House File 2127 - Introduced HOUSE FILE 2127 BY PETERSEN , KRESSIG , TAYLOR , HEDDENS , MASCHER , BERRY , THEDE , COHOON , GAYMAN , HANSON , GASKILL , D. OLSON , SMITH , ISENHART , BURT , WENDT , SCHUELLER , FICKEN , PALMER , ABDUL-SAMAD , WINCKLER , RUNNING-MARQUARDT , KEARNS , KUHN , STECKMAN , ZIRKELBACH , LENSING , BEARD , WESSEL-KROESCHELL , HUNTER , SWAIM , OLDSON , REICHERT , and T. OLSON 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 5700YH (11) 83 rn/sc

H.F. 2127 Section 1. Section 533D.9, subsection 2, paragraph b, Code 1 2009, 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 2009, 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 2009, 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 5700YH (11) 83 rn/sc 1/ 7

H.F. 2127 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 check 4 transaction made by the same licensee. A licensee may not 5 enter into another transaction with the maker of a check if the 6 licensee presently has a transaction outstanding with the maker 7 or if the maker had a previous transaction with the licensee 8 within two days of the new transaction, unless the licensee has 9 provided the following notice both verbally and in writing, 10 and the maker has acknowledged receipt of the notice with a 11 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 5700YH (11) 83 rn/sc 2/ 7

H.F. 2127 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 20 a written notice of intent. An election pursuant to this 21 section shall apply to all transactions entered into by the 22 licensee. A licensee having made an election pursuant to this 23 section who desires to discontinue imposition of an alternative 24 interest rate and consents to imposition of the thirty-six 25 percent annual percentage rate otherwise applicable under this 26 chapter, or a licensee previously imposing an annual percentage 27 rate not exceeding thirty-six percent who desires to make an 28 election pursuant to this subsection, may submit a request to 29 the superintendent, not more than once a year. 30 2. A licensee electing to impose an alternative annual 31 percentage rate pursuant to this section shall be prohibited 32 from entering into a delayed deposit service transaction which 33 will cause the maker of the check, when all other delayed 34 deposit services transactions entered into with any licensee 35 -3- LSB 5700YH (11) 83 rn/sc 3/ 7

H.F. 2127 involving the maker of the check are accounted for, and when 1 the term of the transaction is aggregated with the other 2 transactions, to be indebted for a period exceeding ninety 3 days during the preceding twelve-month period. For purposes 4 of this paragraph, if the maker of the check has entered 5 into more than one delayed deposit service transaction with 6 the same or another licensee, and the periods during which 7 the transactions are outstanding overlap, each day of each 8 respective transaction shall be counted in satisfying the 9 ninety-day restriction. For purposes of this subsection, if a 10 maker of a check is making biweekly payments during a repayment 11 period as provided in section 533D.9, subsection 2, paragraph 12 “e” , the repayment period shall not be counted in satisfying the 13 ninety-day restriction. 14 3. a. Each licensee making an election pursuant to this 15 section shall, by October 1, 2010, subscribe to, report to, and 16 utilize an electronic database tracking service to be developed 17 or selected pursuant to rules adopted by the banking division 18 of the department of commerce, that permits the licensee to 19 determine whether a maker of a check has an outstanding unpaid 20 check or debit authorization that is, or reasonably appears to 21 be, connected to a delayed deposit service transaction. Each 22 licensee shall require a maker of a check to sign a written 23 declaration confirming that, pursuant to section 533D.10A, 24 subsection 2, the maker of the check is eligible to enter into 25 a delayed deposit service transaction. 26 b. Records of a licensee and the electronic database 27 tracking service shall be subject to review and examination by 28 the division to determine whether the licensee is in compliance 29 with this section and other applicable provisions of this 30 chapter. 31 c. Information, records, and documents obtained in the 32 performance of the review and examination, including the amount 33 of any outstanding unpaid check or debit authorization and 34 the identity of the maker of the check, are confidential and 35 -4- LSB 5700YH (11) 83 rn/sc 4/ 7

