Pennsylvania Act 1994-167 — BANKING CODE OF 1965 - OMNIBUS AMENDMENTS

Act text

BANKING CODE OF 1965 - OMNIBUS AMENDMENTS
                 Act of Dec. 28, 1994, P.L. 1424, No. 167             Cl. 07
                             Session of 1994
                               No. 1994-167

     SB 863

                                  AN ACT

     Amending the act of November 30, 1965 (P.L.847, No.356),
        entitled "An act relating to and regulating the business of
        banking and the exercise by corporations of fiduciary powers;
        affecting persons engaged in the business of banking and
        corporations exercising fiduciary powers and affiliates of
        such persons; affecting the shareholders of such persons and
        the directors, trustees, officers, attorneys and employes of
        such persons and of the affiliates of such persons; affecting
        national banks located in the Commonwealth; affecting persons
        dealing with persons engaged in the business of banking,
        corporations exercising fiduciary powers and national banks;
        conferring powers and imposing duties on the Banking Board,
        on certain departments and officers of the Commonwealth and
        on courts, prothonotaries, clerks and recorders of deeds;
        providing penalties; and repealing certain acts and parts of
        acts," providing for certain direct and indirect extensions
        of credit to individuals, partnerships and unincorporated
        associations; authorizing direct extensions of credit to
        finance installment sales of goods and services to be made
        through sellers and contractors as intermediaries; further
        providing for certain interest rates; and providing for
        compliance with Federal law regarding availability of
        withdrawal of items deposited.
        (a)  The General Assembly makes the following findings as the
     basis for this act:
            (1)  The statutes and regulations of this Commonwealth
        which govern direct and indirect extensions of credit by
        banks to individuals and unincorporated entities have become
        voluminous and intricate by reason of separate amendments and
        supplements over several years and, in conjunction with
        Federal statutes and regulations, have failed to provide a
        stable basis for the offering of credit by banks. These
        statutes and regulations have imposed a costly, confusing and
        needless complexity in the compliance requirements that banks
        must satisfy without providing a proportionate benefit to
        their customers.
            (2)  The interests of the public and the interests of
        this Commonwealth have been adversely affected by economic
        limitations on direct and indirect extensions of credit under
        restrictions of Pennsylvania law.
            (3)  Changes in Federal laws regulating interest payable
        on deposits have enabled the public to obtain market rates of
        interest on funds deposited with banks, and these rates may
        be adjusted to reflect interest rate levels in the national
        economy. Pennsylvania law generally does not provide the same
        flexibility for interest rates on direct and indirect
        extensions of credit.
            (4)  States contiguous to Pennsylvania, as well as most
        other states of the United States, have changed bank lending
        laws in order to maintain a consistent availability of
        credit. A consequence of these changes has been that
        financial institutions located in other states have become
        the sources of a substantial and increasing percentage of the
        personal credit business in Pennsylvania detrimentally
        affecting employment, business and tax revenues in this
        State.
            (5)  The accelerating development of interstate banking
        will increase the significance of State laws which govern
        bank extensions of credit and their effect on the choice of
        places where activities will be located. The loss of jobs in
        Pennsylvania directly caused by its outdated credit laws will
        inevitably increase with changes in the banking industry
        unless those laws offer the same opportunities for
        competition by Pennsylvania organizations as do the laws of
        other states.
            (6)  The interests of individuals and unincorporated
        entities in continuing credit availability from banks located
        in this State, the interests of the State in augmenting
        employment and business of its residents and the interests of
        the State and political subdivisions in State and local taxes
        resulting from this employment and business will be promoted
        by simplification and flexibility of bank lending laws so
        that credit can be offered at market rates and competitive
        terms.
        (b)  On the basis of these findings, the purposes of this act
     are to provide:
            (1)  Uniform, adequate and simplified disclosure by
        adoption of the comprehensive Federal rules governing
        disclosure in consumer credit transactions.
            (2)  Availability from Pennsylvania banks of credit at
        competitive market rates of interest and charges so that
        customers may benefit from decreases in market rates and
        Pennsylvania banks may continue to offer credit and compete
        with banks from other states during periods of both increases
        and decreases in interest rates.
            (3)  Maintenance of credit services for Pennsylvania
        customers at local banks so that customer alternatives will
        not be restricted to out-of-State companies as in the case of
        past periods of high interest rates.
            (4)  Unification and simplification of rules governing
        bank credit to promote efficiency and to increase borrower
        comprehension of the terms of credit.
        (c)  The provisions of this statute shall be liberally
     construed to accomplish the foregoing purposes.

