SIMPLIFICATION AND AVAILABILITY
OF BANK CREDIT—STATEMENT OF POLICY
§ 13.51. Application of the Simplification and Availability of Bank Credit Act (SABCA)—Statement of Policy.
(a) Coverage of the SABCA.
(1) The SABCA, enacted December 28, 1994, with an effective date of March 28, 1995, amended Chapter 3 of the act by adding a new section 322 (7 P. S. § 322). Chapter 3 of the act (7 P. S. § § 301—321) contains a number of individual sections which provide institutions to which it applies the authority to make loans subject to specific restrictions. The enactment of successive sections of Chapter 3 over time, and amendments to them, have been designed to afford institutions the maximum amount of flexibility in designing credit products to meet the convenience and needs of the financial services marketplace.
(2) Individual sections of Chapter 3 of the act which deal with lending powers and charges are alternative bases for extensions of credit and have been consistently interpreted as such by the Department. Section 322 is an optional basis for lending authority since section 322(d) is explicitly permissive with respect to an institution’s extension of credit under section 322. It is the position of the Department that section 6 of the SABCA (7 P. S. § 322 note) repealing acts and parts of acts which are inconsistent with section 322 is not intended to repeal the individual sections of Chapter 3 of the act which deal with lending powers and charges, including section 319 of the act (7 P. S. § 319).
(3) While section 322(b) provides that section 322 ‘‘shall govern’’ (See subsection (c)(1)) all direct and indirect extensions of credit by an institution, subject to enumerated exceptions, the Department finds that the section was designed to make it clear that institutions are authorized (not compelled) to use section 322, despite other statutes that might otherwise be deemed to apply. Thus, section 322(b) confirms that courts are not to apply Pennsylvania installment sales laws (such as the Goods and Services Installment Sales Act (69 P. S. § § 1101—2303) or the Home Improvement Finance Act (73 P. S. § § 500-101—500-602)) to invalidate seller-assisted loans made under the authority of section 322 (See subsection (c)(2)). An interpretation to the effect that section 322(b) exclusively governs all extensions of credit would conflict directly with paramount Federal law. Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (12 U.S.C.A. § 1831d) and section 85 of the National Bank Act (12 U.S.C.A. § 85) authorize Pennsylvania-chartered institutions and National banks to ‘‘borrow’’ the periodic interest rates and other interest charges permitted by Pennsylvania law to other borrowers, such as licensees under the Consumer Discount Company Act (7 P. S. § § 6201—6219) and the Secondary Mortgage Loan Act (7 P. S. § § 6601—6626).
(4) The new section 322 does not purport to be applicable to extensions of credit or agreements to extend credit under open-end plans which are in effect prior to March 28, 1995. If, however, a creditor has the specific ability to change the terms of an agreement in existence prior to March 28, 1995, and the creditor elects to comply with section 322, then section 322 will be applicable to that existing credit by virtue of that election.
(b) Agreements for the extension of credit.
(1) Formal requirements.
(i) Section 322(d), which provides that an institution may extend credit under a written agreement fully completed prior to any signature by the customer, is designed to ensure that customers are fully advised of their legal commitments before becoming obligated to the issuer. It does not change current law or require a change in current practices as to which documents must be signed. Thus, the term ‘‘agreement’’ need not be set forth in a single document and will be deemed to include a promissory note or credit line agreement and all related documentation, such as mortgages, other security agreements and credit insurance certificates.
(ii) With respect to credit cards, the typical procedure is for consumers to sign a credit application, and then receive an agreement, together with written information concerning the customer’s credit limit, at a subsequent date. The customer is then advised to sign the credit card to provide an authorized signature and is usually advised that the use of the card is governed by the terms of the cardholder agreement. The customer is thus given all cardholder contract information and Truth in Lending disclosures prior to using the credit card. The Department finds that this industry practice meets the requirements of an agreement under section 322(d).
(2) Form and contents.
(i) Amounts of available credit. Providing a customer with timely written information setting forth the ‘‘credit limit’’ satisfies section 322(d)’s requirement that a credit agreement disclose the amounts of available credit and the procedure or means by which it may be obtained. This requirement does not impose upon an institution the duty to disclose to a customer the institution’s practice of allowing customers to exceed stated credit limits where this practice exists, but an institution should disclose any applicable fee relating to this practice. This requirement does not prohibit the institution from adjusting the credit limit (upwards or downwards) with notice to the customer as is otherwise required.
