SF 3197

as introduced - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

A bill for an act
relating to financial institutions; regulating consumer small loans; amending
Minnesota Statutes 2006, sections 47.59, subdivision 2; 47.60, subdivisions 1,
4, 6, by adding subdivisions; 332.31, subdivision 3, by adding a subdivision;
332.32; 332.335, by adding a subdivision; Minnesota Statutes 2007 Supplement,
section 47.60, subdivision 2.

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

Section 1.

Minnesota Statutes 2006, 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, 47.60, 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. new text begin Any financial institution other than a state or federally
chartered bank or credit union providing a consumer small loan, as that term is defined in
section 47.60, subdivision 1, must comply with the provisions of section 47.60.
new text end

Sec. 2.

Minnesota Statutes 2006, section 47.60, subdivision 1, is amended to read:

Subdivision 1.

Definitions.

For purposes of this section, the terms defined have
the meanings given them:

(a) "Consumer small loan" deleted text begin is a loan transaction in which cash is advanced to a
borrower for the borrower's own deleted text end new text begin means a loan, whether closed-end credit or open-end
credit, for new text end personal, family, or household deleted text begin purpose deleted text end new text begin purposes which at the time of origination
has a principal amount or credit limit of $600 or less and requires a minimum payment
for any period of more than 15 percent of the initial principal balance or credit limit new text end . A
consumer small loan deleted text begin is a short-term, unsecured loan to be repaid in a single installment.
The cash advance of a consumer small loan is equal to or less than $350. A consumer
small loan includes an indebtedness evidenced by but not limited to a promissory note
or agreement to defer the presentation of a personal check for a fee deleted text end new text begin does not include any
transaction governed under chapter 53C or sections 325G.15 and 325G.16 new text end .

(b) "Consumer small loan lender" deleted text begin is a financial institution as defined in section
47.59 or deleted text end new text begin means new text end a person deleted text begin registered with the commissioner and deleted text end engaged in the business of
making consumer small loans. new text begin A consumer small loan lender does not include a state or
federally chartered bank or credit union. new text end

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

Sec. 3.

Minnesota Statutes 2006, section 47.60, is amended by adding a subdivision to
read:

new text begin Subd. 1a. new text end

new text begin Loan limit. new text end

new text begin A consumer small loan made under this section may not
exceed $600.
new text end

Sec. 4.

Minnesota Statutes 2007 Supplement, section 47.60, subdivision 2, is amended
to read:

Subd. 2.

Authorization, terms, conditions, and prohibitions.

(a) deleted text begin In lieu of the
interest, finance charges, or fees in any other law, deleted text end A consumer small loan lender may
charge the following:

(1) on any amount up to and including $50, a charge of $5.50 may be added;

(2) on amounts in excess of $50, but not more than $100, a charge may be added
equal to ten percent of the loan proceeds plus a $5 administrative fee;

(3) on amounts in excess of $100, but not more than $250, a charge may be
added equal to seven percent of the loan proceeds with a minimum of $10 plus a $5
administrative fee;

(4) deleted text begin for deleted text end new text begin on new text end amounts in excess of $250 deleted text begin and not greater than the maximum in
subdivision 1, paragraph (a) deleted text end , new text begin but not more than $350, new text end a charge may be added equal to six
percent of the loan proceeds with a minimum of $17.50 plus a $5 administrative fee deleted text begin . deleted text end new text begin ;
new text end

new text begin (5) on amounts in excess of $350 and not greater than the maximum in subdivision
1a, a charge may be added equal to five percent of the loan proceeds plus a $5
administrative fee.
new text end

(b) The term of a loan made under this section shall be for no more than 30 calendar
days.

(c) After maturity, the contract rate must not exceed 2.75 percent per month of the
remaining loan proceeds after the maturity date calculated at a rate of 1/30 of the monthly
rate in the contract for each calendar day the balance is outstanding.

(d) No insurance charges or other charges new text begin , including check cashing fees, new text end must
be permitted to be charged, collected, or imposed on a consumer small loan except as
authorized in this section.