        The General Assembly of the Commonwealth of Pennsylvania
     hereby enacts as follows:

        Section 1.  The act of November 30, 1965 (P.L.847, No.356),
     known as the Banking Code of 1965, is amended by adding a
     section to read:
      Section 322.  Extensions of Credit to Individuals, Partnerships
                    and Unincorporated Associations
        (a)  Definitions--As used in this section, the following
     words and phrases shall have the meanings given to them in this
     subsection:
        "Credit device"--any card, check, identification code or
     other means of identification contemplated by the agreement
     governing a plan.
        "Loans"--cash advances or loans to be paid to or for the
     account of the customer.
        "Plan" or "open-end credit plan"--a plan contemplating the
     extension of credit under an account governed by an agreement
     between an institution and a customer pursuant to which:
            (i)  the institution permits the customer and, if the
        agreement governing the plan so provides, persons acting on
        behalf of or with authorization from the customer from time
        to time to make purchases or to obtain loans or both by use
        of a credit device,
            (ii)  the amounts of purchases made and loans obtained
        are charged to the customer's account under the plan,
            (iii)  the customer is required to pay the institution
        the amounts of all purchases and loans charged to the
        customer's account under the plan but has the privilege of
        paying the amounts outstanding from time to time in full or
        installments, and
            (iv)  interest may be charged and collected by the
        institution from time to time on the outstanding unpaid
        indebtedness under such plan.
        "Purchases"--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.
        "Truth in Lending"--the Federal Truth in Lending Act (Public
     Law 90-321, 15 U.S.C. § 1601 et seq.) and regulations
     promulgated thereunder as in effect from time to time. The terms
     "finance charge," "annual percentage rate," "credit card,"
     "open-end credit" and "closed-end credit" have the same coverage
     and meanings as the definitions of those terms under Truth in
     Lending.
        (b)  Coverage--This section shall govern all direct and
     indirect extensions of credit by an institution for personal,
     family, household, business or agricultural purposes to an
     individual, a partnership or an unincorporated association,
     whether as closed-end credit or open-end credit, except
     extensions of credit:
            (i)  which are secured by a first-lien, purchase money,
        residential real estate mortgage,
            (ii)  which are student loans guaranteed by the
        Pennsylvania Higher Education Assistance Agency, or
            (iii)  which are not subject to a maximum rate of
        interest or finance charge or as to which the pleading of
        usury as a defense is prohibited pursuant to Federal or State
        law.
        (c)  Disclosures--In connection with an extension of credit,
     an institution shall make applicable disclosures required by
     Truth in Lending in lieu of any disclosure requirement which may
     be imposed by Pennsylvania law.
        (d)  Agreements for extension of credit--An institution may
     extend credit pursuant to this section on the basis of a written
     agreement. An agreement shall be fully completed prior to
     signature by the customer. A completed copy of such agreement,
     including related statements, notices and documents, shall be
     given to the customer. An agreement shall have the form and
     contents required by Truth in Lending and shall, in addition,
     provide if applicable:
            (i)  the amounts of available credit and the procedure or
        means by which it may be obtained,
            (ii)  maturity provisions, installment payment
        requirements, prepayment privileges and rebates of unearned
        interest upon prepayment,
            (iii)  either the amounts or rates of interest, which may
        be fixed or variable rates, or the basis for determining such
        amounts or rates, which basis in the case of variable rates
        must be an objectively determinable basis other than a basis
        determined solely by the institution, subject to a maximum
        rate of interest determined by the higher of the rate
        established by the National Credit Union Administration Board
        under 12 U.S.C. § 1757(5)(A)(vi) or the rate yielded by the
        sum of the average percentage yield on United States Treasury
        notes for a constant five-year maturity as published by the
        Board of Governors of the Federal Reserve System rounded to
        the nearer quarter of one percent, determined on the first
        day of each calendar quarter, plus ten percent,
            (iv)  the method of determining balances of unpaid
        indebtedness to which periodic rates of interest are
        applicable which, in the case of an open-end credit plan,
        may, if the agreement governing the plan so provides, include
        the amount of any interest and other charges, including
        delinquency charges, which have accrued in the account,
            (v)  charges which may be imposed in addition to
        interest, in such amounts as the agreement provides, or as
        established in the manner the agreement provides, such as,
        but not limited to, minimum charges, check charges and
