June 15, 2017
Iowa Governor Terry Branstad recently signed into law Senate Files 502 and 503, which make several key amendments to the Iowa Consumer Credit Code (the "ICCC"). The Iowa Consumer Credit Code applies to all consumer credit transactions (loans, credit sales, and leases) with an amount financed (amount payable for leases) of $54,600 or less, but does not apply to first lien mortgage loans. For retail installments sales of motor vehicles, the Motor Vehicle Manufacturers, Distributors, Wholesalers, and Dealers Chapter (the "Dealer Law") incorporates many key provisions of the ICCC by reference and applies them to both consumer and business purpose transactions of any amount. The Dealer Law also requires all retail installment sales contracts to comply with the ICCC. The amendments to the ICCC are effective July 1, 2017.
Supervised loans by unlicensed persons are now void. Under the ICCC, a person who is not authorized to make supervised loans may not engage in the business of making supervised loans or undertaking direct collection from or enforcement of rights against consumers arising from supervised loans, but the person may collect and enforce for three months without a license if the person promptly applies for a license. The following persons are authorized to make supervised loans: (1) supervised financial organizations (state or federally chartered banks and credit unions); (2) a person who has obtained a license under either the Regulated Loan Act or the Industrial Loan Law; and (3) a person who enters into less than 10 supervised loans per year in Iowa and has neither an office physically located in Iowa nor engages in face to face solicitation in Iowa. A "supervised loan" means a consumer loan, including a loan made pursuant to open-end credit, in which the rate of the finance charge, calculated according to the actuarial method, exceeds a rate published by the Iowa Division of Banking (the "IDOB"). Effective July 1, 2017, the rate above which a consumer loan becomes a supervised loan, according to the IDOB, is 4.25%. A chart detailing the historical changes to this rate can be found here. This rate adjusts monthly.
Senate File 502 amends the ICCC to include a penalty provision that provides that a supervised loan made in violation of the licensing requirement is void and the consumer is not obligated to pay either the amount financed or the finance charge. In addition, if the consumer has paid any part of the amount financed or the finance charge, the consumer has the right to recover the payment from the lender or from an assignee who undertakes direct collection of payments or enforcement of rights arising from the debt. This penalty provision has a statute of limitations of two years from the date of the violation for open-end loans and one year after the due date of the last scheduled payment for closed-end loans.
Returned check fees are now permitted. Historically, the Iowa Attorney General, the administrator of the ICCC, has taken the position that returned check fees are prohibited. Senate File 502 amends the ICCC to clarify that a surcharge for a dishonored check, draft, or order that was accepted as payment for a consumer credit transaction payment is permitted under the ICCC. The surcharge may not exceed $30 and the holder is required to disclose the fee in a billing statement.
Permissible late fee increased to a maximum of $30. The ICCC imposes the following maximum late fees:
Senate File 502 amends the ICCC to raise the maximum late fee for precomputed and simple interest transactions to 5% of the unpaid amount of the installment, or a maximum of $30, and for open-end transactions, a maximum of $30.
Deferral charges on closed-end, simple interest transactions permitted and limited to $30. Senate File 503 amends the ICCC to clarify that the parties to a closed-end, simple interest transaction may agree in writing on the deferral of all or part of one or more unpaid installments in addition to any interest accrued and the creditor may charge a fee of not more than $30 per deferred installment.
Credit reporting charges are permitted and excluded from finance charge. Senate File 502 clarifies that credit reporting charges are a permissible additional charge and are excluded from the finance charge.
ICCC rebate upon prepayment requirements do not apply to banks. Senate File 502 amends the ICCC to exempt all state and federally chartered banks and credit unions from the rebate upon prepayment requirements under the ICCC.
Increase in civil penalties for violations of the ICCC. Senate File 502 increases the civil penalties that may be imposed on a creditor for contracting for or receiving a charge in excess of that permitted by the ICCC from a minimum of $100 and a maximum of $1,000 to a minimum of $200 and a maximum of $2,000.
In addition, Senate File 502 increases the penalties for violation of the disclosure provisions under the ICCC from twice the amount of the finance charge, but not less than $100 or more than $1,000 to not less than $200 or more than $2,000.
Finally, Senate File 502 increases the civil penalty that may be imposed by the attorney general for repeated and intentional violations of the ICCC from $5,000 to $10,000.
Annual ICCC notification filing fee increased to $50. Senate File 502 increases the annual ICCC notification filing fee from $10 to $50 and the penalty for failing to file the notification from $25 to $75.