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CHAPTER 5

AN ACT to amend the banking law and the personal property law, in relation to the permissible terms for certain credit agreements and to provide for the repeal of such provisions at the expiration thereof Became a law February 13, 1992, with the approval of the Governor. Passed by a majority voté, three-fifths being present.

The People of the State of New York, represented in Senate and Assembly, do enact as follows:

Section 1. Paragraph (e) of subdivision 5 of section 108 of the banking law, as amended by chapter 19 of the laws of 1991, is amended to read as follows:

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(e) The rate of interest authorized by this subdivision shall be inclusive of all charges to the borrower incident to investigating and making any such loan or advance. No fee, commission, expense, or other charge to the borrower whatsoever in addition thereto shall be taken, received, reserved, or contracted for, except, if it is so provided in the agreement, (i) a service charge either as a percentage or an amount upon each such check or other written, electronic or telephonic order or request which is approved; (ii) a charge in an amount or percentage for each check or other written, electronic or telephonic order or request to obtain money from a credit line that cannot be approved since the borrower is in violation of the terms of the agreement or payment of such order or request would cause borrower to be violation of the terms of the agreement; (iii) in case of default, in addition to interest, a fine in an amount or percentage for any installment which [has become due and remained unpaid for a period in excess of ten days] is not paid on or before the date on which it is due. A bank or trust company that imposes the charge described in this subparagraph without allowing a grace period of at least ten days must credit any cash payment made by a borrower to a teller at a branch where deposits are accepted by the bank or trust company, as of the date of receipt of the payment; (iv) the actual expenditures, including reasonable attorneys' fees for necessary court process; (v) in case the bank or trust company insures a borrower under a credit unemployment insurance policy, group life insurance policy, group health insurance policy, group accident insurance policy, ΟΙ group health and accident insurance policy, an amount for each month which, notwithstanding any other law, may be computed on the amount of the borrower's entire unpaid indebtedness under this subdivision except in the case of a loan or loan commitment made under this subdivision for educational purposes as specified in subparagraph (i) of paragraph (c) of this subdivision, and then on an amount no greater than the unpaid balance of the borrower's scheduled periodic payments, whether due or not due, upon the loan or loan commitment, at a rate not in excess of the premiums chargeable for such month in accordance with rate schedules then in effect and on file with the superintendent of insurance for such insurance by the insurer; (vi) if loans or advances may be obtained by use of a credit card issued by the bank or trust company to the borrower, an annual fee for membership in the credit card plan. If the borrower has requested the issuance of a credit card, the fee for the first year may be charged by the bank or trust company at any time. The bank or trust company shall in each subsequent year in which an annual fee is payable, send the borrower in or with the statement for the monthly billing period before that in which the fee is to be billed, a notice that the annual fee will be billed in the next monthly statement. A borrower who is not delinquent or otherwise in breach of any term of the agreement with the bank or trust company shall have the right during the first six months after the annual fee is billed to notify the bank or trust company in writing, at its address on the credit agreement, to terminate the borrower's account and request a refund of the unused portion of the annual fee previously paid. Upon receipt of the termination notice and refund request from such borrower, the bank or trust company shall refund to the borrower the unused pro rata share of any annual fee previously paid as of the first billing statement date after receipt the termination notice; and (vii) an over limit charge which may be imEXPLANATION-Matter in italics is new; matter in brackets [ ] is old law to be omitted.

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posed whenever the specified credit limit is exceeded but not more than once in a monthly billing cycle. If the overlimit charge is imposed, the credit limit must be disclosed on the monthly billing statement; and (viii) the charge set forth in section 5-328 of the general obligations law. The fees and charges set forth in this subdivision shall be deemed to be material to the determination of the interest rate but shall not be considered interest for any purpose of sections 190.40 and 190.42 of the penal law.