        maintenance charges related to extensions of credit pursuant
        to overdraft check plans, a delinquency charge of twenty
        dollars ($20) or ten percent of each installment or payment,
        whichever is higher, which is in default for more than
        fifteen days and fees, extension charges and actual charges
        that may be incurred on default, including, but not limited
        to, court and other collection costs and reasonable attorney
        fees. Such additional charges may include a daily, weekly,
        monthly, annual or other periodic charge for the privileges
        made available to the customer under an open-end credit plan,
        transaction charges for each separate purchase or loan under
        the plan and a minimum charge for each scheduled billing
        period under the plan, during any portion of which there is
        an outstanding unpaid indebtedness under the plan,
            (vi)  collateral security and provisions relating
        thereto, except that there may not be any authorization for
        entry of judgment by confession nor any acceleration of a
        loan or repossession of collateral unless there is a default
        pursuant to the agreement, and
            (vii)  insurance coverages and premiums therefor.
     Such agreements shall be valid and enforceable, and an
     institution may impose and collect the interest and other
     charges provided therein.
        (e)  Computation of interest--A fixed rate of interest
     included in a finance charge shall be computed either on a
     simple interest basis by a generally accepted actuarial method,
     including a method permitted for determination of an annual
     percentage rate under Truth in Lending or, as to an extension of
     credit with an initial maturity of not more than sixty months,
     which is made within two years after the effective date of this
     section, on an add-on or discount basis. The maximum amount that
     may be charged on the basis of a variable rate of interest shall
     be computed in accordance with or with reference to a schedule
     or formula at the times and for the periods provided in the
     agreement. The periodic rate of interest, as so varied, will be
     applicable to all outstanding unpaid indebtedness under the
     agreement from the effective date of the variation if so
     provided in the agreement.
        (f)  Changes in terms--An institution may change the terms of
     the agreement if:
            (i)  the agreement so provides,
            (ii)  there is compliance with applicable notice
        requirements of Truth in Lending prior to the effective date
        of the change,
            (iii)  such notice states that a customer for whose
        account a change in terms does not become effective may pay
        all outstanding amounts pursuant to the agreement as in
        effect prior to the notice, and
            (iv)  in the case of an increase in a fixed rate of
        interest or other charges payable by the customer under an
        open-end credit plan, the customer incurs additional
        indebtedness after the effective date of the change of terms.
     If the agreement governing the plan so provides, a change of
     terms pursuant to this subsection may, on and after the date it
     becomes effective as to an account, apply to all then
     outstanding unpaid indebtedness. A change in the amount of
     interest imposed in accordance with or with reference to a
     schedule or formula for a variable rate of interest shall not be
     deemed to be a change in terms, but a change in such schedule or
     formula shall be deemed to be a change in terms. No change may
     be made in a fixed rate of interest or other charges payable
     with respect to the outstanding balance of indebtedness or in
     the amount or due dates of required installment payments on
     closed-end credit unless there is written consent of the
     customer at the time of the change except for an extension of
     any due date or an option granted by the institution to the
     customer to omit payments and except as may be otherwise
     provided in an agreement for an extension of credit which is not
     for personal, family or household purposes.
        (g)  Prepayment--
            (i)  A borrower or buyer may prepay an extension of
        credit in full at any time without any prepayment charge.
            (ii)  If interest has been precomputed, then, in the
        event of prepayment of an extension of credit, the
        institution shall refund to the customer the unearned portion
        of the precomputed interest. The refund shall be in an amount
        not less than the amount of the unearned precomputed interest
        calculated in accordance with a generally accepted actuarial
        method, including a method permitted for determination of an
        annual percentage rate under Truth in Lending, except that
        the amount of the unearned interest on an extension of credit
        with an initial maturity of not more than sixty months which
        is made within two years after the effective date of this
        section for which interest is computed on an add-on or
        discount basis as permitted by subsection (e) may be
        calculated in accordance with the "sum of the balances"
        method and except that the customer shall not be entitled to
        a refund which results in a net minimum charge of less than
        an amount equal to the interest that would accrue in the
