HOUSE BILL NO. 526

INTRODUCED BY J. MANGAN

A BILL FOR AN ACT ENTITLED: "AN ACT CREATING A MONTANA DEFERRED DEPOSIT LOAN ACT TO BE ADMINISTERED BY THE DEPARTMENT OF COMMERCE; AND PROVIDING FOR LICENSURE, DISCLOSURE REQUIREMENTS, COMPLAINT PROCEDURES, CONTRACT PROVISIONS, RULEMAKING AUTHORITY, CIVIL REMEDIES, AND CRIMINAL PENALTIES."

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

NEW SECTION. Section 1. Short title. [Sections 1 through 14] may be cited as the "Montana Deferred Deposit Loan Act".

NEW SECTION. Section 2. Purpose -- rules. (1) The purpose of [sections 1 through 14] is to protect consumers who enter into short-term, high-rate loans with lenders from abuses that occur in the credit marketplace when the lenders are unregulated.

(2) The department may adopt rules to implement the provisions of [sections 1 through 14]. The rules may include but are not limited to rules establishing forms and procedures for licensing, rules pertaining to acceptable practices at a business location, rules establishing disclosure requirements, and rules establishing complaint and hearing procedures.

NEW SECTION. Section 3. Definitions. For the purposes of [sections 1 through 14], the following definitions apply:

(1) "Check" means a negotiable instrument, as defined in 30-3-104, that is drawn on a bank and is payable on demand at the maturity of a deferred deposit loan.

(2) "Consumer" means a natural person who, singly or jointly with another natural person, enters into a deferred deposit loan.

(3) "Deferred deposit lender" or "licensee" means a person engaged in the business of making deferred deposit loans.

(4) "Deferred deposit loan" means an arrangement, including all representations made by the deferred deposit lender whether express or implied, in which:

(a) a person accepts a check dated on the date the check is written and agrees to hold the check for a period of days prior to deposit or presentment; or

(b) a person accepts a check dated subsequent to the date on which the check is written and agrees to hold the check for deposit or presentment until the date written on the check.

(5) "Department" means the department of commerce.

(6) "Person" means a natural person, sole proprietorship, firm, partnership, corporation, or other entity.

NEW SECTION. Section 4. Scope. (1) [Sections 1 through 14] apply to deferred deposit lenders and to persons who facilitate, enable, or act as a conduit for persons making deferred deposit loans.

(2) [Sections 1 through 14] do not apply to:

(a) banks, savings and loan associations, credit unions, or other state or federally regulated financial institutions; or

(b) retail sellers who cash checks incidental to or independent of a sale and who do not charge more than $2 per check for the service.

NEW SECTION. Section 5. License -- business locations --rules. (1) A person may not engage in or offer to engage in the business of making deferred deposit loans unless licensed by the department. The department may not issue or renew a license unless findings are made that:

(a) the financial responsibility, experience, character, and general fitness of the applicant warrant the belief that the business will be operated lawfully and fairly and within the provisions of [sections 1 through 14];

(b) the applicant has unencumbered assets of at least $25,000 for each location;

(c) the applicant has provided a sworn statement that the applicant has not used in the past and will not in the future, directly or indirectly, use a criminal process to collect the payment of deferred deposit loans or any civil process to collect the payment of deferred payment loans not generally available to creditors to collect on loans in default; and

(d) other information that the department considers necessary has been provided.

(2) A license may not be issued for longer than 1 year, and a renewal of a license may not be provided if the licensee has violated a provision of [sections 1 through 14].

(3) Each licensee shall post a bond in the amount of $10,000 for each location. The bond must continue in effect for 2 years after the licensee ceases operation in the state. The bond must be available to pay damages and penalties to consumers harmed by any violation of [sections 1 through 14].

(4) More than one place of business may not be maintained under the same license, but the department may issue more than one license to the same licensee upon compliance with the provisions of this section governing issuance of a single license.

(5) A licensee may not conduct the business of making deferred deposit loans under [sections 1 through 14] within any office, suite, room, or place of business in which any other business is solicited or engaged in unless, in the opinion of the department, the other business would not be contrary to the best interests of consumers.

