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2018 SESSION

18102363D
HOUSE BILL NO. 956
Offered January 10, 2018
Prefiled January 9, 2018
A BILL to amend and reenact §§ 6.2-1800, 6.2-1810, 6.2-1816, and 6.2-1817 of the Code of Virginia and to amend the Code of Virginia by adding sections numbered 6.2-1815.1 and 6.2-1816.1, relating to payday lending; interest and other charges; installments; minimum term; rollovers; refunds upon prepayment.
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Patron-- Yancey
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Referred to Committee on Commerce and Labor
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Be it enacted by the General Assembly of Virginia:

1. That §§ 6.2-1800, 6.2-1810, 6.2-1816, and 6.2-1817 of the Code of Virginia are amended and reenacted and that the Code of Virginia is amended by adding sections numbered 6.2-1815.1 and 6.2-1816.1 as follows:

§ 6.2-1800. Definitions.

As used in this chapter, unless the context requires a different meaning:

"Check" means a draft drawn on the account of an individual at a depository institution.

"Depository institution" means a bank, savings institution, or credit union.

"Installment payday loan" means a payday loan that is fully amortizing, with a finance charge calculated on the principal balances scheduled to be outstanding and be repayable in substantially equal and consecutive monthly installments, according to a payment schedule as agreed by the licensee and the borrower, except that the first installment period may be longer than the remaining installment periods by not more than 15 days, and the first installment payment may be larger than the remaining installment payments by the amount of finance charges applicable to the extra days.

"Licensee" means a person to whom a license has been issued under this chapter.

"Payday loan" means a small, short-maturity loan on the security of (i) a check, or checks in the case of an installment payday loan; (ii) any form of assignment of an interest in the account of an individual at a depository institution,; or (iii) any form of assignment of income payable to an individual, other than loans based on income tax refunds.

"Principal" means any person who, directly or indirectly, owns or controls (i) 10 percent or more of the outstanding stock of a stock corporation or (ii) a 10 percent or greater interest in a nonstock corporation or a limited liability company.

"Roll over a payday loan" means (i) to refinance or renew an existing payday loan in any manner whereby the proceeds of another payday loan made to the same borrower by a licensee are used to pay in full or in part the existing payday loan or (ii) to amend the terms of an existing payday loan agreement in order to extend the term of the existing payday loan beyond its original term.

"Single payment payday loan" means a payday loan that is to be repaid in a single payment.

§ 6.2-1810. Payday lending database.

A. The Commission shall certify and contract with one or more third parties to develop, implement, and maintain a real-time, Internet-accessible database that contains such payday loan information as the Commission may require from time to time by administrative rule or policy statement. The database shall be operational by January 1, 2009.

B. The following provisions shall apply to the database:

1. Before making a payday loan, a licensee shall query the database through a Commission-certified database provider and shall retain evidence of the query for the Commission's supervisory review. The database shall allow a licensee to make a payday loan only if making the loan is permissible under the provisions of this chapter. During any period that the database is unavailable due to technical problems beyond the licensee's control, a licensee may rely on the payday loan applicant's written representations, rather than the database's information, to verify that making the loan applied for is permissible under the provisions of this chapter. Because a licensee may rely on the accuracy of the applicant's representations and the database's information, a licensee is not subject to any administrative penalty or civil liability if that information is later determined to be inaccurate.

2. The database provider shall maintain the database, take all actions it deems necessary to protect the confidentiality and security of the information contained in the database, be responsible for the confidentiality and security of such information, and own the information contained in the database. The Commission shall have access to and utilize the database as an enforcement tool to ensure licensees' compliance with the provisions of this chapter.

3. Upon a licensee's query, the database shall advise the licensee whether the applicant is eligible for a new payday loan and, if the applicant is ineligible, the reason for such ineligibility. If the database advises the licensee that the applicant is ineligible for a payday loan, then the applicant shall direct any inquiry regarding the specific reason for such ineligibility to the database provider rather than to the licensee. The information contained in the payday loan database is confidential and exempt from the Freedom of Information Act (§ 2.2-3700 et seq.).

4. If a licensee and borrower consummate a payday loan, then the licensee shall pay a fee to defray the costs of submitting the database inquiry. The amount of the database inquiry fee shall be calculated in accordance with a schedule set by the Commission. The schedule shall bear a reasonable relationship to actual cost of the operation of the database. If a licensee submits a database inquiry but does not consummate a payday loan with the applicant, then the licensee shall not pay the database inquiry fee. Each licensee shall remit all database inquiry fees directly to the database provider on a weekly basis.