(e) On a loan transaction in which cash is advanced in exchange for a personal
check, deleted text begin a deleted text end new text begin only one new text end return check charge may be charged as authorized by section 604.113,
subdivision 2, paragraph (a). The civil penalty provisions of section 604.113, subdivision
2, paragraph (b), may not be demanded or assessed against the borrower.

(f) A loan made under this section must not be repaid by the proceeds of another
loan made under this section by the same lender or related interest. The proceeds from a
loan made under this section must not be applied to another loan from the same lender or
related interest. No loan to a single borrower made pursuant to this section shall be split or
divided and no single borrower shall have outstanding more than one loan with the result
of collecting a higher charge than permitted by this section or in an aggregate amount of
principal exceed at any one time the maximum deleted text begin of $350 deleted text end new text begin in subdivision 1a new text end .

new text begin (g) A consumer small loan lender shall have an affirmative duty to inquire of a
prospective borrower whether or not the prospective borrower is a covered member of
the armed forces or a dependent of such a member, as those terms are defined in United
States Code, title 10, section 987.
new text end

new text begin (h) No consumer small loan shall be made by a consumer small loan lender to any
borrower who is indebted, or has been indebted, at any time during the prior 21 calendar
days, to the consumer small loan lender or any related interest for any amount, whether or
not the indebtedness is related to a consumer small loan.
new text end

new text begin (i) Section 609.52 shall not apply to a transaction made under this section.
new text end

new text begin (j) The holder or assignee of a check written by a borrower in connection with
a consumer small loan takes the instrument subject to all claims and defenses of the
borrower.
new text end

new text begin (k) Threatening to use or using the criminal process to collect for nonpayment of a
consumer small loan is prohibited.
new text end

new text begin (l) No contract or agreement between a consumer small loan lender and borrower
may contain a mandatory arbitration provision. Any such provision is void and
unenforceable.
new text end

Sec. 5.

Minnesota Statutes 2006, section 47.60, is amended by adding a subdivision to
read:

new text begin Subd. 2a. new text end

new text begin Installment payment plans. new text end

new text begin (a) Prior to entering into an agreement to
make a loan of $75 or more under this section, a consumer small loan lender must orally
and in writing offer a prospective borrower the option to repay the loan in installments.
new text end

new text begin (b) The offer shall be written in the language in which the loan agreement is
negotiated with the borrower. The borrower may request a copy of the offer in any
language in which the lender advertises.
new text end

new text begin (c) The written offer of an installment payment agreement must be provided to a
prospective borrower on a single sheet of paper, separately from any other document or
writing, and must state in the following language and format:
new text end

new text begin RIGHT TO INSTALLMENT PAYMENT PLAN
new text end

new text begin You have the right to pay off this loan in installments.
new text end

new text begin You have the right to pay off this loan of $....... in five (5) payments. The cost of
each payment is (insert amount). The cost of interest and fees you would pay under
an installment plan is (insert APR).
new text end

new text begin Example
new text end

new text begin If you borrow $500, you make five payments. The total you pay is $530.
new text end

new text begin If instead you took five consecutive loans, the total you'd pay is $2,650.
new text end

new text begin Rate Comparison
new text end

new text begin If you borrow $100 and pay in installments, your rate is 166%.
new text end

new text begin If you borrow $100 and pay in one payment, your rate is 390%.
new text end

new text begin (d) The heading "RIGHT TO AN INSTALLMENT PAYMENT PLAN" shall be
centered, in capital letters, and in bold, underlined 22-point type. All remaining text shall
be in capital and small case letters. The headings "Examples" and "Rate Comparison"
shall be centered and in bold, underlined type. "You have the right to pay off this loan
in installments" shall be centered in bold letters. The other sentences shall be indented
one-half inch from the margin. There shall be two spaces between each sentence, except
there shall be three spaces (1) between the heading "RIGHT TO AN INSTALLMENT
PAYMENT PLAN" and the sentence "You have the right to pay off this loan in
installments"; (2) between the sentence "The cost of interest and fees (your rate) under
an installment plan is (insert APR)" and the heading "Examples"; and (3) between the
sentence "If instead you took five consecutive loans, the total you'd pay is $2,650" and
the heading "Rate Comparison."
new text end

new text begin (e) Each installment payment shall constitute 20 percent of the total due on the loan.
For the purposes of this subdivision, the "total due on the loan" means the principal,
interest, and fees allowable under subdivision 2. No additional charges may be added.
new text end

new text begin (f) The first installment may not be due any earlier than two weeks from the
execution of the repayment contract and each installment payment may not be due any
earlier than two weeks from the date the previous installment was due.
new text end

Sec. 6.

