During the 2019 legislative session, the League successfully worked toward improvements to Indiana’s outdated Uniform Consumer Credit Code (UCCC) that applies to consumer loans made by Indiana chartered depository institutions and other state-licensed lenders like consumer finance companies and buy-here-pay-here car dealers. One outcome of the 2019 session was a summer study committee hearing to consider additional UCCC improvements that could be made in 2020. Throughout the summer, the League testified before the study committee and worked with legislators to develop several recommendations for further improvements.
Some of the recommendations include:
- Changing the maximum allowed finance charge on consumer loans from two options (25% on any balance or a staggered rate matrix of 36-21-15% based on loan balance) to a flat rate most likely to be 36%.
- Simplifying UCCC provisions governing the refunding of interest, fees, and charges when a loan is paid off early. This is a problem we heard about from credit unions because it can often be confusing what must be refunded to a borrower who paid pre-paid finance charges but is due a refund when paying off early.
- Clarifying confusion about the application of the new delinquency charge law to loans originated prior to July 1, 2019. One of the improvements from last session include an increase in the delinquency charge and how it can be assessed, but it is unclear whether the new charge is allowed on loans made prior to the change.
- Consider moving second lien real estate lending (HELOCs, second mortgages) out of the UCCC and treating them more like first lien mortgages.
- Eliminating pre-computed finance charges. Pre-computed interest loans are primarily used by some consumer finance companies instead of simple interest loans. Determining refunding on these types of loans can complicated and, according to the DFI, often results in examination findings. The DFI would like to see pre-computed loans be removed as an option from the UCCC. The League is not aware of any credit unions making pre-computed interest loans, but please let us know as soon as possible if you are.
The League is participating in a working group meeting weekly to draft legislation to implement these recommendations. The group includes the Chairmen of the Senate and House Financial Institutions Committees, a Legislative Services Agency attorney, the DFI, the Indiana Bankers Association, the Indiana Mortgage Bankers Association, and the Indiana Consumer Finance Association. It is very likely that a bill will emerge from these efforts, but it is not yet clear which specific items will be included in the package. The League is emphasizing the need for improvements to the refunding problem and clarification on the application of the delinquency charge improvements to older loans. While all of these recommendations have merit and potential for improving the UCCC, it may not be possible to seek all of them in a short legislative session during a big election year. We will provide further details about this legislation once it is fully developed and begins its journey through the legislative process.