        first month the extension of credit was scheduled to be
        outstanding. The institution shall not be required to refund
        the unearned portion of the interest if such amount is less
        than one dollar ($1).
            (iii)  The amount of a refund under the "sum of the
        balances" method is determined by multiplying the precomputed
        interest by a fraction, the numerator of which is the sum of
        the balances, including interest, of the extension of credit
        scheduled to be outstanding after deducting the first of the
        payments scheduled to be made on or after the date of
        prepayment and the denominator of which is the sum of all the
        unpaid balances, including interest, of the extension of
        credit scheduled to be outstanding from its inception to and
        including the maturity of the final installment. Intervals
        between scheduled payments must be regular periods of one
        month or less except that the interval between the inception
        of an extension of credit and the due date of the first
        scheduled payment may be:
                (A)  one month and fifteen days when the regular
            payment interval is a month,
                (B)  one month when the regular payment interval is
            less than a month but more than a week, or
                (C)  eleven days when the regular payment interval is
            a week or less.
        (h)  Insurance--The agreement may provide for life, health,
     accident, loss-of-income or other permissible insurance related
     to an extension of credit under a group or individual policy
     subject to the option of the customer to furnish required
     insurance through an authorized insurer of the customer's choice
     as provided in section 11 of the act of September 2, 1961
     (P.L.1232, No.540), known as the "Model Act for the Regulation
     of Credit Life Insurance and Credit Accident and Health
     Insurance," and, if premiums for such insurance are paid to the
     institution, provisions shall be made for rebates of unearned
     premiums, if any, upon prepayment. An institution may require
     that insurance be maintained, from an insurer acceptable to the
     institution, against loss or damage to property which is
     collateral security for the extension of credit and against
     liability arising out of the ownership or use of such property.
     An institution may grant an extension of credit to finance the
     premiums for such insurance.
        (i)  Extensions of credit through intermediaries--An
     extension of credit to finance a sale of a motor vehicle, other
     than through an open-end credit plan, may be made by an
     institution through a seller licensed as an installment seller
     under the act of June 28, 1947 (P.L.1110, No.476), known as the
     "Motor Vehicle Sales Finance Act," as an intermediary if:
            (i)  the agreement governing the extension of credit
        conspicuously provides that the extension of credit is made
        by the institution to the buyer and is subject to the
        provisions of this section, and
            (ii)  either the institution has made a commitment to
        make the extension of credit or the agreement is subject to
        acceptance by the institution within two business days after
        the date of the agreement and the institution upon such
        acceptance sends written notice thereof to the buyer. The
        terms and conditions under which the seller acts as an
        intermediary between the institution and the buyer shall be
        determined by written agreement between the institution and
        the seller.
     An extension of credit made through an intermediary pursuant to
     this section shall be subject to this act and other acts
     governing transactions between banks and their customers and
     shall not be subject to the provisions or requirements of any
     other regulatory statute, rule or regulation, and neither a
     seller who acts as an intermediary for an institution with
     respect to such an extension of credit nor an institution which
     makes such an extension of credit through a seller as an
     intermediary shall be deemed to be in violation of licensing or
     other requirements of any other regulatory statute, rule or
     regulation that would be applicable to extensions of credits by
     such a seller or contractor to its customers.
        (j)  Right of rescission--A person whose ownership interest
     in that person's principal dwelling is subject to a lien or
     security interest as collateral security for an extension of
     credit subject to this section shall have a right of rescission
     for the same types of transactions on the same terms and
     conditions and for the same time periods as those provided for
     the right of rescission under Truth in Lending.
        (k)  Statement of account--Upon the written request of the
     customer, an institution shall provide, within ninety days after
     the end of each calendar year, a statement of the customer's
     account showing payments made during such year, the amount
     applied to interest and the balance of the account at the end of
     such year.
        (l)  Waiver of provisions--No provision of this section which
     confers rights on the customer or any other person may be waived
     or modified except to the extent and in the circumstances in
     which Truth in Lending permits a consumer to waive or modify the
     right of rescission.
        (m)  Balloon payments--No agreement for an extension of