5. If a borrower enters into a payday loan or pays or otherwise satisfies a payday loan in full, or if a borrower enters into an extended payment plan as provided in subdivision 26 of § 6.2-1816 or an extended term loan as provided in subdivision 27 of § 6.2-1816, then the licensee making the loan shall report such event or other information to the database not later than the close of business on the date of such event.

§ 6.2-1815.1. Installment payday loans.

A. Each payday loan shall be structured, at the option of the borrower, to provide that it is either an installment payday loan or a single payment payday loan.

B. All applications for payday loans and all payday loan agreements shall clearly and conspicuously disclose that payday loans may be structured to be repaid in a single payment or in multiple installments.

C. If a payday loan is an installment payday loan, the lender may hold a single payment instrument or a payment instrument for each installment.

§ 6.2-1816. Required and prohibited business methods.

Each licensee shall comply with the following requirements:

1. Each payday loan shall be evidenced by a written loan agreement, which shall be signed by the borrower and a person authorized by the licensee to sign such agreements and dated the same day the loan is made and disbursed. The loan agreement shall set forth, at a minimum: (i) the principal amount of the loan; (ii) the interest and any fee charged; (iii) the annual percentage rate, which shall be stated using that term, applicable to the transaction calculated in accordance with Consumer Financial Protection Bureau Regulation Z (12 C.F.R. Part 1026); (iv) evidence of receipt from the borrower of a check, or multiple checks if the loan is an installment payday loan, dated as of the date that the loan is due, as security for the loan, stating the amount of the check; (v) an agreement by the licensee not to present the any check provided pursuant to clause (iv) for payment or deposit until the date the loan, or the corresponding installment if the payday loan is structured as an installment payday loan, is due, which date shall produce a loan term of at least two times the borrower's pay cycle and after which date interest shall not accrue on the amount advanced at a greater rate than six percent per year; (vi) an agreement by the licensee that the borrower shall have the right to cancel the loan transaction at any time before the close of business on the next business day following the date of the transaction by paying to the licensee, in the form of cash or other good funds instrument, the amount advanced to the borrower; and (vii) an agreement that the borrower shall have the right to prepay the loan prior to maturity by paying the licensee the principal amount advanced and any accrued and unpaid interest, fees, and charges; and (viii) a provision that the minimum loan term shall be six months following the date of the transaction. The maximum term of a payday loan shall be as agreed by the licensee and the borrower. A licensee may hold an instrument and delay completion of the transaction beyond the loan due date without any additional written agreement or new disclosure, but the licensee shall not charge any additional fees for holding the instrument or delaying the completion of the transaction.

2. The licensee shall give a duplicate original of the loan agreement to the borrower at the time of the transaction.

3. A licensee shall not obtain any agreement from the borrower (i) giving the licensee or any third person power of attorney or authority to confess judgment for the borrower; (ii) authorizing the licensee or any third party to bring suit against the borrower in a court outside the Commonwealth; or (iii) waiving any right the borrower has under this chapter.

4. A licensee shall not require or accept more than one check from a borrower as security for any single payment payday loan.

5. A licensee shall not cause any person to be obligated to the licensee in any capacity at any time in the principal amount of more than $500.

6. A licensee shall not (i) refinance, renew or extend any roll over a payday loan more than once; (ii) make a payday loan to a person if the payday loan would cause the person to have more than one or more payday loan from any licensee loans outstanding at the same time with an aggregate principal amount of more than $500; (iii) make a loan to a borrower on the same day that a borrower paid or otherwise satisfied in full a previous payday loan made by the licensee or another payday lender; or (iv) make a payday loan to a person within 90 days following the date that the person has paid or otherwise satisfied in full a single payment payday loan through an extended payment plan as provided in subdivision 26; (v) make a payday loan to a person within 45 days following the date that the person has paid or otherwise satisfied in full a fifth payday loan made within a period of 180 days as provided in subdivision 27 a; or (vi) make a payday loan to a person within the longer of (a) 90 days following the date that the person has paid or otherwise satisfied in full an extended term loan or (b) 150 days following the date that the person enters into an extended term loan, as provided in subdivision 27 b.

7. A licensee shall not cause a borrower to be obligated upon more than one loan at any time Nothing in this chapter shall preclude a licensee from making more than one payday loan to a borrower so long as the total amount financed does not exceed $500 at any one time and there is at least a 30-day period between the dates each payday loan is made.

8. A check accepted by a licensee as security for any payday loan payable in a single payment shall be dated as of the date the loan is due, and if the licensee requires multiple checks with respect to an installment payday loan, each check accepted by a licensee as security for installments under an installment payday loan shall be dated as of the date the corresponding installment is due.

