.59, subdivision 1, paragraph (p) deleted text begin . deleted text end new text begin ;
new text end

However, industrial loan and thrift companies with deposit liabilities must comply
with the provisions of section 48.24; deleted text begin or
deleted text end

(8) issue cashier's checks pursuant to section 48.151, unless and at all times the
aggregate liability to all creditors on these instruments is protected by a special fund in
cash or due from banks to be used solely for payment of the cashier's checks deleted text begin . deleted text end new text begin ; or
new text end

new text begin (9) make a "consumer short-term loan," as that term is defined under section 47.601,
under any section of law other than section 47.60.
new text end

Sec. 6. new text begin EFFECTIVE DATE.
new text end

new text begin Sections 1 to 5 are effective August 1, 2014, and apply to consumer short-term
loans made on or after that date.
new text end