     credit under this section containing terms of which principal is
     repayable in installments may provide for a final payment which
     is more than double the regularly scheduled payment exclusive of
     overdue or extended payments, except in the case of automobile
     financing transactions.
        Section 2.  Section 506(a)(vi), (vii) and (viii) and last
     paragraph of the act, amended December 21, 1988 (P.L.1416,
     No.173), are amended and the subsection is amended by adding a
     clause to read:
      Section 506.  Lending Powers; Direct Leasing of Personal
                    Property
        (a)  A savings bank may:
            * * *
            (vi)  in the case of a savings bank which has elected to
        exercise the conditional powers provided in section 513, make
        secured or unsecured loans for personal, family or household
        purposes, including loans reasonably incident to the
        provision of such credit, and subject to regulation by the
        department, issue credit cards, extend credit in connection
        therewith, and otherwise engage in or participate in credit
        card operations, except that the total amount of such loans
        or extensions of credit shall not exceed thirty percent of
        the assets of such savings bank[. In any loan or extension of
        credit made under the authority of this clause a savings bank
        may charge or impose any rate or charge which could be
        imposed by a bank in connection with any such loan or
        extension of credit and shall be subject to the same
        restrictions and limitations imposed upon a bank in
        connection with such loan or extension of credit];
            (vii)  make overdraft loans specifically related to
        deposits which are subject to withdrawal by check or by
        negotiable order of withdrawal; [and]
            (viii)  make loans for the payment of educational
        expenses; and
            (ix)  in any loan or extension of credit made under the
        authority of this section, charge or impose any rate or
        charge which could be imposed by a bank in connection with
        any such loan or extension of credit, make agreements in the
        same manner and with the same terms, provisions and
        conditions as a bank and, in addition to the restrictions of
        this section, shall be subject only to the same disclosure
        and other requirements, restrictions and limitations imposed
        upon a bank in connection with such loan or extension of
        credit.
     [A savings bank may not lend money or discount or purchase
     evidences of indebtedness or agreements for the payment of money
     except as provided in sections 504 and 505 and in this
     subsection (a).]
        * * *
        Section 3.  The act is amended by adding a section to read:
      Section 611.  Compliance with Federal Law Regarding
                    Availability of Withdrawal of Items Deposited
        An institution shall comply with the Expedited Funds
     Availability Act (Public Law 100-86, 12 U.S.C. § 4001 et seq.)
     and any amendments thereof and any regulations, interpretations
     and rulings issued thereunder from the effective date thereof.
        Section 4.  The provisions of this act shall only govern
     transactions between banks or savings banks and their customers
     and, by reason of the references to "interest, finance charge,
     rate, and/or terms" in section 701(a)(26) of the act of December
     14, 1967 (P.L.746, No.345), known as the Savings Association
     Code of 1967, transactions between savings associations and
     their customers and shall not affect acts and parts of acts
     governing other creditors or sellers or contractors for goods or
     services or acts or parts of acts governing such other creditors
     or sellers as to installment sales or contracts for goods or
     services, including, but not limited to, the act of June 28,
     1947 (P.L.1110, No.476), known as the Motor Vehicle Sales
     Finance Act, the act of August 14, 1963 (P.L.1082, No.464),
     known as the Home Improvement Finance Act and the act of October
     28, 1966 (Sp.Sess., P.L.55, No.7), known as the Goods and
     Services Installment Sales Act, or acts and parts of acts
     governing rights, remedies, duties and procedures for
     enforcement of obligations upon default on an extension of
     credit, including, but not limited to, acts governing
     repossession and foreclosure, or acts and parts of acts
     governing credit life insurance, the Fair Debt Collection
     Practices Act (Public Law 95-109, 15 U.S.C. § 1692 et seq.), or
     the act of December 17, 1968 (P.L.1224, No.387), known as the
     Unfair Trade Practices and Consumer Protection Law, or 13
     Pa.C.S. (relating to commercial code). This act shall not repeal
     any act governing criminal usury, extortionate extensions of
     credit or racketeering activity or repeal or affect any law
     relating to the preservation against an assignee of a consumer's
     claims and defenses arising out of an agreement for the purchase
     of goods or services.
        Section 5.  This amendatory act shall be known and may be
     cited as the Simplification and Availability of Bank Credit Act.
        Section 6.  All acts and parts of acts are repealed insofar
     as they are inconsistent with the provisions of this act.
        Section 7.  This act shall take effect in 90 days.

     APPROVED--The 28th day of December, A. D. 1994.

     ROBERT P. CASEY