9. Notwithstanding any provision of § 8.01-226.10 to the contrary, a licensee shall not threaten, or cause to be instigated, criminal proceedings against a borrower if a check given as security for a loan is dishonored. In addition to any other remedies available at law, a licensee that knowingly violates this prohibition shall pay the affected borrower a civil monetary penalty equal to three times the amount of the dishonored check.

10. A licensee shall not take an interest in any property other than a check payable to the licensee as security for a loan.

11. A licensee shall not make a loan to a borrower to enable the borrower to (i) pay for any other product or service sold at the licensee's office location or (ii) pay off a payday loan made to the borrower by the licensee or another payday lender.

12. Loan proceeds shall be disbursed in cash or by the licensee's business check. No fee shall be charged by the licensee or an affiliated check casher for cashing a loan proceeds check.

13. A check given as security for a loan shall not be negotiated to a third party.

14. Upon receipt of a check given as security for a loan, the licensee shall stamp the check with an endorsement stating: "This check is being negotiated as part of a payday loan pursuant to Chapter 18 (§ 6.2-1800 et seq.) of Title 6.2 of the Code of Virginia, and any holder of this check takes it subject to all claims and defenses of the maker."

15. Before entering into a payday loan, the licensee shall provide each borrower with a pamphlet, in form consistent with regulations adopted by the Commission, explaining in plain language the rights and responsibilities of the borrower and providing a toll-free number at the Commission for assistance with complaints.

16. Before disbursing funds pursuant to a payday loan, a licensee shall provide a clear and conspicuous printed notice to the borrower indicating that a payday loan is not intended to meet long-term financial needs and that the borrower should use a payday loan only to meet short-term cash needs.

17. A borrower shall be permitted to make partial payments, in increments of not less than $5, on the any payday loan at any time prior to maturity, without charge. The licensee shall give the borrower signed, dated receipts for each payment made, which shall state the balance due on the payday loan. Upon repayment of the payday loan in full, the licensee shall mark the original loan agreement with the word "paid" or "canceled," return it to the borrower, and retain a copy in its records.

18. Each licensee shall conspicuously post in each approved office a schedule of fees and interest charges, with examples for both single payment payday loans and installment payday loans using a $300 loan payable in 14 days and 30 days six months based on the assumption that the loan will be paid as scheduled. The schedule of fees for an installment payday loan shall provide an estimate of the monthly installment amounts for such a payday loan.

19. Any advertising materials used to promote payday loans that includes shall include the amount of any single payment, expressed either as a percentage or dollar amount or installment payments, or the amount of any finance charge, shall also include and a statement of the interest, fees, and charges, expressed as an annual percentage rate, payable using as an example a $300 loan payable in 14 and 30 days six months.

20. In any print media advertisement, including any web page, used to promote payday loans, the disclosure statements shall be conspicuous. "Conspicuous" shall have the meaning set forth in subdivision (a)(14) of § 59.1-501.2. If a single advertisement consists of multiple pages, folds, or faces, the disclosure requirement applies only to one page, fold, or face. In a television advertisement used to promote payday loans, the visual disclosure legend shall include 20 scan lines in size. In a radio advertisement or advertisement communicated by telephone used to promote payday loans, the disclosure statement shall last at least two seconds and the statement shall be spoken so that its contents may be easily understood.

21. A licensee or affiliate shall not knowingly make a payday loan to a person who is a member of the military services of the United States or the spouse or other dependent of a member of the military services of the United States. Prior to making a payday loan, every licensee or affiliate shall inquire of every prospective borrower if he is a member of the military services of the United States or the spouse or other dependent of a member of the military services of the United States. The loan documents shall include verification that the borrower is not a member of the military services of the United States or the spouse or other dependent of a member of the military services of the United States.

22. In collecting or attempting to collect a payday loan, a licensee shall comply with the restrictions and prohibitions applicable to debt collectors contained in the Fair Debt Collection Practices Act (15 U.S.C. § 1692 et seq.) regarding harassment or abuse, false or misleading misrepresentations, and unfair practices in collections.

23. A licensee may not file or initiate a legal proceeding of any kind against a borrower until 60 days after the date of default on a payday loan, during which period the licensee and borrower may voluntarily enter into a repayment arrangement.

24. A licensee shall not obtain authorization to electronically debit a borrower's deposit account in connection with any payday loan.

25. A licensee may not engage in any unfair, misleading, deceptive, or fraudulent acts or practices in the conduct of its business.

