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#150625 - 01/15/04 10:02 PM Exceeding usuary limit
ABirkla Offline
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ABirkla
Joined: May 2002
Posts: 103
This questions comes as a result of a conversation with a loan officer. They are under the impression that if the bank charges a minimum finance charge of $17.00 and this causes the APR to exceed 21%, that is okay.

Any opinions? I know there will be.
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#150626 - 01/16/04 03:15 PM Re: Exceeding usury limit
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Absolutely not. What it sounds to me is that you are disclosing a minimum interest amount if the accrued interest is not >= to $17 (BTW, IN allows you to collect a $36 minimum "finance charge").

Your APR should be calculated based on your rate and other fees (if any) and not the minimum finance charge. In your software system do not enter the amount as minimum interest, but you do need to contract for the mimimum "finance charge", not minimum interest.

The only time you are allowed to exceed the Usury (that I'm aware of) is if the origination fee allowed under IN Code causes the loan to exceed the usury. You still have to disclose the actual APR.
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#150627 - 01/20/04 01:23 PM Re: Exceeding usury limit
ABirkla Offline
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ABirkla
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In our Note, Disclosure and Security Agreement we state that the bank is entitled to a minimum finance charge of $17.00 but this amount should not be entered as a minimum amount of interest.

Thank you for the clarification.

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#150628 - 01/20/04 05:12 PM Re: Exceeding usury limit
ABirkla Offline
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ABirkla
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This is an interesting example. Our institution uses Harland - LaserPro Lending software. When setting up the loan products the system prompts the user to enter their minimum finance charge, ours is $17.00.

The loan officer originates a loan for $300.00 with an interest rate of 12% for one month no other fees. The system automatically pulled in the $17.00 minimum finance charge because the interest did not equal or exceed our minimum. This in turn made the APR 66.78%. What would be the course of action with this example? Lower the rate?
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#150629 - 01/20/04 06:12 PM Re: Exceeding usury limit
Dan Persfull Offline
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Bloomington, IN
OK, I'll try to explain this better. The minimum FC is a difficult concept to grasp, or it always has been for me.

1. Under no circumstance can you exceed the usury limitations with the exception of charging an origination fee allowable under the IN Code. The origination fee does not count against usury but it does have to be disclosed in the APR.

2. IN allows you to contract for a minimum finance charge of $36. HOWEVER you cannot contract for this charge if your expected earn interest does not exceed $36. The $36.00 minimum finance charge is a "prepayment penalty" if the loan does not go to term and your earned interest does not reach $36 (or the amount of interest contracted for) . If your loan, based on the rate, is only to accrue $25 for the term of the loan, then you can only contract for a $25.00 minimum finance charge. In other words you cannot collect more interest than contracted for and the interest you contract for cannot exceed the usury.

You can contact Mark Tarpey at the IN DFI at (800) 382-4880. Mark has always been very helpful (and patient) with my questions over the past.
Last edited by dpersfull; 01/20/04 06:15 PM.
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#150630 - 01/20/04 08:58 PM Re: Exceeding usury limit
ABirkla Offline
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ABirkla
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Posts: 103
Difficult concept to grasp, you can say that again! Just when I think I know what I am talking about someone throws me a curve ball and I get knocked for a loop.

You wouldn't happen to have the IC for the information you submitted in your reply? Also, I want to thank you for your help. It is VERY MUCH appreciated.
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#150631 - 01/20/04 09:56 PM Re: Exceeding usury limit
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
The majority of the above information in #2 comes from my conversations with Mark Tarpey over the years.

Origination fee:

IC 24-4.5-3-201(8) & (9)
IC 24-4.5-3-209(2)

Minimum F/C
IC 24-4.5-3-201(7)
IC 24-4.5-3-508(7)

You probably would want to look at sections 202, 203.5, 205 and 206 also for other allowed and non-allowed charges.

PS. Sorry, I forgot to say you're welcome.
Last edited by dpersfull; 01/20/04 09:59 PM.
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#150632 - 01/18/05 09:07 PM Re: Exceeding usury limit
Anonymous
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I have a question relating to exceeding usury. I see that for "supervised loans" the APR can exceed 21%. What authorizes a lender to make a supervised loan? Would a lender have to be specially licensed to make this sort of loan?

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#150633 - 01/18/05 09:28 PM Re: Exceeding usury limit
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Not that I'm aware of. You just need software capable of properly disclosing the "blended" APR. Your servicing software would also have to be able to apply the proper tiers.

A supervised loan is one that blends the APR based on the following (please double check this as I'm quoting from memory):

36% on the balance that is =< $990

21% on the balance that is > $990 but < $3300

15% on the balance that is > $3300
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#150634 - 01/18/05 09:38 PM Re: Exceeding usury limit
jap Offline
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jap
Joined: Mar 2004
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IN
You are letting me breath a sigh of relief. There have been a couple of cases lately where a lender has made a $500 loan with an APR of say 24.6%. I had thought this was acceptable due to the limits you quoted above. Then today I saw that these were classified as supervised loans and the panic set in. Have you run into this same sort of situation or do you always stick with the 21%?
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#150635 - 01/18/05 10:17 PM Re: Exceeding usury limit
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
We stick with the 21%.

If you are going to make both supervised and non-supervised loans then I would suggest you define in your loan policy what you consider a supervised loan, i.e. all loans =< X will be processed as supervised loans. Then process ALL loans =< X as supervised loans. This will help avoid any potential fair lending issues.
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#150636 - 02/01/05 02:51 AM Re: Exceeding usury limit
Anonymous
Unregistered

How does the Usury Law tie into private lenders giving out loans secured by real estate - say at 12%? Do you have to be a licensed broker to lend money? This doesn't make sense to me. If I can find numberous private lenders who want to earn a 12% return on their backed notes, what's the big deal. Do I need a lawyer??

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#150637 - 02/01/05 04:44 AM Re: Exceeding usury limit
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Quote:

If I can find numerous private lenders who want to earn a 12% return on their backed notes, what's the big deal. Do I need a lawyer??




If you are arranging loans through 3rd parties then you are acting as a broker and brokers are required to be licensed in the state of IN. If you have been brokering loans without a license, yes you need an attorney.
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#150638 - 07/23/05 02:14 AM Re: Exceeding usury limit
Anonymous
Unregistered

For a Car Title Loan of $500 for one year. The interest rate is 300%. It is with a private company. Is this usury.

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#150639 - 07/23/05 04:41 PM Re: Exceeding usury limit
Dan Persfull Offline
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Dan Persfull
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Posts: 47,517
Bloomington, IN
What do you think? 300% is a little ridiculous isn't it? Go to IC 24-4.5-1-301 of the IN Code and look up the definition of a creditor, a person and regularly engaged. Then look up the small loan statutes on the IN DFI Web page. If your "private institution" meets the definition of a creditor, you have problems.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#150640 - 08/23/05 04:36 AM I work for Harland and I am Telling you -
Anonymous
Unregistered

the total usury fee Will be subject to the fee propagation guidelines should the APR be a minimum value in a blended circumstance. Any auditor would tell you that an automated "blended" option is a horribly dumb idea. No software should ever do such a thing. That was not a clever suggestion. Are you offshore or canadian or something?

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