NEW SECTION. Section 6. License revocation. (1) If the department finds, after due notice and hearing or opportunity for hearing, as provided in the Montana Administrative Procedure Act, that a licensee or an officer, agent, employee, or representative of the licensee has violated any of the provisions of [sections 1 through 14], has failed to comply with the rules, regulations, instructions, or orders promulgated by the department, has failed or refused to make required reports to the department, or has furnished false information to the department, the department may issue an order revoking or suspending the right of the licensee, directly or through an officer, agent, employee, or representative, to do business in this state as a licensee.

(2) A revocation, suspension, or surrender of a license does not relieve the licensee from civil or criminal liability for acts committed prior to the revocation, suspension, or surrender of the license.

NEW SECTION. Section 7. Complaint procedure. The department shall maintain a list of licensees that is available to interested persons and to the general public. The department shall also establish by rule a procedure under which an aggrieved consumer or any member of the public may file a complaint against a licensee or an unlicensed person who violates any provision of [sections 1 through 14]. The department may hold hearings upon the request of a party to the complaint, make findings of fact or conclusions of law, issue cease and desist orders, refer the matter to the appropriate law enforcement agency for prosecution for a violation of [sections 1 through 14], seek injunctive or other relief in district court, or suspend or revoke a license granted under [sections 1 through 14].

NEW SECTION. Section 8. Information and annual reports. (1) Each licensee shall keep and use books, accounts, and records that will enable the department to determine if the licensee is complying with the provisions of [sections 1 through 14] and maintain any other records required by the department. The department is authorized to examine the records at any reasonable time. The records must be kept for 4 years following the last entry on a loan and must be kept according to generally accepted accounting procedures that include an examiner being able to review the recordkeeping and reconcile each consumer loan with documentation maintained in the consumer's loan file records.

(2) Each licensee shall file, on forms prescribed by the department, an annual report with the department on or before March 31 for the 12-month period in the preceding year ending as of December 31. The report must disclose in detail and under appropriate headings:

(a) the resources, assets, and liabilities of the licensee at the beginning and the end of the period;

(b) the income, expense, gain, and loss, a reconciliation of surplus or net worth with the balance sheets, and the ratios of the profits to the assets reported;

(c) the total number of deferred deposit loans made in the year ending as of December 31 of the previous year;

(d) the total number of deferred deposit loans outstanding as of December 31 of the previous year;

(e) the minimum, maximum, and average dollar amount of checks for which deposits were deferred in the year ending as of December 31 of the previous year;

(f) the average annual percentage rate and the average number of days that the deposit of a check was deferred during the year ending as of December 31 of the previous year;

(g) the total number and dollar amount of returned checks, the total number and dollar amount of checks recovered, and the total number and dollar amount of checks charged off during the year ending as of December 31 of the previous year; and

(h) verification that the licensee has not used a criminal process or caused a criminal process to be used in the collection of any deferred deposit loans or used any civil process to collect the payment of deferred payment loans not generally available to creditors to collect on loans in default during the year ending as of December 31 of the previous year.

(3) A report must be verified by the oath or affirmation of the owner, manager, or president of the deferred deposit lender.

(4) (a) If a licensee conducts another business or is affiliated with other licensees under [sections 1 through14] or if any other situation exists under which allocations of expense are necessary, the licensee shall make the allocation according to appropriate and reasonable accounting principles as approved by the department.

(b) Information about any other business conducted on the same premises where deferred deposit loans are made must be provided as required by the department.

(5) Each licensee shall file a copy of the contract described in [section 9] with the department prior to the date of commencement of business at each location, at the time any changes are made to the documents or schedule, and annually upon renewal of the license. These documents must be available to interested parties and to the general public.

NEW SECTION. Section 9. Loan requirements. (1) Each deferred deposit loan must have a minimum term of not less than 2 weeks for each $50 owed on the loan.

(2) A consumer must be permitted to make partial payments, in not less than $5 increments on the loan at any time, without charge.

(3) The amount of the deferred deposit loan may not exceed $300.

(4) After each payment is made on a loan, the licensee shall give to the person making the payment a signed and dated receipt showing the amount paid and the balance due on the loan.

(5) The minimum amount of a deferred deposit loan is $50.