§ 2. Paragraph (b) of subdivision 5 of section 108 of the banking law, as amended by chapter 609 of the laws of 1984 and the opening and closing paragraphs as amended by chapter 60 of the laws of 1989, is amended to read as follows:

(b) Such agreement may provide for interest on the unpaid aggregate principal amount of such loans and advances from time to time outstanding at the rate or rates agreed to by the bank or trust company and the borrower, as computed pursuant to this section, including, in accordance with the provisions of the agreement, rates that may vary from time to time reckoned on each loan or advance from the date thereof, calculated on any of the following bases: (i) on the unpaid principal amount of such loans and advances from time to time outstanding, or (ii) for each month on an average balance outstanding determined by dividing by two the sum of the balances of unpaid principal of such loans and advances outstanding on two dates during such month, as specified in such agreement; the first of which dates being not later than the fifteenth day of such month and the second being not earlier than the sixteenth day of such month and not less than ten nor more than twenty days after the first date, or (iii) for each month on a fixed amount selected from a schedule, which fixed amount may exceed the average daily balance under (i) above, or the average balance if determined under (ii) above, by a differential of not more than five dollars, provided the same fixed amount is also used for computing interest for any month for which such balance exceeds said fixed amount by any amount up to at least the same differential. For purposes of this subdivision, a month may but need not be a calendar month, and a bank or trust company computing interest on a daily basis may charge for each day one thirtieth of the monthly interest rate. No amendment to any agreement shall take effect unless at least 30 days prior to the effective date of such amendment, imposition or increase, a written notice has been mailed or delivered to the borrower that clearly and conspicuously describes such amendment, imposition or increase and the indebtedness to which it applies and if the amendment has the effect of increasing the rate of interest, either (a) the notice states that the incurrence by the borrower or another person authorized by him of any further indebtedness under the plan to which the agreement relates on or after the effective date of such change specified in the notice shall constitute acceptance of such change, and either the borrower agrees in writing to such change or the borrower another person authorized by him incurs such further indebtedness on or after the effective date of the change stated in the notice, or (b) the notice advises the borrower that he has thirty days from the earlier of the mailing or delivery of the notice to advise the bank or trust company in writing that he does not accept such amendment, provided that such notice contains an address to which the borrower may send notice of his election not to accept the amendment and also provided that the notice specifies that the amendment will take effect absent receipt of the borrower's written objection to the amendment. Any borrower who has received a notice pursuant to clause (a) who does not agree in writing to the amendment and no further indebtedness is incurred under the plan to which the agreement relates, and any borrower who gives a timely notice, pursuant to clause (b), electing not to accept the amendment shall be permitted to pay his outstanding indebtedness in accordance with the terms of the agreement but the bank or trust company may terminate the amount of credit available to the borrower and may require the borrower to return all credit cards and checks issued in connection with the agreement. If such a borrower subsequently obtains credit under the agreement, such use shall constitute acceptance of the change of terms and shall be deemed to have been accepted and shall become effective as to the borrower as of the date such change would have become effective but for the giving of notice by the borrower. If notice is given pursuant to clause (b) and the borrower does not timely object in writing to the amendment, such amendment shall become effective without action on the part of the borrower; provided that in no event shall any such amendment or increase take effect with respect to (i) the unpaid aggre

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gate principal amount of loans or advances representing indebtedness outstanding prior to January 1, 1981 and (ii) the unpaid aggregate principal amount of loans or advances representing indebtedness incurred, under or pursuant to an agreement in effect on December 1, 1980, between January 1, 1981, and the effective date of such amendment or increase specified in the first notice mailed or delivered pursuant to clause (a). Indebtedness outstanding prior to January 1, 1981, for purpose of clause (i) above and indebtedness outstanding prior to the effective date of an increase for purposes of clause (ii) above shall be determined on the basis of crediting payments and other credits first to that portion of any such indebtedness representing interest charges, insurance premiums, service charges and fines and then to that portion representing the principal amount of loans or advances in the order in which made. The provisions of this paragraph permitting an increase in a rate of interest shall not apply in the case of an agreement which expressly prohibits changing of interest rates or which provides limitations on changing of interest rates which are more restrictive than the requirements of this paragraph. An amendment to an agreement deleting a provision that the rate of interest may vary from time to time may not become effective within one year from the later of the effective date of the agreement or the effective date of an amendment to an agreement adding a variable rate provision. On any loans or advances with rates of interest that may vary from time to time made pursuant to this paragraph, [each rate] such variable rates of interest shall be determined at regular intervals as set forth in the agreement and in accordance with such regulations as the banking board shall prescribe but said rate shall not vary more often than once in any three month period and shall be based on a published index that is (a) readily available, (b) independently verifiable, (c) beyond the control of the bank or trust company and (d) approved by the superintendent, (e) such loan rate shall be based on the index values, or the index numbers plus or minus additional percentage points provided, however, that variations in the rate must correspond directly to the movements of the index values plus or minus additional percentage points only. Once such rate is established no lending institution may add any factors to increase the rate other than variations in the established index without the prior approval of the banking board. For purposes of this paragraph, an adjustment in the rate of interest as a consequence of movement in the selected index shall not constitute an amendment to that agreement. A reduction in the grace period for the assessment of a fee on any installment not paid when due, shall be considered an amendment to an agreement as set forth in this paragraph.