Minnesota Statutes 2006, section 47.60, subdivision 4, is amended to read:

Subd. 4.

Books of account; annual report; schedule of charges; disclosures.

(a)
A lender filing under subdivision 3 shall keep and use in the business books, accounts,
and records as will enable the commissioner to determine whether the filer is complying
with this section.

(b) A lender filing under subdivision 3 shall annually on or before March 15 file
a report to the commissioner giving the new text begin aggregate new text end information new text begin and separate information
for each branch office new text end the commissioner reasonably requires concerning the business and
operations during the preceding calendar year deleted text begin . deleted text end new text begin , including:
new text end

new text begin (1) the number of loans made;
new text end

new text begin (2) the total dollar amount of loans made;
new text end

new text begin (3) the number of individual borrowers to whom loans were made;
new text end

new text begin (4) the number of borrowers who took five or more, 12 or more, and 20 or more
loans;
new text end

new text begin (5) the number of borrowers who used the installment payment plan under
subdivision 2a;
new text end

new text begin (6) the number of loans written off as uncollectible;
new text end

new text begin (7) the total dollar amount of loans written off as uncollectible; and
new text end

new text begin (8) any other information the commissioner requires.
new text end

(c) A lender filing under subdivision 3 shall display prominently in each place
of business new text begin and in every language in which the lender advertises, new text end a full and accurate
schedule, to be approved by the commissioner, of the charges to be made and the method
of computing those charges. deleted text begin A lender shall furnish a copy of the contract of loan to a
person obligated on it or who may become obligated on it at any time upon the request
of that person. deleted text end This is in addition to any disclosures required by the federal Truth in
Lending Act, United States Code, title 15.

(d) A lender filing under subdivision 3 shall, upon repayment of the loan in
full, mark indelibly every obligation signed by the borrower with the word "Paid" or
"Canceled" within 20 days after repayment.

(e) A lender filing under subdivision 3 shall display prominently, in each licensed
place of business new text begin and in every language in which the lender advertises new text end , a full and accurate
statement of the charges to be made for loans made under this section. The statement of
charges must be displayed in a notice, on plastic or other durable material measuring at
least 12 inches by 18 inches, headed "CONSUMER NOTICE REQUIRED BY THE
STATE OF MINNESOTA." The notice shall include, immediately above the statement
of charges, the following sentence, or a substantially similar sentence approved by the
commissioner: "These loan charges are higher than otherwise permitted under Minnesota
law. deleted text begin Minnesota law permits these higher charges only because short-term small loans
might otherwise not be available to consumers. deleted text end If you have another source of a loan, you
may be able to benefit from a lower interest rate and other loan charges." The notice must
not contain any other statement or information, unless the commissioner has determined
that the additional statement or information is necessary to prevent confusion or
inaccuracy. The notice must be designed with a type size that is large enough to be readily
noticeable and legible. The form of the notice must be approved by the commissioner
prior to its use.

Sec. 7.

Minnesota Statutes 2006, section 47.60, is amended by adding a subdivision to
read:

new text begin Subd. 4a. new text end

new text begin Written contracts; contract disclosures. new text end

new text begin (a) A consumer small loan
lender must furnish a copy of the written contract of the loan to each borrower. The
contract and disclosures shall be written in the language in which they were negotiated
with the borrower.
new text end

new text begin (b) The written contract must contain:
new text end

new text begin (1) the name, address, and telephone number of the lender making the consumer
small loan, and the name and title of the individual employee who signs the contract
on behalf of the lender;
new text end

new text begin (2) an itemization of the fees and interest charges to be paid by the borrower;
new text end

new text begin (3) the annual percentage rate as computed pursuant to United States Code, title 15,
section 1606;
new text end

