Indiana General Assembly Wraps Up Early
As expected, the Indiana General Assembly finished the 2020 legislation session a few days ahead of its constitutional deadline when legislators worked late into the night March 11 and gaveled out for the year. Things got a little bit contentious in the waning hours as legislators tried to deal with health care costs, regional development/transit funding, and a bill that sought to address potential complications with the Attorney General’s term in office. Some things made it and some things did not. In the end, a session that saw legislators introduce 903 bills in the beginning finished with only 168 bills making it to Governor Holcomb’s desk.
- A fix to the credit reporting problems created last year (HB 1109).
- The Department of Financial Institutions (DFI) bill that includes parity for state-chartered credit unions on appraisal requirements and technical changes to the Indiana Credit Union Act’s provisions on loans to SCU officers and officials (HB 1353).
- Modest improvements to the Uniform Consumer Credit Code (UCCC) related to prepaid finance charge refunding (SB 395).
Credit Report Problem Clean-Up Bill (HB 1109)
HB 1109 was fast-tracked by the General Assembly, passed both chambers unanimously, and awaits the Governor’s signature. The law would take effect immediately and would fix a major problem that arose as an unintended consequence of legislation passed in 2019. Last year’s legislation intended to help consumers avoid identity theft but instead created serious problems for creditors trying to get credit reports on borrowers. When the law went into effect last summer, suddenly credit bureaus began providing no credit report for a borrower if there was any kind of mismatched data, which often occurred when a borrower had recently moved or married. This change impacted lenders of all kinds as well as realtors, apartment owners, insurance agents, and others. The significant negative impact of last year’s legislation on the credit reporting process led to the development of HB 1109 that repeals last year’s bill and should return the credit reporting process to how it functioned in Indiana prior to July 1, 2019.
Once the law goes into effect in the next month or so, please let us know if you continue to have problems receiving credit reports from the credit reporting agencies
In addition to fixing the credit report problem, HB 1109 also included a fix to another problem created by 2019 legislation. This fix makes clear that credit unions (and most others who make telephone sales calls) do not have to register with the Attorney General's office. There was a lack of clarity about this issue when positive “do not call” list legislation in 2019 also inadvertently changed an old section of the law related to telemarketing restrictions.
Department of Financial Institutions Bill (HB 1353)
HB 1353 also passed the General Assembly unanimously and will take effect on July 1, 2020, once signed into law. This year’s DFI Bill started off with changes to the Indiana Credit Union Act (Act) related to loans made to SCU officers and officials and was also successfully amended by the League during the session to include language providing parity for SCUs with FCUs in real estate appraisal requirements. In addition, HB 1353 includes a clarification related to permitted delinquency charges on loans originated prior to July 1, 2019.
- Appraisal requirements. The League worked with the DFI to develop an amendment to HB 1353 that addresses a potential parity problem related to the appraisal threshold. Right now, the Act requires written appraisals for real estate loans of $250,000 or greater. However, the NCUA has a proposed rule under consideration that would raise that threshold to $400,000 for federally insured credit unions. This would match what the other federal financial regulators adopted last fall. Instead of simply amending the Credit Union Act to reflect a $400,000 threshold, the League and the DFI wrote language that would replace the defined dollar threshold with a direct reference to NCUA’s appraisal rule so that SCU appraisal requirements will now more directly match the requirements for FCUs rather than having to wait on a state legislative change each time NCUA makes changes to its rule. This amendment was adopted in the Senate and was part of the final legislation.
- Loans to SCU officers and officials. HB 1353 included a section that is intended to clarify the Act’s provisions related to loans to credit union directors (and committee members) and officers. In 2005, the Act was changed to effectively apply Regulation O (which has applied for decades to banks and thrifts) to state-chartered credit unions. When that language was added to the Act, wording was pulled from Reg. O and put into the Code rather than having the Code simply reference Reg. O. The Act includes wording that says the DFI may utilize Reg. O in implementing the requirements, which is what it has done in practice. Over the years, the DFI indicates that there has been some confusion with the way the Act is worded so HB 1353 intends to clear up the confusion by removing the specific Reg. O-like provisions in the Act and replace them with a cleaner reference to Reg. O. This does not appear to create any new requirement (because the DFI was already applying Reg. O to credit unions) but the League will closely monitor how the DFI examines credit unions on these issues and will insist on consistency in its approach. If you find that the DFI is changing the way it examines on this issue, please let us know.
- Delinquency charge clarification. Last year, the League worked with the DFI and others to pass legislation that effectively eliminated the “current installment rule” from the UCCC and increased the permitted delinquency charge on consumer loans made by SCUs and other state-chartered/licensed lenders. However, when the law went into effect on July 1, 2019, there was confusion as to whether a lender could increase the delinquency charge on loans originated prior to that date. After much discussion and negotiation with the DFI, HB 1353 includes a provision that clarifies that a lender could increase the charge on such loans as long as the original loan contract provided for a delinquency charge subject to change under the delinquency charge statute at the time. This provision is effective retroactively to July 1, 2019, to cover situations where an increase was made.
Consumer Lending Issues (SB 395)
SB 395 was a top priority for the League and is the legislation on which we spent the most time during session. It is the result of last summer's study committee that considered improvements to the Uniform Consumer Credit Code (UCCC) that applies to SCUs and other state-chartered/licensed lenders. While the League spent several weeks in the fall and early winter working on this legislation with the bill authors, the Department of Financial Institutions, the Indiana Bankers Association, and the consumer finance companies, the legislation as it was introduced had some challenges and ultimately did not make many significant improvements to the UCCC.
Even so, SB 395 does include changes that should help mitigate the problem of calculating refunds when a borrower has incurred prepaid finance charges and subsequently pays the loan off early. Today, a lender can charge a non-refundable prepaid finance charge of up to $50. A lender may charge more than that, but any amount over $50 must be reflected in the finance charge and becomes refundable in the event of prepayment. Improving this process was a top priority for us because the League has consistently heard from SCUs that this complicated process often leads to unintended errors and examination findings. Effective for loans made after July 1, 2020, SB 395 changes the UCCC to increase the non-refundable prepaid finance charge to:
- $75 for loans up to $2,000.
- $150 for loans between $2,000 and $4,000.
- $200 for loans over $4,000.
Depository institutions may continue to charge more than those amounts in prepaid finance charges, but amounts exceeding these thresholds would continue to need to be reflected in the finance charge and would be refundable. Non-depository lenders (e.g. consumer finance companies) would be capped at the non-refundable limits. While this would not completely eliminate the challenges involved with calculating refunds, it should significantly lower the instances the refund calculation would be needed because up to $200 would be non-refundable.
It is unfortunate that we were not able to achieve better improvements to the UCCC this year. We had hoped to get better clarity and less complexity, but in a short legislative session in a big election year there were time pressures and political challenges that could not be overcome to gain larger changes. In fact, the League had to fight hard in the last few days of session to keep SB 395 alive for the modest improvement it does offer.
The 2020 session of the Indiana General Assembly was challenging in many ways, but ultimately provided several positive outcomes for Indiana’s credit unions.