ARIZONA STATE SENATE

RESEARCH STAFF

 

 

TO:                  MEMBERS OF THE SENATE

                        FINANCE COMMITTEE                

 

DATE:                        April 5, 2010

 

SUBJECT:      Strike everything amendment to H.B. 2035, relating to consumer loans; origination fees

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Purpose

 

            Modifies the financial charges a consumer lender may collect on consumer loans.

 

Background

 

            A consumer lender may receive a finance charge of at most 36 percent on a consumer loan in the amount of $1,000 or less.  For loans of more than $1,000 in the original amount, the lender may charge either a rate of 36 percent on the original amount of $500 and 24 percent on the original amount greater than $500 or charge a rate that results from the total amount of finance charges the lender would receive through the maturity of the loan at the loan rate, assuming the loan will be paid according to its agreed terms.  Lenders may also contract and receive finance charges on consumer revolving loans and home equity revolving loans, with certain exceptions (A.R.S. § 6-632).

 

            In addition to these fees, a lender may collect finance charges on the following :

1.      a delinquency charge equal to five percent of the amount of any installment not paid in full within seven days after its due date;

2.      the costs paid to a third party who is not an employee of the lender, which were incurred by securing the loan in whole or in part by real property;

3.      lawful fees for acknowledging, filing and recording, continuing or releasing certain financial statements in any public office and which must not exceed the filing or recording fee;

4.      a loan origination fee of at most five percent, but in no event more than $75, for a closed end consumer loan or consumer revolving loan.  A lender cannot charge for the refinancing of a closed end consumer loan or the negotiating of the agreed credit limit on a revolving consumer loan if the refinancing or negotiating occurs within a year of the collection of the prior origination fee for the loan or if the lender charges prepaid finance charges;

5.      deferral fees authorized for pre-computed consumer loans;

6.      insurance premiums;

7.      court costs;

8.      reasonable attorney fees if the loan is referred for collections to an attorney;

9.      costs for reinstating a trust deed that secures the loan;

10.  costs for exercising the power of sale in a trust deed that secures the loan and costs of the sale that are included in a credit bid or are applied from the proceeds of a trustee’s sale; and

11.  costs of retaking, holding, preparing for sale and selling any personal property.

 

            Every year, a consumer lender must report the number of closed end consumer loans and consumer revolving loans under $1,000 made in the past two years to the Superintendent of the Arizona Department of Financial Institutions (A.R.S. § 6-635).

 

            There is no anticipated fiscal impact to the state General Fund as a result of this legislation.

 

Provisions

 

1.       Specifies that on a closed end or revolving consumer loan with an original principal balance of $1,000 or less, the consumer lender may collect a loan origination fee of seven and one half percent.

 

2.      Removes the $75 cap on the amount a lender may collect on a loan origination fee.

 

3.      Allows a lender to charge at most $10 for preparing loan documentation, collateral security instruments and obtaining third party credit reports and related information.

 

4.      Makes technical changes.

 

5.      Becomes effective on the general effective date.

 

House Action

WM                 1/14/10                        DP                   4-2-1-1

3^rd Read           3/4/10                                                  42-13-4-0-0-1

 

JT/FS/tam