(6) The check written by the consumer in a deferred deposit loan must be made payable to the licensee.

(7) Upon receipt of the check from the consumer for a deferred deposit loan, the licensee shall immediately stamp the back of the check with an endorsement that states: "This check is being negotiated as part of a deferred deposit loan pursuant to [sections 1 through 14] and any holder of this check takes it subject to all claims and defenses of the maker".

(8) The licensee shall provide the consumer, or each consumer if there is more than one, with a copy of the loan documents described in [section 10] prior to the consummation of the loan.

(9) The holder or assignee of any check written by a consumer in connection with a deferred deposit loan takes the instrument subject to all claims and defenses of the consumer.

NEW SECTION. Section 10. Required disclosures. (1) Before entering into a deferred deposit loan, the licensee shall deliver to the consumer a pamphlet prepared by or at the direction of the department that:

(a) explains, in simple language, all of the consumer's rights and responsibilities in a deferred deposit loan transaction;

(b) includes a toll-free number to the department's office that handles concerns or complaints by consumers; and

(c) informs consumers that the department's office can provide information about whether a lender is licensed, whether complaints against the lender have been filed with the department, and the resolution of the complaints.

(2) Licensees shall provide consumers with a written agreement on a form specified or approved by the department that can be kept by the consumer, which must include the following information:

(a) the name, address, and phone number of the licensee making the deferred deposit loan and the name and title of the individual employee who signs the agreement on behalf of the licensee;

(b) an itemization of the fees and interest charges to be paid by the consumer;

(c) disclosures required under any other laws of this state;

(d) a clear description of the consumer's payment obligations under the loan;

(e) a statement that must be initialed by the consumer that states: "WARNING: The fees and interest charged on deferred deposit loans made at this institution may be substantially higher than those charged at other financial institutions."; and

(f) in a manner that is more conspicuous than the other information provided in the loan document and that is in at least 14-point bold typeface, a statement that "you cannot be prosecuted in criminal court for collection of this loan". The statement must be located immediately preceding the signature of the consumer.

NEW SECTION. Section 11. Permitted fees. (1) A licensee may not charge or receive, directly or indirectly, any interest, fees, or charges except those specifically authorized by this section.

(2) A licensee may not charge more than a $5 administrative fee for each deferred deposit loan entered into with a consumer.

(3) In addition to the service fee, the licensee may not charge interest on the amount of cash delivered to the consumer in a deferred deposit loan at a rate greater than 36% a year. The consumer must be informed of the daily rate of interest charged on the loan in dollars and cents. The rate charged on the outstanding balance after maturity may not be greater than the rate charged during the loan term. Charges on loans must be computed and paid only as a percentage of the unpaid principal balance or portion of the unpaid principal balance. For the purposes of this section, "principal balance" means the balance due and owing exclusive of any interest, service, or other loan-related charges.

(4) If there are insufficient funds to pay a check on the date of presentment, a licensee may charge a fee, not to exceed the lesser of $15 or the fee imposed upon the licensee by the financial institution. Only one fee may be collected pursuant to this subsection with respect to a particular check even if it has been redeposited and returned more than once. A fee charged pursuant to this subsection is a licensee's exclusive charge for late payment.

(5) When a loan is repaid before its due date, unearned interest charges must be rebated to the consumer based on a method at least as favorable to the consumer as the actuarial method.

NEW SECTION. Section 12. Prohibited acts. A licensee making deferred deposit loans may not commit, or have committed on behalf of the licensee, any of the following prohibited acts:

(1) engaging in the business of deferred deposit lending unless the department has first issued a valid license;

(2) threatening to use or using a criminal process in this or any other state to collect on the loan made to a consumer in this state or any civil process to collect the payment of deferred payment loans not generally available to creditors to collect on loans in default;

(3) altering the date or any other information on a check received from a consumer;

(4) using any device or agreement that would have the effect of charging or collecting more fees, charges, or interest than those allowed by [sections 1 through 14], including but not limited to entering into a different type of transaction or renewing or rolling over a loan with the consumer;

(5) engaging in unfair, deceptive, or fraudulent practices in the making or collection of a deferred deposit loan;

(6) entering into a deferred deposit loan with a consumer that is unconscionable. In determining whether a deferred deposit loan transaction is unconscionable, consideration must be given to, but is not limited to, whether the amount of the loan exceeds 25% of the consumer's net income for the term of the loan.

