House File 337 - Introduced HOUSE FILE 337 BY PETERSEN , OLDSON , WOLFE , KRESSIG , HANSON , KEARNS , HEDDENS , M. SMITH , BERRY , THEDE , STECKMAN , MASCHER , ABDUL-SAMAD , GASKILL , H. MILLER , LENSING , WESSEL-KROESCHELL , WITTNEBEN , KELLEY , HUNTER , SWAIM , T. OLSON , KAJTAZOVIC , and HALL A BILL FOR An Act modifying provisions relating to the regulation of 1 delayed deposit services businesses, making penalties 2 applicable, and including effective date provisions. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 2411YH (5) 84 rn/sc

H.F. 337 Section 1. Section 533D.9, subsection 2, paragraph b, Code 1 2011, is amended to read as follows: 2 b. The annual percentage rate as computed pursuant to the 3 federal Truth in Lending Act. The annual percentage rate 4 shall not exceed thirty-six percent, as computed pursuant to 5 the federal Truth in Lending Act, unless a licensee makes 6 an election and submits to the indebtedness limitations and 7 electronic database reporting requirements specified in section 8 533D.10A. 9 Sec. 2. Section 533D.9, subsection 2, Code 2011, is amended 10 by adding the following new paragraph: 11 NEW PARAGRAPH . e. That the licensee cannot initiate debt 12 collection procedures, civil court proceedings, or arbitration 13 to collect an unpaid check unless the licensee has provided 14 the maker of the check the opportunity to repay the obligation 15 without any additional charges, other than the penalty provided 16 in paragraph “d” of this subsection, in biweekly payments of 17 not more than ten percent of the face of the check until the 18 debt is paid in full. Additionally, that during this repayment 19 period the licensee may not transfer or sell the debt owing on 20 the unpaid check, and the loan shall not be considered to be 21 in default. Further, that the maker of the check’s failure 22 to make a biweekly payment under this paragraph shall place 23 the loan in default and the licensee may, after proper notice, 24 exercise rights against the maker under the law. 25 Sec. 3. Section 533D.10, subsection 1, Code 2011, is amended 26 to read as follows: 27 1. A licensee shall not do any of the following: 28 a. Hold from any one maker more than two checks at any one 29 time. 30 b. Hold from any one maker a check or checks in an aggregate 31 face amount of more than five hundred dollars at any one time. 32 c. Hold or agree to hold a check for more less than 33 thirty-one fourteen days. 34 d. Require the maker to receive payment by a method which 35 -1- LSB 2411YH (5) 84 rn/sc 1/ 7

H.F. 337 causes the maker to pay additional or further fees and charges 1 to the licensee or another person. 2 e. Repay, refinance, or otherwise consolidate a postdated 3 check transaction with the proceeds of another postdated 4 check transaction made by the same licensee. A licensee may 5 not enter into another delayed deposit services transaction 6 with the maker of a check if the licensee presently has a 7 transaction outstanding with the maker or if the maker had a 8 previous transaction with the licensee within two days of the 9 new transaction, unless the licensee has provided the following 10 notice both verbally and in writing, and the maker has 11 acknowledged receipt of the notice with a signature and date: 12 Notice to Borrower 13 (1) The licensee may not repay, refinance, or otherwise 14 consolidate a postdated check transaction with the proceeds of 15 another postdated check transaction made by the same licensee. 16 (2) While a licensee may charge a penalty if a check is 17 not negotiable on the date agreed upon, the penalty shall not 18 exceed fifteen dollars. This penalty shall only be collected 19 by the licensee once on a check no matter how long that check 20 remains unpaid. This penalty is the only additional charge 21 a lender may charge you (the borrower) when a check is not 22 negotiable on the date agreed upon. 23 (3) If your check is not negotiable on the date agreed upon, 24 the licensee must provide you (the borrower) the opportunity 25 to repay the obligation without any additional charges, other 26 than the penalty described above, in biweekly payments of not 27 more than ten percent of the face of the check until the debt is 28 paid in full. 29 By signing and dating this notice, you acknowledge the 30 statements above, but yet still desire to obtain another loan 31 with the licensee. 32 Borrower(s) signature: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Date: _ _ _ _ _ _ _ _ 33 Borrower(s) signature: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Date: _ _ _ _ _ _ _ _ 34 f. Receive any other charges or fees in addition to the fees 35 -2- LSB 2411YH (5) 84 rn/sc 2/ 7