26. A borrower may pay any outstanding single payment payday loan from any licensee by means of an extended payment plan as follows:

a. A borrower shall not be eligible to enter into more than one extended payment plan in any 12-month period.

b. To enter into an extended payment plan with respect to a single payment payday loan, the borrower shall agree in a written and signed document to repay the amount owed in at least four equal installments over an aggregate term of at least 60 days. Interest shall not accrue on the indebtedness during the term of the extended payment plan. The borrower may prepay an extended payment plan in full at any time without penalty. If the borrower fails to pay the amount owed under the extended payment plan when due, then the licensee may immediately accelerate the unpaid loan balance.

c. If the borrower enters into an extended payment plan, then no licensee may make a payday loan to the borrower until a waiting period of 90 days shall have elapsed from the date that the borrower pays or satisfies in full the balance of the loan under the terms of the extended payment plan.

d. At each approved office, the licensee shall post a notice in at least 24-point bold type, in a form established or approved by the Commission, informing persons that they may be eligible to enter into an extended payment plan for a single payment payday loan.

e. The licensee shall provide oral notice to any borrower who is eligible to enter into an extended payment plan, at the time a payday loan is made, which notice shall inform the borrower of his ability to pay the single payment payday loan by means of an extended payment plan. The information contained in the notice shall be in a form provided by the Bureau.

27. In addition to the other conditions set forth in this chapter, the fifth payday loan that is made to any person within a period of 180 days shall be made only in compliance with, at the option of the borrower, either of the following:

a. The fifth payday loan is made upon the same terms and conditions otherwise applicable to payday loans under the terms of this chapter, except that (i) no licensee may make a payday loan to such borrower during a period of 45 days following the date such fifth payday loan is paid or otherwise satisfied in full and (ii) the borrower may elect, at any time on or before its due date, to repay such fifth payday loan by means of an extended payment plan as provided in subdivision 26 b; or

b. The fifth payday loan is made in the form of an extended term loan. An extended term loan is a loan that complies with the terms and conditions otherwise applicable to payday loans under the terms of this chapter except that (i) the principal amount of the loan, and any interest and fees permitted by § 6.2-1817, shall be payable in four equal installments over a payment period of 60 days following the date the loan is made and (ii) no licensee may make a payday loan to such borrower during the longer of (a) 90 days following the date the extended term loan is paid or otherwise satisfied in full or (b) 150 days following the date the extended term loan is made.

§ 6.2-1816.1. Prepayments and refunds.

A. A licensee shall accept prepayment from a borrower prior to the loan due date and shall not charge the borrower a penalty if the borrower opts to prepay the loan. If a payday loan, whether a single payment payday loan or an installment payday loan, is prepaid in full prior to the maturity of the loan term, the licensee shall refund to the borrower the unearned portion of the interest and loan fee. The unearned interest that is to be refunded shall be calculated on the basis of the ratio of time left before maturity to the loan term, using a method that is at least as favorable to the consumer as the actuarial method, as defined by the federal Truth in Lending Act. The sum of the digits or rule of 78 method of calculating prepaid interest refunds is prohibited. The refund shall not be required to include a portion of the verification fee charged pursuant to subsection C of § 6.2-1817.

B. Refunds required pursuant to subsection A may be paid to the borrower by cash, check, or similar method, but may not be applied as a credit to another open account or for a future loan with that licensee or any other licensee. If a licensee makes a cash refund, it shall provide the borrower with a cash receipt.

§ 6.2-1817. Rate of interest, loan fee, and verification fee.

A. A licensee may charge and receive on each payday loan interest at a simple annual rate not to exceed 36 percent. If the loan is prepaid prior to the maturity of the loan term, the licensee shall refund to the borrower a prorated portion of the interest based upon the ratio of time left before maturity to the loan term. A licensee may also charge (i) a loan fee as provided in subsection B and (ii) a verification fee as provided in subsection C.

B. A licensee may charge and receive a loan fee in an amount not to exceed 20 percent of the amount first $300 of the loan proceeds advanced to the borrower plus 7.5 percent of any amount loaned in excess of $300.

C. A licensee may charge and receive a verification fee in an amount not to exceed $5 for a loan made under this chapter. The verification fee shall be used in part to defray the costs of submitting a database inquiry as provided in subdivision B 4 of § 6.2-1810.

D. The interest authorized under subsection A shall not be assessed on any loan fee charged under subsection B or verification fee charged under subsection C.

E. Upon rolling over a payday loan, the licensee shall not charge a loan fee under subsection B or verification fee under subsection C. If the payday loan is rolled over prior to the maturity date, the licensee shall refund to the borrower a prorated portion of the finance charge based upon the ratio of time left before maturity to the loan term.

2. That nothing contained in this act shall prohibit the collection of any outstanding loan or extension of credit made in accordance with the terms of a loan agreement made prior to the effective date of this act; however, no additional extensions of credit or advances that violate the provisions of this act shall be made on or after the effective date of this act under such a loan agreement.