2012 Connecticut General Statutes
Title 36a - The Banking Law of Connecticut
Chapter 668 - Nondepository Financial Institutions
Section 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.