new text begin (4) a clear description of the borrower's payment obligations under the loan,
including the right to enter into an installment payment plan; and
new text end

new text begin (5) in bold, 14-point type and in a manner which is more conspicuous than the other
information provided in the loan document, a statement that "You cannot be prosecuted in
criminal court to collect this loan." The notice shall be located immediately preceding the
signature of the borrower.
new text end

new text begin (c) The borrower may request a copy of the loan contract and disclosures in any
language in which the consumer small loan lender advertises. The consumer small loan
lender shall provide, on a separate sheet of paper attached at the back of the contract, the
following disclosure in each language in which the consumer small loan lender advertises:
"You have the right to receive a copy of this contract in (name of language)."
new text end

Sec. 8.

Minnesota Statutes 2006, section 47.60, subdivision 6, is amended to read:

Subd. 6.

Penalties for violation new text begin ; private right of action new text end .

new text begin (a) new text end A person or the
person's members, officers, directors, agents, and employees deleted text begin who violate or participate in
the violation of any of the provisions of this section may be liable in the same manner as
in section 56.19 deleted text end new text begin making a consumer small loan without complying with subdivision 3 is
guilty of a gross misdemeanor new text end .

new text begin (b) A consumer small loan lender making a consumer small loan to a borrower
in this state, regardless of the physical location of the lender, who violates any of the
provisions of subdivision 1a, 2, 2a, or 4a is liable to the borrower for:
new text end

new text begin (1) all fees and charges owing or paid;
new text end

new text begin (2) statutory damages of $1,000 per violation, provided that a consumer small lender
shall not be liable for statutory damages if the violation was not intentional and resulted
from a bona fide clerical or mechanical error, notwithstanding the existence of reasonable
procedures the lender had in place to avoid such errors. The lender has the burden of
proving that an error was not intentional and was bona fide; and
new text end

new text begin (3) costs and reasonable attorney fees.
new text end

Sec. 9.

Minnesota Statutes 2006, section 332.31, subdivision 3, is amended to read:

Subd. 3.

Collection agency.

"Collection agency" means and includes any person
engaged in the business of collection for others any account, bill or other indebtedness
except as hereinafter provided. It includes persons who furnish collection systems
carrying a name which simulates the name of a collection agency and who supply forms or
form letters to be used by the creditor, even though such forms direct the debtor to make
payments directly to the creditor rather than to such fictitious agency. new text begin "Collection agency"
also includes a consumer small loan collector.
new text end

Sec. 10.

Minnesota Statutes 2006, section 332.31, is amended by adding a subdivision
to read:

new text begin Subd. 8. new text end

new text begin Consumer small loan collector. new text end

new text begin A "consumer small loan collector" means
a consumer small loan lender, as defined in section 47.60, collecting consumer small
loans not for others.
new text end

Sec. 11.

Minnesota Statutes 2006, section 332.32, is amended to read:

332.32 EXCLUSIONS.

The term "collection agency" shall not include persons whose collection activities
are confined to and are directly related to the operation of a business other than that of
a collection agency such as, but not limited to banks when collecting accounts owed to
the banks and when the bank will sustain any loss arising from uncollectible accounts,
abstract companies doing an escrow business, real estate brokers, public officers, persons
acting under order of a court, lawyers, trust companies, insurance companies, credit
unions, savings associations, loan or finance companies unless they are engaged in
asserting, enforcing or prosecuting unsecured claims which have been purchased from
any person, firm, or association when there is recourse to the seller for all or part of the
claim if the claim is not collected. new text begin A consumer small loan collector is not excluded from
the requirements of this chapter.
new text end

Sec. 12.

Minnesota Statutes 2006, section 332.335, is amended by adding a subdivision
to read:

new text begin Subd. 5. new text end

new text begin Additional requirements of consumer small loan collectors. new text end

new text begin Consumer
small loan collectors are exempt from the collector registration requirements and
collection agency licensing requirements of this chapter, but are subject to all other
provisions of sections 45.027 and 332.31 to 332.45. A consumer small loan collector does
not have to obtain a certificate of exemption under subdivision 2.
new text end