Short-term Credit Services Act

Summary

This Act establishes a system of regulations for those persons involved in the business of providing short-term credit services.

 Model Policy

{Title, enacting clause, etc.}

Section 1.  {Short Title}

This chapter shall be known and may be cited as the “Short-term Credit Services Act.”

Section 2. {Definitions}

As used in this chapter, unless the context otherwise requires:

(A) “Check” means any check, draft, order, card, or other instrument for the payment of money. The term also includes any electronic equivalent of the preceding including stored value cards, internet transfers, and automated clearing house transactions.

(B)  “Customer” means a person who applies for a short-term credit service transaction.

(C)  “Short-term credit service” means a transaction pursuant to a written agreement between a person and a customer predicated on the presentment of a personal check, which shall not last for a term longer than twelve months.

(D) “Short-term credit service provider” means a person that provides short-term credit services.

(E)   “Person” means an individual, group of individuals, partnership, association, corporation, or any other business unit or legal entity providing short-term credit services.

Section 3.  {Written Agreement}

(A) Each short-term credit service transaction must be documented by a written agreement signed by both the customer and the person accepting such check. The written agreement must contain the name of the customer, the transaction date, the amount of the check, and a statement of the total amount of interest and fees charged, expressed both as a dollar amount and as an annual percentage rate (APR).  The written agreement must conform to federal disclosure law.

Section 4.  {Notice to Customer}

 (A) A person providing a short-term credit service transaction shall provide a notice in a prominent place on each short-term credit service agreement in conspicuous type in substantially the following form:

(1) SHORT-TERM CREDIT SERVICES ARE NOT RECOMMENDED AS A LONG-TERM FINANCIAL SOLUTION.

(2) BORROWERS OFTEN USE THESE LOANS OVER A PERIOD OF MONTHS.  SUCH CONTINUED USE CAN BE EXPENSIVE.

(3) BORROWERS WITH CREDIT DIFFICULTIES SHOULD SEEK CREDIT COUNSELING.

Section 5.  {Authorized Interest and Service Fee}

 (A) A person may charge interest consistent with the state’s interest rate restrictions, if applicable.  In addition to interest permitted by law, a person may charge a service fee for each short-term credit service transaction. Such fee shall be deemed fully disclosed and earned as the date of the transaction and shall not be deemed interest for any purpose of law.  No other fees or charges may be charged or collected for the short-term credit service transaction.

(B) A person may not charge active duty members of the Armed Forces or their dependents at a rate that exceeds the Military Annual Percentage Rate of thirty-six per cent as defined by the National Defense Authorization Act for Fiscal Year 2007.

Section 6.  {Terms and Conditions}

 (A) A short-term credit service transaction may require either single payment or multiple payments.  If the term of the transaction exceeds one month, then the agreement shall establish a payment plan whereby principal, interest and fees are paid in substantially equal payments, consistent with the customer’s regular installment of income, unless otherwise mutually agreed.

(B) A transaction may be renewed no more than three (3) consecutive times, after which time either the maker must pay-off the short-term credit transaction in cash, or its equivalent, or the person must deposit the maker’s check.

(C) Once the customer satisfies the short-term credit service agreement, there shall be no prohibition preventing the customer from entering into a new agreement.

(D) A transaction is completed when the terms of the agreement are met in full.

(E) Each transaction shall comply fully disclose the terms of the agreement as required by the federal Truth-In-Lending Act, 15 U.S.C. 1601, et. seq.

Section 7.  {Form of Transaction Proceeds}

(A) A person may pay the proceeds from a short-term credit service transaction to the customer in the form of cash, a business check, money order, a debit card, an electronic funds transfer to the customer’s designated account, or through any other electronic payment mechanism. A person shall not charge an additional fee to the customer for making the payment required under this subsection in a form other than cash.

Section 8.  {Endorsement of Check}

(A) Before a person subject to this chapter may negotiate or present a check for payment, the check must be endorsed with the actual name under which the person is doing business.

Section 19  {Redemption of Check}

(A) The customer shall have the right to redeem the check from the person holding the check at any time prior to the negotiation or presentment of the check by paying the full amount of the check in the form of cash or its equivalent.

Section 10.  {Authorized Dishonored Check Fee} 

 (A) If a check written in connection with a short-term credit service transaction is returned to a person from a payor financial institution due to insufficient funds, a closed account, or a stop payment order, the person shall have the right to exercise all civil means available and allowable by law to collect the face value of the check. Additionally, the person may contract for and collect a returned check charge not to exceed twenty-five ($25) plus any court costs, including reasonable attorney fees, incurred as a result of the returned check.  No other fees may be collected as a result of a returned check or the default by the maker under a short-term credit service agreement.

Section 11.  {Posting of Charges and Complaint Procedures}

 (A) A person offering short-term credit service transactions must post at the point-of-sale a notice of the charges imposed for such short-term credit service transaction.

 (B) Each agreement shall disclosure the phone number or the mail or website address to receive consumer complaints.  If a customer registers a complaint, then the person must promptly and fully cooperate in the investigation and resolution of the complaint.

Section 12. {Right to Rescind}

(A) A person providing a short-term credit service transaction must give a customer the right to rescind, at no cost, such transaction on or before the close of the following business day.

Section 13.  {No Criminal Culpability}

(A) The maker of a check who enters into a short-term credit service agreement shall not be subject to any criminal penalty for entering into such agreement and further shall not be subject to any criminal penalty in the event the maker’s check is dishonored, unless the account on which the check was written was closed on the date of the transaction or before the agreed upon negotiation date, or in cases of fraud.

Section 14.  {Other Types of Business}

(A) A person may conduct other types of business at a location where it engages in short-term credit services, unless the person carries on such other types of business for the purpose of evading or violating this chapter.

Section 15. {State Regulatory Conformance}

(A) Local municipalities or subdivisions of this state may enact ordinances which are in compliance with, but not more restrictive than, the provisions of this Act.  Any existing or future order, ordinance or local regulation which conflicts with this Act shall be null and void.

Section 16. {Unfair or Deceptive Practices}

(A) No person shall engage in unfair or deceptive acts, practices, or advertising in connection with a short-term credit service transaction.

Section 17. {Severability Clause}

Section 18.  {Effective Date}


Approved by the ALEC Board of Directors on August 3, 2013.

Keyword Tags: Commerce Insurance and Economic Development Task Force, Consumer Banking, Financial Services