§ 41.3a. Calculation of default charges—statement of policy.

 (a)  This section applies only to default charges on precomputed loans as authorized in section 13.K of the act (7 P. S. §  6313K.). Refer to §  41.3(d)(relating to contracts with consumers) for information on default. Default charges will be calculated as follows:

   (1)  The act provides for the collection of a default charge (sometimes referred to as a ‘‘late’’ charge) for two types of contracts:

     (i)   A loan payable in one payment.

     (ii)   A loan payable in installments.

   (2)  The monthly rate is applied to the contract amount in arrears. Assessing the charge on the amount in arrears clearly means assessing the charge on the total amount past due.

  

   Example A: A borrower fails to make two installment payments of $130 per month, one in January and one in February, for a total amount in arrears in March of $260. The licensee is authorized to charge 1.5% for the arrearage which has accrued for each month. Therefore, in this example, a licensee may collect $1.95 as a default charge for January ($130 X 1.5% = $1.95) because the total arrearage that month is $130. For February a default charge of $3.90 may be collected because the total arrearage in that month, comprised of payments due for January and February, is $260 ($260 X 1.5% = $3.90). The late charges for each month are cumulative, thus in March the cumulative amount of late charges owed by the borrower is $5.85.

   (3)  If the loan is in default for a period of less than 1 month, the default charge shall be calculated on the actual number of days from the due date of the payment until the date upon which the payment is collected.

   (4)  After a loan has matured, a default charge may be imposed on the entire unpaid balance; that is, the total number of missed payments, for each month the balance remains unpaid.

   (5)  If no payments are made during the term of the loan, at maturity the unpaid balance is the sum of the entire principal and interest or discount. The default charge is assessed on the unpaid balance.

  

   Example B: A borrower has a 36-month loan payable in installments of $130 per month. The total amount of principal and interest (or discount) due under the terms of the loan is $4,680 ($130 X 36 = $4,680). Assume no installments were made on the loan. Pursuant to the rule that default charges are assessed on the unpaid balance, the default charge for the month following the maturity of the loan is $70.20 ($4,680 X 1.5% = $70.20). If the default charge were limited to the rate times the amount of each monthly installment, the calculation after the expiration of the term would be anomalous. During the 36-month term of the loan, each month a late charge of $1.95 would accrue. At the expiration of the term, the monthly late charge would suddenly jump from $1.95 per month to $70.20 per month. The interpretation that the default charge is based on the amount in arrears, and is not a one time charge on each installment, produces a progression from the $1.95 charge after the first month, to the $70.20 charge after the maturity of the loan. Late charges are cumulative throughout the term of the loan and thereafter until the loan is paid. Late charges assessed against the amount in arrears as of each month and the cumulative total for Example B are computed as follows:

 

Month	Default Charge	Cumulative Charge
1	$ 1.95	$ 1.95
2	$ 3.90	$ 5.85
3	$ 5.85	$ 11.70
4	$ 7.80	$ 19.50
5	$ 9.75	$ 29.25
6	$11.70	$ 40.95
7	$13.65	$ 54.60
8	$15.60	$ 70.20
9	$17.55	$ 87.25
10	$19.50	$ 107.25
11	$21.45	$ 128.70
12	$23.40	$ 152.10
13	$25.35	$ 177.45
14	$27.30	$ 204.75
15	$29.25	$ 234.00
16	$31.20	$ 265.20
17	$33.15	$ 298.35
18	$35.10	$ 333.45
19	$37.05	$ 370.50
20	$39.00	$ 409.50
21	$40.95	$ 450.50
22	$42.90	$ 493.35
23	$44.85	$ 538.20
24	$46.80	$ 585.00
25	$48.75	$ 633.75
26	$50.70	$ 684.45
27	$52.65	$ 787.10
28	$54.60	$ 791.20
29	$56.55	$ 848.25
30	$58.50	$ 906.75
31	$60.45	$ 967.20
32	$62.40	$1029.60
33	$64.35	$1093.95
34	$66.30	$1160.25
35	$68.25	$1228.50
36	$70.20	$1298.70

SUMMARY

 Principal and Interest Due…$4680.00  Cumulative Late Charges Due…$1298.70  Account Balance…$5978.70

Source

   The provisions of this §  41.3a adopted August 31, 1990, effective September 1, 1990, 20 Pa.B. 4627; amended April 24, 1998, effective April 25, 1998, 28 Pa.B. 1956. Immediately preceding text appears at serial pages (237519) to (237521).

Cross References

   This section cited in 10 Pa. Code §  41.3 (relating to contracts with consumers).

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