H.F. 2127 shall not be disclosed by the division and are not subject 1 to subpoena. Such information, records, and documents 2 do not constitute a public record under chapter 22. The 3 superintendent may disclose such information to representatives 4 of other state or federal regulatory authorities and 5 may release summary complaint information so long as the 6 information does not specifically identify the complainant. 7 The superintendent may also provide this information to the 8 attorney general for purposes of enforcing this chapter. 9 Sec. 5. EFFECTIVE DATE. Section 533D.10A, subsection 2, as 10 enacted in this Act, takes effect October 1, 2010. 11 EXPLANATION 12 This bill relates to specified aspects of the regulation of 13 delayed deposit service businesses. 14 The bill provides that the annual percentage rate applicable 15 to delayed deposit service transactions shall not exceed 36 16 percent, as computed pursuant to the federal Truth in Lending 17 Act, unless a licensee elects to impose an alternative higher 18 rate. This is the same percentage rate limitation imposed as 19 a restriction or safeguard for military personnel pursuant to 20 10 U.S.C. 49 § 987. Such an election shall make requirements 21 regarding indebtedness limitations and electronic database 22 reporting requirements specified in a subsequent section of the 23 bill applicable. 24 The bill provides that a licensee must disclose to the maker 25 of a check that the licensee cannot initiate debt collection 26 procedures, civil court proceedings, or arbitration to collect 27 an unpaid check unless the licensee has provided the maker 28 of a check the opportunity to repay the obligation without 29 any charges, other than the current $15 penalty, in biweekly 30 payments of not more than 10 percent of the face of the check 31 until the debt is paid in full. The bill adds that during this 32 repayment period the licensee cannot sell or transfer the debt 33 owing on the unpaid check and the loan shall not be considered 34 to be in default. However, if the maker of the check fails 35 -5- LSB 5700YH (11) 83 rn/sc 5/ 7

H.F. 2127 to honor the repayment obligation, the bill provides that the 1 loan shall be placed in default. The bill makes the failure to 2 conform with these provisions a prohibited act on the part of 3 the licensee, which could subject the licensee to disciplinary 4 action as specified in Code section 533D.12. 5 Additionally, the bill changes a current provision that 6 prohibits a licensee from holding or agreeing to hold a 7 check for more than 31 days to a modified provision that the 8 licensee cannot hold or agree to hold a check for less than 14 9 days. The bill also prohibits a licensee from entering into 10 another transaction with the maker of a check who already has 11 a transaction outstanding with the licensee or from entering 12 into a new transaction within two days of the conclusion 13 of the previous transaction, unless the maker acknowledges 14 in writing specified restrictions relating to successive 15 transactions, applicable penalties, and the opportunity to 16 repay the obligation in installments in the event the check is 17 not negotiable. 18 As previously indicated, the bill authorizes a licensee to 19 impose an annual percentage rate which exceeds 36 percent by 20 filing with the superintendent of banking a written notice 21 of intent. If this election is made, it shall apply to all 22 transactions entered into by the licensee. The bill provides 23 that a licensee may discontinue imposition of an alternative 24 interest rate and consent to imposition of the 36 percent rate 25 otherwise applicable, and a licensee previously imposing the 26 36 percent rate may elect to impose the alternative rate, by 27 submitting a request to the superintendent no more often than 28 annually. 29 The bill provides that a licensee electing to impose 30 an alternative annual percentage rate shall be prohibited 31 from entering into a delayed deposit service transaction 32 that results in the maker of the check being indebted to 33 the licensee, or when aggregated with other delayed deposit 34 service business licensees, for longer than a 90-day period 35 -6- LSB 5700YH (11) 83 rn/sc 6/ 7

H.F. 2127 during the preceding 12 months. This provision of the bill 1 takes effect October 1, 2010. Further, the bill requires a 2 licensee making the election, by October 1, 2010, to subscribe 3 to, report to, and utilize an electronic database tracking 4 service developed or selected by the banking division of the 5 department of commerce to monitor the number of transactions 6 entered into by a maker of a check for purposes of complying 7 with this provision. The bill states that licensee records and 8 the database shall be subject to review and examination by the 9 division, and provides that information, records, and documents 10 obtained by the division in the performance of such a review or 11 examination shall be considered confidential. 12 A violation of the bill’s provisions will subject a licensee 13 to existing penalty provisions in Code chapter 533D, including 14 possible license suspension or revocation, a civil penalty in 15 an amount not to exceed $5,000, an administrative fine in an 16 amount not to exceed $5,000, and the criminal penalty of a 17 serious misdemeanor punishable by confinement for no more than 18 one year and a fine of at least $315 but not more than $1,875. 19 -7- LSB 5700YH (11) 83 rn/sc 7/ 7