In May, the Indiana legislature enacted HB 1081, which, among other things, alters the state’s Uniform Consumer Credit Code (UCCC). The bill includes a variety of changes that will affect financial institutions, such as changes to: (1) the territorial scope, (2) threshold loan amounts, (3) surety bond requirements, and (4) the Department of Financial Institution’s (DFI) administrative powers.
In 2010, the United States Court of Appeals for the Seventh Circuit held Indiana DFI’s attempt to govern loans physically made in other states under its version of the UCCC as unconstitutional. In response, HB 1081 added language to clarify when a transaction does not occur in Indiana:
A sale, lease, or loan transaction does not occur in Indiana if a consumer who is a resident of Indiana enters into a consumer sale, lease, or loan transaction at a creditor’s place of business in another state.
Ind. Code § 24-4.5-1-201 (2013).
This additional language was intended to address the constitutionality problem and add certainty to out of state financial institutions’ choice of law provisions, provided that their procedures are consistent with applicable regulations.
Threshold Loan Amounts
HB 1081 increases the threshold dollar amounts in a variety of definitions under the Indiana UCCC, allowing automatic increases in the future. The changed definitions include: (1) consumer credit sales, (2) consumer loans, (3) consumer leases, (4) consumer related sales, and (5) consumer related loans. The bill altered each of these definitions in the same manner; each now may “not exceed fifty-three thousand dollars ($53,000) or another amount as adjusted in accordance with the annual adjustment of the exempt threshold amount specified in Regulation Z (12 CFR 226.3 or 12 CFR 1026.3(b), as applicable).” The previous amount was a static fifty-thousand dollars ($50,000). Although the adjustments were intended to align the applicability of the UCCC with the applicability of Regulation Z, financial institutions should maintain familiarity with the annual adjustments to assure themselves of compliance with the UCCC.
The bill also altered the requirements for a covering surety bond required of creditors under Chapter 3 (Loans) and those making small loans under Chapter 5 (Small Loans). Additional requirements and some changes were made under Chapter 3, and the requirements under Chapter 5 were changed to mirror those in Chapter 3. Under both chapters, a surety bond must now: (i) be in effect during the term of the creditor’s license under the UCCC and remain in effect two (2) years after the license holder ceases offering financial services in Indiana; (ii) be payable to the department; (iii) be issued by a bonding, surety, or insurance company authorized to do business in Indiana and rated at least “A-” by a nationally recognized investment rating service; and (iv) have payment conditioned upon noncompliance with or violation of the UCCC.
Additionally, the bill now stipulates that if a principal amount of a surety bond is reduced by payment of a claim or judgment, the licensee must immediately notify the DFI director. Then, after notice by the director, the licensee must file a new or an additional surety bond in an amount set by the director, but no less than the original bond.
DFI Administrative Powers
Finally, the bill broadens the DFI’s power to discover violations or to secure information necessary for the enforcement of the UCCC. The DFI may now investigate any licensee or registrant, or any other person that the DFI suspects to be operating without a license or otherwise being in violation of the UCCC.
These changes are important for financial institutions inside and outside of Indiana. Financial institutions can now be certain that loans made outside of the state will not be subject to claims under the Indiana UCCC. Financial institutions operating in Indiana and subject to the licensure requirements of the UCCC should be certain to meet the new requirements for surety bonds, and be aware of the annual adjustments to threshold dollar limits for certain loans covered by the UCCC, and of the DFI’s increased administrative power.