(ii) Interest rate limitations. The interest rate limitation based upon Treasury Note yields will be established on the first business day in the quarter. Each quarter that this rate exceeds the NCUA rate, the Department will announce this rate and then publish it in the Pennsylvania Bulletin. Lenders are authorized to rely upon the rate limitation announced by the Department, recognizing that there will be a lag time between the calculation and publication of the rate. Section 322(d) includes a nonexclusive list of the types of fees and charges which an institution may impose in addition to periodic interest. Among the types of charges which this subsection does not explicitly list are charges typically referred to as ‘‘application fees, commitment fees, points.’’ The Department finds that these charges, while not specifically enumerated, are authorized to be made by institutions under the additional fee authority provided by section 322(d). The SABCA indicates that these charges are in addition to periodic interest charges and will not be included in any calculation of the maximum rate of interest under section 322(d)(iii) above.
(iii) Default rights. The Department also finds that section 322(d)(vi)’s prohibition against acceleration of a loan or repossession of collateral unless there is a default pursuant to the credit agreement does not preclude an institution’s use of ‘‘demand notes.’’ This section’s reference to ‘‘extension charges’’ in section 322(d)(v) does not impose on an institution a requirement that it disclose or declare the amount of that charge at the time an agreement is entered unless the charge will be imposed automatically without the customer’s consent at the time of the extension.
(iv) Balloon payments. On loans requiring amortization of principal, the SABCA prohibits lenders from requiring a final payment more than double the regularly scheduled installment payment, exclusive of overdue or extended payments. There is no requirement under the SABCA for level payments or for any amortization of principal.
(3) Changes in terms.
(i) Section 322(f)(iv) provides for the option of the customer to agree to increases in periodic interest or charges on open end credit plans by incurring additional indebtedness but does not preclude other, more direct methods of customer consent, such as explicit written consent signed by the customer.
(ii) Section 322(f) states that no change may be made in a fixed rate of interest or other charges payable with respect to the outstanding balance of indebtedness or in the amount or due dates of required installment payments on closed-end credit unless there is a written consent of the customer at the time of the change except for an extension of any due date or an option granted by the institution to the customer to omit payments and except as may be otherwise provided in an agreement for an extension of credit which is not for personal, family or household purposes. This prohibition applies solely to closed-end credit. The payment schedule on a variable-rate closed-end loan for personal, family or household purposes may be modified in accordance with changes in the interest rate and a methodology disclosed in the loan documentation.
(4) Extensions of credit through intermediaries.
(i) In addition to the normal requirements of section 322, section 322(i) imposes specific requirements on closed end motor vehicle loans made through intermediaries. It does not restrict lenders from making other types of loans through intermediaries.
(ii) The SABCA does not preclude an institution licensed as a sales finance company from purchasing from a dealer an installment sale contract (when the contract finances a motor vehicle and other related goods or services) so long as the contract is pursuant to the Motor Vehicle Sales Finance Act. Essentially, an institution financing the purchase of goods or services through the seller may elect, at its option, to structure the credit extension as a direct loan under the SABCA (or any other applicable provision of law) or as the purchase of an installment sale contract under the Motor Vehicle Sales Finance Act (69 P. S. § § 601—637), Goods and Services Installment Sales Act or the Home Improvement Finance Act.
(c) Case law.
(1) In construing the language of a statute, there is a presumption that the drafters did not intend a result that is absurd, impossible of execution or unreasonable (1 Pa.C.S. § 1922) (relating to presumptions in ascertaining legislative intent). In interpreting statutes, Pennsylvania appellate courts have declined to construe ‘‘shall’’ as mandatory and ‘‘may’’ as discretionary. Commonwealth v. Ferguson, 514 Pa. Super. 84, 552 A.2d 1075, 1079 (1988). Rather, the courts will look to the intention of the Legislature:
[I]t has long been the rule in Pennsylvania that the word ‘‘shall,’’ although usually mandatory or imperative when used in a statute, may nonetheless be directory or permissive, depending upon the Legislature’s intent; we ascertain this intent after reviewing the entire act, its nature, object and purpose, the respective consequences of various constructions of the particular statute, and after determining whether the action allegedly mandated by the statute is the essence of the thing to be done pursuant to it. Tyler v. King, 344 Pa. Super. 78, 496 A.2d 16 (1985)
(2) See, for example, Anderson v. Automobile Fund, 258 Pa. Super. 1, 391 A.2d 642 (1978) (court evenly divided on recharacterizing loan as installment sale contract subject to Motor Vehicle Sales Finance Act); In re Brown, 134 B. R. 134 (Bkrtcy. E.D. Pa. 1991) (loan financing home improvement recharacterized as installment sale subject to Pennsylvania Home Improvement Finance Act.)
Source The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.
EXCEPTION TO DEFINITION OF
‘‘BRANCH’’—STATEMENT OF POLICY
Authority The provisions of these § § 13.61—13.68 issued under sections 102 and 103 of the Banking Code of 1965 (7 P. S. § § 102 and 103); and sections 201 and 202 of the Department of Banking and Securities Code (71 P. S. § § 733-201 and 733-202), unless otherwise noted.
Source The provisions of these § § 13.61—13.68 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5989, unless otherwise noted.
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