The banking board shall adopt regulations with respect to agreements that provide for a variable rate of interest, including but not limited to: (a) providing for disclosure to the borrower by the bank or trust company of the circumstances under which the rate may increase, any limitations on the increase, the effect of an increase and an example of the payment terms that would result from an increase; (b) providing for disclosure to the borrower by the bank or trust company of a history of the fluctuations of the index over a reasonable period of time; and (c) providing for notice to the borrower from the bank or trust company prior to any rate increase or change in the terms of payment. The regulations shall allow a bank or trust company after choosing an approved index to choose a spread and a minimum and maximum rate of interest at its discretion.

§ 3. Subdivision 5 of section 413 of the personal property law, as amended by chapter 60 of the laws of 1989, is amended to read as follows:

5. The service charge shall include all charges incident to investigating and making the retail instalment credit agreement and for the extension of credit thereunder. No fee, expense, delinquency, collection or other charge whatsoever shall be taken, received, reserved or contracted for by the seller under or holder of a retail instalment credit agreement except as provided in this section and except that the credit agreement may provide for the payment of attorney's fees not exceeding twenty per centum of the amount due and payable under the credit agreement if it is referred to an attorney not a salaried employee of the seller or holder for collection; and provided further that when credit cards are issued in connection with a retail instalment credit EXPLANATION-Matter in italics is new; matter in brackets [ ] is old law to be omitted.

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agreement, the retail instalment credit agreement may in addition
an annual fee for membership in the credit card plan. If a
buyer has requested the issuance of a credit card, the fee for the first
year may be charged by the seller or holder at any time. The seller or
holder shall in each subsequent year in which an annual fee is payable,
send the buyer in or with the statement for the monthly billing period
before that in which the fee is to be billed, a notice that the annual
fee will be billed in the next monthly statement. A buyer who is not
delinquent or otherwise in breach of any term of the agreement with the
seller or holder shall have the right during the first six months after
the annual fee is billed to notify the seller or holder in writing,
its address on the credit agreement, to terminate the buyer's account
and request a refund of the unused portion of the annual fee previously
paid.
Upon receipt of the termination notice and refund request from
such buyer, the seller or holder shall refund to the buyer the unused
pro-rata share of any annual fee previously paid as of the first billing
statement date after receipt of the termination notice. The retail in-
stallment credit agreement may provide in case of default, in addition
to a service charge, for the assessment of a fee for an amount or per-
centage for any installment which [has become due and remained unpaid
for a period in excess of ten days] is not paid on or before the date on
which it is due. A seller or holder that imposes a fee for late payments
without allowing a grace period of at least ten days must credit any
cash payment made by a buyer to an authorized representative of the
seller at all stores, or to a teller at a branch where deposits are ac-
cepted, as of the date of receipt of the payment. The retail installment
credit agreement may, in addition, provide for an over limit charge. The
overlimit charge may be imposed whenever the specified credit limit is
exceeded but not more than once in a monthly billing cycle. If the
overlimit charge is imposed, the credit limit must be disclosed on the
monthly billing statement. The retail installment credit agreement may
provide for the charge set forth in section 5-328 of the general obliga-
tions law. The fees and charges set forth in this subdivision shall be
deemed to be material to the determination of the rate of service charge
but shall not be considered interest for any purpose of law.

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§ 4. Subdivision 3 of section 413 of the personal property law, as amended by chapter 883 of the laws of 1980, paragraph (a) as amended by chapter 609 of the laws of 1984, subparagraph (ii) of paragraph (c) as amended by chapter 200 of the laws of 1987 and paragraph (e) as amended by chapter 60 of the laws of 1989, is amended to read as follows: 3. (a) A seller may, in a retail instalment credit agreement, contract for and, if so contracted for, the seller or holder thereof may charge, receive and collect the service charge authorized by this article[. The], which service charge shall not exceed the rate or rates agreed upon by the seller and the buyer including, in accordance with the provisions of the credit agreement, rates that may vary, from time to time computed, for the purposes of this section, on the outstanding indebtedness from month to month, or if the service charge so computed less than seventy cents for any month, seventy cents. If_the_credit agreement provides for a variable rate of service charge, [the] such rate shall be determined at regular intervals as set forth in the credit agreement and in accordance with such regulations as the banking board shall prescribe but said rate shall not vary more often than once in any three month period and shall be based on a published index that is (a) readily available, (b) independently verifiable, (c) beyond the control of the seller and (d) approved by the superintendent, (e) such charges in credit agreements shall be based on the index values, or the index numbers plus or minus additional percentage points provided, however, that variations in the charge must correspond directly to the movements of the index values plus or minus additional percentage points only. Once such charge is established no lending institution may add any factors to increase the charge other than variations in the established index without the prior approval of the banking board.