(7) charging to cash a check representing the proceeds of the deferred deposit loan;

(8) using or attempting to use the check provided by the consumer in a deferred deposit loan as security for purposes of any state or federal law;

(9) accepting payment of the deferred deposit loan through the proceeds of another deferred deposit loan provided by the same licensee or any affiliate;

(10) making more than one deferred deposit loan to a consumer at a time;

(11) making a deferred deposit loan that, when combined with another outstanding deferred deposit loan owed to another licensee, exceeds a total of $300 when combining the face amount of the checks written in connection with each loan. The licensee shall make inquiry of the consumer or use available information databases to determine whether other deferred deposit loans are outstanding. Regardless of the total of the loans, a licensee may not make a loan to a consumer who has two or more deferred deposit loans outstanding.

(12) renewing, repaying, refinancing, or consolidating a deferred deposit loan with the proceeds of another deferred deposit loan made to the same consumer. Upon termination of a deferred deposit loan through the payment of the consumer's check by the drawee bank, the return of a check to a consumer who redeems it for consideration, or any other method of termination, the licensee may not enter into another deferred deposit loan with the same consumer for at least 30 days. However, a licensee may without charge extend the term of the loan beyond the due date.

(13) accepting any collateral for a deferred deposit loan;

(14) charging any interest, fees, or charges other than those specifically authorized by [sections 1 through 14], including but not limited to:

(a) charges for insurance; or

(b) attorney fees or other collection costs;

(15) threatening to take any action against a consumer that is prohibited by [sections 1 through 14] or making any misleading or deceptive statements regarding the deferred deposit loan;

(16) making a misrepresentation of a material fact by an applicant in obtaining or attempting to obtain a license;

(17) including any of the following provisions in loan documents required by [section 9]:

(a) a hold harmless clause;

(b) a confession of judgment clause;

(c) a waiver of the right to a jury trial, if applicable, in any action brought by or against a consumer;

(d) a mandatory arbitration clause;

(e) any assignment of or order for payment of wages or other compensation for services;

(f) a provision in which the consumer agrees not to assert any claim or defense arising out of the contract; or

(g) a waiver of any provision of [sections 1 through 14];

(18) selling any insurance of any kind whether or not sold in connection with the making or collection of a deferred deposit loan.

NEW SECTION. Section 13. Civil remedies. (1) The remedies provided in this section are cumulative and apply to licensees and unlicensed persons to whom [sections 1 through 14] apply.

(2) Any violation of [sections 1 through 14] constitutes an unfair or deceptive trade practice.

(3) The violation of any provision of [sections 1 through 14], except as the result of accidental or bona fide error of computation, renders a deferred deposit loan void, and the deferred deposit lender may not collect, receive, or retain any principal, interest, or other charges with respect to the loan.

(4) Any person found to have violated [sections 1 through 14] is liable to the consumer for actual and consequential damages, plus statutory damages of $1,000 for each violation, plus costs and attorney fees.

(5) A consumer may sue for injunctive and other appropriate equitable relief to stop a person from violating any provisions of [sections 1 through 14].

(6) The consumer may bring a class action suit to enforce [sections 1 through 14].

(7) The remedies provided in this section are not intended to be the exclusive remedies available to a consumer for a violation of [sections 1 through 14].

NEW SECTION. Section 14. Criminal penalties. Any person, including a member, officer, or director of a deferred deposit lender who knowingly violates [sections 1 through 14] is guilty of a misdemeanor and, on conviction, is subject to a fine not exceeding $1,000 or imprisonment not exceeding 6 months, or both.

NEW SECTION. Section 15. Codification instruction. [Sections 1 through 14] are intended to be codified as an integral part of Title 31, chapter 1, and the provisions of Title 31, chapter 1, apply to [sections 1 through 14].

NEW SECTION. Section 16. Severability. If a part of [this act] is invalid, all valid parts that are severable from the invalid part remain in effect. If a part of [this act] is invalid in one or more of its applications, the part remains in effect in all valid applications that are severable from the invalid applications.

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