Indiana DFI Issues Guidance Regarding Senate Bill 395

The Indiana Department of Financial Institutions (DFI) recently issued an advisory letter and related FAQs regarding changes made by Senate Bill 395 affecting Indiana Uniform Consumer Credit Code (UCCC) lenders and sellers, effective July 1, 2020.  The changes include, among other things, a “hard cap” on prepaid finance charges and a prohibition on precomputed transactions as they relate to certain consumer loans entered into after June 30, 2020.

First, the “hard cap” on prepaid finance charges will be implemented in the form of a new “tiered structure,” which permits UCCC lenders and sellers of certain closed-end consumer credit sales, consumer loans, and/or supervised loans to contract for and receive a nonrefundable prepaid finance charge on an amount financed or a principal amount, subject to the following maximum amounts:

• $75 maximum for a credit sale/loan amount of $2,000 or less;
• $150 maximum for a credit sale/loan amount for more than $2,000 and up to $4,000; and
• $200 maximum for a credit sale/loan amount above $4,000.

The guidance emphasizes that this tiered structure applies to both depositories, with respect to nonrefundable charges, and non-depositories, with respect to both refundable and nonrefundable charges.  Notably, depositories are exempt from the “hard cap” only with respect to nonrefundable amounts when the depository is the original creditor or lender.  The FAQs expands on specific scenarios when implementing this new structure and provides recommended steps to take in preparation.

Second, the guidance reiterates that the prohibition on precomputed transactions only applies to transactions entered into on and after July 1, 2020.  Valid precomputed transactions entered into on or before June 30, 2020, generally, remain valid. The advisory letter outlines the calculations for and provides examples of two acceptable alternative methods of calculations for computing time under the UCCC when charging for the period of time between payments: (1) the “actual days method” and (2) the “calendar month method.”