40 JANUARY / FEBRUARY 2019 COMPLIANCE CONNECTION Brett J. Ashton Partner Krieg DeVault LLP Submit Compliance Connection questions to Eric J. Augustus, Indiana Bankers Association: eaugustus@indianabankers.org Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association. Consumer Loan Fee Changes Question: Our CEO has asked me to review the fees and charges we assess our consumer loan customers to ensure they comply with current Indiana law, and identify any additional fee income opportunities that may be available. Should I consider anything else besides legislative enactments to identify fee opportunities? Answer: While the vast majority of consumer loan fees are dictated by legislative changes to the Indiana Uniform Consumer Credit Code (IUCCC or the Code), there are some fees in the Code that change through rulemaking. The IUCCC provides that certain dollar amounts in the Code may change in accordance with the Consumer Price Index (CPI) on July 1 of each even-numbered year if the CPI has increased above a set threshold.1 The Indiana Department of Financial Institutions (the IDFI) monitors the CPI and publishes an updated rulemaking every other July with the latest dollar amounts under the IUCCC applicable to Indiana lenders. An example of a fee that has changed in recent years is the permissible late fee a lender may charge when a customer is more than 10 days delinquent. The Code provides for a $5 late fee on consumer loans; however, as a result of indexing over the years since enactment of the IUCCC, the permissible late fee had risen to $18.50 at the beginning of 2018. In July 2018, the IDFI issued an updated rulemaking2 to approve a 50 cent increase in the permissible late fee to $19. Increases in the minimum credit service charge and the minimum loan finance charge were made at the same time. In addition to the changes to permissible fees by rulemaking, there is also the opportunity for fees to be assessed in excess of those identified by the IUCCC if disclosed at the time of loan closing, and appropriately included in the calculation of the loan finance charge for purposes of complying with the maximum permissible finance charge under the Code. Bankers most often apply this principle when assessing what was historically known as a loan origination fee, but is now called a prepaid finance charge under the Code. While the IUCCC provides for a $50 limitation on this fee,3 it is possible to assess a fee of greater than $50 if the fee is disclosed as part of the finance charge at the time of closing, and then any amount over the $50 limit is included in calculation of the permissible finance charge for purposes of complying with the finance charge limitations of the Code. Banks may apply this same principal to any other fee, provided they correctly disclose it, and incorporate it within the finance charge calculation. After reviewing the IUCCC and recent IDFI rulemaking to ensure your existing fees are compliant with Indiana law, calculate the impact of the fee increases you are considering on the finance charge of your loan product. If the result is that the finance charge remains below the permitted finance charges under the IUCCC, then provided it is appropriately disclosed, the desired fee may be charged. HB This information is provided for general education purposes and is not intended to be legal advice. Please consult legal counsel for specific guidance as to how this information applies to your institution’s circumstances or situation. 1 See Ind. Code § 24-4.5-1-106 2 See www.in.gov/legislative/iac/20180321-IR-750180155ERA.xml.html 3 See Ind. Code § 24-4.5-3-201(8)(b)
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