H.F. 337 listed in section 533D.9 , subsections 1 and 2 . 1 g. Initiate debt collection procedures, civil court 2 proceedings, or civil or private arbitration proceedings to 3 collect an unpaid check unless the licensee has provided the 4 maker the opportunity to repay the obligation without any 5 additional charges, other than the penalty provided in section 6 533D.9, subsection 2, paragraph “d” , in biweekly payments of not 7 more than ten percent of the face of the check until the debt 8 is paid in full. During this repayment period the licensee 9 may not transfer or sell the debt owing on the unpaid check, 10 and the loan shall not be considered to be in default. The 11 failure of the maker of the check to make a biweekly payment as 12 required shall place the loan in default and the licensee may, 13 after proper notice, exercise rights against the maker under 14 the law. 15 Sec. 4. NEW SECTION . 533D.10A Alternative annual percentage 16 rate —— indebtedness limitation —— electronic database. 17 1. A licensee may elect to impose an annual percentage rate, 18 as computed pursuant to the federal Truth in Lending Act, which 19 exceeds thirty-six percent by filing with the superintendent a 20 written notice of intent. An election pursuant to this section 21 shall apply to all delayed deposit services transactions 22 entered into by the licensee. A licensee having made an 23 election pursuant to this section who desires to discontinue 24 imposition of an alternative interest rate and consents 25 to imposition of the thirty-six percent annual percentage 26 rate otherwise applicable under this chapter, or a licensee 27 previously imposing an annual percentage rate not exceeding 28 thirty-six percent who desires to make an election pursuant to 29 this subsection, may submit a request to the superintendent, 30 not more than once a year. 31 2. A licensee electing to impose an alternative annual 32 percentage rate pursuant to this section shall be prohibited 33 from entering into a delayed deposit services transaction which 34 will cause the maker of the check, when all other delayed 35 -3- LSB 2411YH (5) 84 rn/sc 3/ 7

H.F. 337 deposit services transactions entered into with any licensee 1 involving the maker of the check are accounted for, and when 2 the term of the transaction is aggregated with the other 3 transactions, to be indebted for a period exceeding ninety 4 days during the preceding twelve-month period. For purposes 5 of this paragraph, if the maker of the check has entered 6 into more than one delayed deposit services transaction with 7 the same or another licensee, and the periods during which 8 the transactions are outstanding overlap, each day of each 9 respective transaction shall be counted in satisfying the 10 ninety-day restriction. For purposes of this subsection, if a 11 maker of a check is making biweekly payments during a repayment 12 period as provided in section 533D.9, subsection 2, paragraph 13 “e” , the repayment period shall not be counted in satisfying the 14 ninety-day restriction. 15 3. a. Each licensee making an election pursuant to this 16 section shall, by October 1, 2011, subscribe to, report to, and 17 utilize an electronic database tracking service to be developed 18 or selected pursuant to rules adopted by the banking division 19 of the department of commerce, that permits the licensee to 20 determine whether a maker of a check has an outstanding unpaid 21 check or debit authorization that is, or reasonably appears to 22 be, connected to a delayed deposit services transaction. Each 23 licensee shall require a maker of a check to sign a written 24 declaration confirming that, pursuant to section 533D.10A, 25 subsection 2, the maker of the check is eligible to enter into 26 a delayed deposit services transaction. 27 b. Records of a licensee and the electronic database 28 tracking service shall be subject to review and examination by 29 the division to determine whether the licensee is in compliance 30 with this section and other applicable provisions of this 31 chapter. 32 c. Information, records, and documents obtained in the 33 performance of the review and examination, including the amount 34 of any outstanding unpaid check or debit authorization and 35 -4- LSB 2411YH (5) 84 rn/sc 4/ 7

