Sec. 36a-565. (Formerly Sec. 36-233b). Open-end loans. Annual percentage rate. Computation of interest. Loan charges. Credit life, accident and health insurance.
Sec. 36a-565. (Formerly Sec. 36-233b). Open-end loans. Annual percentage
rate. Computation of interest. Loan charges. Credit life, accident and health insurance. (a) "Open-end loan" means a loan made by a licensee under sections 36a-555 to
36a-573, inclusive, pursuant to an agreement between the licensee and the borrower
whereby: (1) The licensee may permit the borrower to obtain advances of money from
the licensee from time to time or the licensee may advance money on behalf of the
borrower from time to time as directed by the borrower, not exceeding at any one time
an unpaid principal balance of fifteen thousand dollars; (2) the amount of each advance
and permitted interest, charges and costs are debited to the borrower's account and
payments and other credits are credited to the same account; (3) the interest is computed
on the unpaid principal balance or balances of the account from time to time; (4) the
borrower has the privilege of paying the account in full at any time or, if the account is
not in default, in monthly installments of fixed or determinable amounts as provided in
the agreement; and (5) the agreement expressly states that it covers open-end loans
pursuant to said sections.
(b) "Billing cycle" means the time interval between periodic billing dates. A billing
cycle shall be considered monthly if the closing date of the cycle is the same date each
month or does not vary by more than four days from such date.
(c) A licensee may make open-end loans and may charge, contract for and receive
thereon interest at an annual percentage rate not to exceed nineteen and eight-tenths per
cent for any open-end loan agreement entered into on and after July 1, 1991. A licensee
may also receive, pursuant to any such agreement entered into on and after July 1, 1991,
one or more of the following charges if the agreement so provides: (1) An annual fee
not to exceed fifty dollars for the privileges made available to the borrower under the
open-end loan agreement; (2) a default charge subject to the conditions and restrictions
set forth in subsection (d) of section 36a-563; (3) service charges that are imposed for
a check that is dishonored as provided in subsection (i) of section 52-565a; and (4)
reasonable attorneys' fees subject to the conditions and restrictions set forth in section
42-150aa. In addition to the charges provided for by this section, no further or other
charge or amount for any examination, service, brokerage, commission or other thing,
or otherwise, shall be directly or indirectly charged, contracted for or received. If interest
or any charges in excess of those permitted by this section are charged, contracted for
or received, except as the result of a bona fide error, the contract of loan shall be void
and the licensee shall have no right to collect or receive any principal, interest or charges.
No person shall owe any licensee, as such, at any time more than fifteen thousand dollars
for principal as a borrower, comaker or guarantor for loans made under this section. As
used in this section, the term "bona fide error" includes, but shall not be limited to,
clerical, calculation, computer malfunction and programming and printing errors, but
does not include an error of legal judgment with respect to a person's obligations under
sections 36a-555 to 36a-573, inclusive.
(d) A licensee shall not compound interest or charges by adding any unpaid interest
or charges authorized by this section to the unpaid principal balance of the borrower's
account.
(e) Interest authorized by this section shall be computed in each billing cycle by
any of the following methods: (1) By converting the annual percentage rate to a daily
rate and multiplying such daily rate by the daily unpaid principal balance of the account,
in which case the daily rate is determined by dividing the annual percentage rate by
three hundred and sixty-five; or (2) by converting the annual percentage rate to a monthly
rate and multiplying the monthly rate by the average daily unpaid principal balance of
the account in the billing cycle, in which case the monthly rate is determined by dividing
the annual percentage rate by twelve and the average daily unpaid principal balance is
the sum of the amount unpaid each day during the cycle divided by the number of days
in the cycle.
(f) For all of the methods of computation specified in subsection (e) of this section,
the billing cycle shall be monthly and the unpaid principal balance on any day shall be
determined by adding to any balance unpaid as of the beginning of that day all advances
and other permissible amounts charged to the borrower and deducting all payments and
other credits made or received that day.
(g) Credit life insurance and credit accident and health insurance may be sold to
the borrower on open-end loans subject to the conditions and restrictions set forth in
section 36a-566. In the case of credit life insurance, the amount of the insurance shall
be sufficient to pay the total balance of the loan due on the date of the insured's death.
The additional charge for credit life insurance and credit accident and health insurance
shall be calculated in each billing cycle by applying the current monthly premium rate
for such insurance, as such rate may be determined by the Insurance Commissioner, to
the unpaid balances in the account, using any of the methods specified in subsection (e)
of this section for the calculation of loan charges. No credit life insurance or credit
accident and health insurance written in connection with an open-end loan shall be
cancelled by the licensee because of delinquency of the borrower in the making of the
required minimum payments on the loan unless one or more of such payments is past
due for a period of ninety days or more; and the licensee shall advance to the insurer
the amounts required to keep the insurance in force during such period, which amounts
may be debited to the borrower's account. The borrower shall have the right to cancel
credit accident and health insurance at any time by giving written notice of cancellation
to the licensee. Such cancellation shall be effective at the end of the billing cycle in
which the notice is received and the licensee shall discontinue any further charges for
credit accident and health insurance.
(h) No licensee shall take any confession of judgment or any power of attorney.
No licensee shall take a mortgage, lien, security interest in or assignment or pledge of
household goods or assignment of wages as security for any open-end loan made pursuant to this section. No licensee shall take a security interest in chattels, tangible or
intangible personal property, motor vehicles or real property to secure an open-end loan
made pursuant to this section.
(i) A copy of the open-end loan agreement shall be delivered by the licensee to the
borrower at the time the open-end account is opened.
(j) Sections 36a-563, 36a-567 and 36a-568 shall not apply to open-end loans made
in accordance with the provisions of this section.
(P.A. 79-249; P.A. 89-338, S. 2; P.A. 90-99, S. 1, 2; P.A. 91-25, S. 1, 2; P.A. 95-28; P.A. 96-38; P.A. 00-164, S. 2.)
History: P.A. 89-338 increased the loan limit in Subsecs. (a) and (c) from $5,000 to $10,000 and made one-hundred-twenty-month and 15-day payment period where a cash advance brought the balance in excess of $5,000; P.A. 90-99
amended Subsec. (c) by defining "bona fide error" and amended Subsec. (h) by authorizing the sale of credit accident and
health insurance on open-end loans and specifying borrowers right to terminate coverage; P.A. 91-25 amended Subsec.
(a) by adding "interest" to Subdiv. (2) and changing "charges are" to read "interest is" in Subdiv. (3), amended Subsec.
(c) by limiting interest on open-end loans to an annual percentage rate not to exceed 19.8% and adding Subdivs. (1) to (4),
inclusive, re permissible loan charges, amended Subsec. (d) by adding "interest or", amended Subsec. (e) by changing
"charges" to read "interest" and made technical changes to Subdivs. (f) and (g); Sec. 36-233b transferred to Sec. 36a-565
in 1995; P.A. 95-28 changed "ten" to "fifteen" in Subsecs. (a)(1), defining "open-end loan", and (c), deleted Subsec. (g)
re maximum term for full payment and re maximum specified annual percentage rates, and relettered Subsecs. (h) to (k),
inclusive, as Subsecs. (g) to (j) (Revisor's note: A reference in Subsec. (g) to "Commissioner of Insurance" was changed
editorially by the Revisors to "Insurance Commissioner" for consistency with customary statutory usage); P.A. 96-38
amended Subsec. (c)(1) to increase permitted annual fee from $35 to $50; P.A. 00-164 amended Subsec. (c)(3) by replacing
language re bad check charge with language re service charges for dishonored check.