The banking board shall adopt regulations with respect to credit agreements that provide for a variable rate of service charge, including but not limited to: (a) providing for disclosure to the buyer by the seller of the circumstances under which the rate may increase, any limitations on the increase, the effect of an increase and an example of the payment terms that would result from an increase; (b) providing for disclosure to the buyer by the seller of a history of the fluctuations of the index over a reasonable period of time; and (c) providing for notice to the buyer by the seller prior to any rate increase or change in the

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terms of payment. The regulations shall allow a seller, holder financing agency after choosing an approved index to choose a spread and a minimum and maximum rate of service charge at its discretion.

(b) If the credit agreement so provides, the service charge may be computed on a schedule of fixed amounts if as so computed it is applied to all amounts of outstanding balances equal to the fixed amount minus a differential of not more than five dollars, provided that it is also applied to all amounts of outstanding balances equal to the fixed amount plus at least the same differential.

(c) (i) For the purposes of this subdivision the term "outstanding indebtedness from month to month" shall mean, at the election of the seller, holder or financing agency either:

(a) the amount unpaid at the beginning of the monthly billing period, including unpaid service charges, less all payments received and credits issued during the billing period, except for credits attributable to amounts not included in the previous balance; or

(b) an amount not to exceed the amount calculated by adding the amounts unpaid for each day of the monthly billing period, including unpaid service charges, after reflecting that day's purchases made, payments received, credits issued and other adjustments, and dividing such sum by the number of days in the billing period.

(ii) A credit agreement may not provide for the imposition of a service charge for any monthly billing period in which there is no previous balance or during which the sum of the payments received and other credits issued which are attributable to amounts included in the previous balance is equal to or exceeds the amount of such previous balance unless the same seller also offers a credit agreement which provides that no service charge will be imposed for any monthly billing period in which there is no previous balance or during which the sum of the payments received and other credits issued which are attributable to amounts included in the previous balance is equal to or exceeds the amount of such previous balance.

(iii) The term "billing period" as used in this subdivision shall mean the time interval between periodic statement dates, pursuant to subdivision four of this section. A billing period shall be considered to be a "month" or "monthly" if the last day of each billing period is on the same day of each month or does not vary by more than four days

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(d) Where a retail instalment credit agreement provides that the buyer has the option of avoiding the imposition of an additional service charge by paying the outstanding indebtedness or any portion thereof within a specified period of time, the additional service charge may not be imposed unless the monthly statement showing such outstanding indebtedness or portion thereof is mailed at least fifteen days prior to the date by which payment must be received to avoid that service charge. A seller or holder shall not be prohibited from imposing a service charge, or required to refund a service charge, if failure to comply with the provisions of this paragraph resulted from circumstances beyond the control of the seller or holder, notwithstanding reasonable procedures to insure compliance with this paragraph.

(e) No change in the terms of a retail instalment credit agreement shall take effect unless at least 30 days prior to the effective date of such change, a written notice has been mailed or delivered to the buyer that clearly and conspicuously describes such change and the indebtedness to which it applies, and if the change has the effect of increasing the rate of service charge, either (a) the notice states that the incurrence by the buyer or another person authorized by him of any further indebtedness under the plan to which the agreement relates on or after the effective date of such change specified in the notice shall constitute acceptance of such change, and either the buyer agrees in writing to such change or the buyer or another person authorized by him incurs such further indebtedness on or after the effective date of the change stated in the notice, or (b) the notice advises the buyer that he has thirty days from the earlier of the mailing or delivery of the notice to advise the seller under or holder of a retail installment credit agreement in writing that he does not accept such change, provided that such notice contains an address to which the buyer may send notice of his election not to accept the change and also provided that the notice specifies that the change will take effect absent receipt of the buyer's EXPLANATION-Matter in italics is new; matter in brackets [ ] is old law to be omitted.

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