H.F. 337 the identity of the maker of the check, are confidential and 1 shall not be disclosed by the division and are not subject 2 to subpoena. Such information, records, and documents 3 do not constitute a public record under chapter 22. The 4 superintendent may disclose such information to representatives 5 of other state or federal regulatory authorities and 6 may release summary complaint information so long as the 7 information does not specifically identify the complainant. 8 The superintendent may also provide this information to the 9 attorney general for purposes of enforcing this chapter. 10 Sec. 5. EFFECTIVE DATE. Section 533D.10A, subsection 2, as 11 enacted in this Act, takes effect October 1, 2011. 12 EXPLANATION 13 This bill relates to specified aspects of the regulation of 14 delayed deposit services businesses. 15 The bill provides that the annual percentage rate applicable 16 to delayed deposit services transactions shall not exceed 36 17 percent, as computed pursuant to the federal Truth in Lending 18 Act, unless a licensee elects to impose an alternative higher 19 rate. This is the same percentage rate limitation imposed as 20 a restriction or safeguard for military personnel pursuant to 21 10 U.S.C. 49 § 987. Such an election shall make requirements 22 regarding indebtedness limitations and electronic database 23 reporting requirements specified in a subsequent section of the 24 bill applicable. 25 The bill provides that a licensee must disclose to the maker 26 of a check that the licensee cannot initiate debt collection 27 procedures, civil court proceedings, or arbitration to collect 28 an unpaid check unless the licensee has provided the maker 29 of a check the opportunity to repay the obligation without 30 any charges, other than the current $15 penalty, in biweekly 31 payments of not more than 10 percent of the face of the check 32 until the debt is paid in full. The bill adds that during this 33 repayment period the licensee cannot sell or transfer the debt 34 owing on the unpaid check and the loan shall not be considered 35 -5- LSB 2411YH (5) 84 rn/sc 5/ 7

H.F. 337 to be in default. However, if the maker of the check fails 1 to honor the repayment obligation, the bill provides that the 2 loan shall be placed in default. The bill makes the failure to 3 conform with these provisions a prohibited act on the part of 4 the licensee, which could subject the licensee to disciplinary 5 action as specified in Code section 533D.12. 6 Additionally, the bill changes a current provision that 7 prohibits a licensee from holding or agreeing to hold a 8 check for more than 31 days to a modified provision that the 9 licensee cannot hold or agree to hold a check for less than 14 10 days. The bill also prohibits a licensee from entering into 11 another transaction with the maker of a check who already has 12 a transaction outstanding with the licensee or from entering 13 into a new transaction within two days of the conclusion 14 of the previous transaction, unless the maker acknowledges 15 in writing specified restrictions relating to successive 16 transactions, applicable penalties, and the opportunity to 17 repay the obligation in installments in the event the check is 18 not negotiable. 19 As previously indicated, the bill authorizes a licensee to 20 impose an annual percentage rate which exceeds 36 percent by 21 filing with the superintendent of banking a written notice 22 of intent. If this election is made, it shall apply to all 23 transactions entered into by the licensee. The bill provides 24 that a licensee may discontinue imposition of an alternative 25 interest rate and consent to imposition of the 36 percent rate 26 otherwise applicable, and a licensee previously imposing the 27 36 percent rate may elect to impose the alternative rate, by 28 submitting a request to the superintendent no more often than 29 annually. 30 The bill provides that a licensee electing to impose 31 an alternative annual percentage rate shall be prohibited 32 from entering into a delayed deposit services transaction 33 that results in the maker of the check being indebted to 34 the licensee, or when aggregated with other delayed deposit 35 -6- LSB 2411YH (5) 84 rn/sc 6/ 7

H.F. 337 service business licensees, for longer than a 90-day period 1 during the preceding 12 months. This provision of the bill 2 takes effect October 1, 2011. Further, the bill requires a 3 licensee making the election, by October 1, 2011, to subscribe 4 to, report to, and utilize an electronic database tracking 5 service developed or selected by the banking division of the 6 department of commerce to monitor the number of transactions 7 entered into by a maker of a check for purposes of complying 8 with this provision. The bill states that licensee records and 9 the database shall be subject to review and examination by the 10 division, and provides that information, records, and documents 11 obtained by the division in the performance of such a review or 12 examination shall be considered confidential. 13 A violation of the bill’s provisions will subject a licensee 14 to existing penalty provisions in Code chapter 533D, including 15 possible license suspension or revocation, a civil penalty in 16 an amount not to exceed $5,000, an administrative fine in an 17 amount not to exceed $5,000, and the criminal penalty of a 18 serious misdemeanor punishable by confinement for no more than 19 one year and a fine of at least $315 but not more than $1,875. 20 -7- LSB 2411YH (5) 84 rn/sc 7/ 7