GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2003
H D
HOUSE DRH80240-RO-4 (04/02)


Short Title: Regulate Deferred Deposit. (Public)
Sponsors: Representatives Culpepper and Grady (Primary
Sponsors).
Referred to:

A BILL TO BE ENTITLED
AN ACT TO REGULATE DEFERRED DEPOSIT TRANSACTIONS AND TO PROVIDE
ADDITIONAL CONSUMER DISCLOSURES AND PROTECTIONS.
The General Assembly of North Carolina enacts:
SECTION 1. G.S. 53-275 reads as rewritten:
"§ 53-275. Definitions.
As used in this Article, unless the context clearly
requires otherwise, the term:
(1) "Cashing" means providing currency for payment
instruments, but does not include the bona fide
sale or exchange of travelers checks and foreign
denomination payment instruments.
(2) "Check-cashing service" means any person or entity
engaged in the business of cashing checks, drafts,
or money orders for a fee, service charge, or other
consideration.
(3) "Commission" means the State Banking Commission.
(4) "Commissioner" means the Commissioner of Banks.
(4a) "Deferred deposit transaction" means a
check-cashing or similar loan transaction in which
a person pays a cash advance to a consumer in
return for a check dated on the date it was written
and agrees to hold the check for a period of days
prior to deposit or presentment, or accepts a
postdated check and agrees to hold the check for
deposit or presentment at least until the date
written on the check. The term shall also include
any such arrangement in which a person pays a cash
advance in return for an authorization from a
consumer for a draft or electronic debit rather
than a check.
(4b) "Lender" means the following:
a. Any person or entity that offers or
makes a deferred deposit transaction, arranges
a deferred deposit transaction for a third
party, or acts as an agent for a third party,
regardless of whether the third party is
exempt from licensing under this Article or
whether approval, acceptance, or ratification
by the third party is necessary to create a
legal obligation for the third party.
b. Notwithstanding the foregoing, a state
or federally chartered bank, savings and loan
association, credit union, or supervised
lender shall not be considered a lender for
purposes of the Article and shall be
specifically exempt from provisions of this
Article so long as all of the following are
satisfied:
1. It initially advances the loan
proceeds to the borrower;
2. It does not sell, assign, or
transfer in the aggregate a preponderant
economic interest in the deferred deposit
transactions to arranger, agent, or
assistant, or an affiliate or subsidiary
of the state or federally chartered bank,
savings and loan association, credit
union or supervised lender, unless
selling, assigning or transferring a
preponderant economic interest is
permitted by the primary regulator of the
state or federally chartered bank,
savings and loan association, credit
union or supervised lender; and
3. It develops the deferred deposit
transaction program on its own.
c. If a lender offers, arranges, acts as
an agent for, or assists a state or federally
chartered bank, savings and loan association,
credit union or supervised lender in any way
in the making of a deferred deposit
transaction and the state or federally
chartered bank, savings and loan association,
credit union or supervised lender meets the
standards set forth in sub-subdivision b. of
this subdivision, the lender shall comply with
all other provisions of this Article to the
extent they are not preempted by other state
or federal laws.
(5) "Licensee" means a person or entity licensed to
engage in a check-cashing business under this
Article.
(5a) "Loan amount" means the amount
financed as defined in Regulation Z of the federal
Truth in Lending Act (12 C.F.R. § 226.18(b).
(6) "Person" means an individual, partnership,
association, or corporation."
SECTION 2. G.S. 53-276 reads as rewritten:
"§ 53-276. License required.
No person or other entity may engage in the business of
cashing checks, drafts, or money orders for
consideration consideration, nor engage in
the business of making deferred deposit transactions without
first obtaining a license under this Article. No person or other
entity providing a check-cashing service may avoid the
requirements of this Article by providing a check or other
currency equivalent instead of currency when cashing payment
instruments."
SECTION 3. Article 22 of Chapter 53 of the
General Statutes is amended by adding the following new sections
to read:
"§ 53-281.1. Deferred deposit transactions permitted.
Lenders may make deferred deposit transactions
pursuant to the following requirements:
(1) The face amount of the deferred
deposit check may include a fee but the principal
loan amount shall not exceed three hundred dollars
($300.00).
(2) Each deferred deposit check cashed by
a lender shall be deemed to be a loan and shall be
documented by a written agreement as provided in
G.S. 32-281.2.
(3) A lender shall not directly or
indirectly charge a fee or other consideration in
excess of fifteen percent (15%) of the loan amount,
provided the maximum fee charged to a borrower for
entering into a deferred deposit transaction shall
not exceed forty dollars ($40.00).
(4) No check cashed under the provisions
of this section shall be repaid by the proceeds of
another check cashed by the same lender or any
affiliate of the lender. A lender shall not, for
any consideration, renew or otherwise extend any
deferred deposit check or withhold the check from
deposit for any period beyond the time set forth in
the written agreement, except as allowed under G.S.
53-281.4.
"§ 53-281.2. Written agreement and disclosures required
for deferred deposit transactions.
(a) Each deferred deposit transaction shall
be documented by a written agreement signed by the borrower and
the lender. A legible copy of the agreement shall be provided to
the borrower.
(b) The written agreement shall contain:
(1) The name and address of the
borrower.
(2) The name, local street address, and
telephone number of the lender.
(3) The transaction date, which shall be
prominently labeled.
(4) The loan amount as defined in G.S. 53-
275(5a).
(5) The amount of any fees charged,
expressed as both a dollar amount and as an
effective annual percentage rate (APR).
(6) The maturity date, which shall be no
less than 14 days nor more than 60 days after the
transaction date.
(7) The following notices immediately
above the borrower's signature line in at least ten-
point type: THIS TRANSACTION IS NOT MEANT TO
MEET LONG-TERM FINANCIAL NEEDS AND SHOULD BE USED
ONLY TO MEET SHORT-TERM CASH NEEDS. YOU HAVE THE
RIGHT TO CANCEL THIS TRANSACTION AT ANY TIME BEFORE
5:00 P.M. ON THE NEXT BUSINESS DAY AFTER THE
TRANSACTION DATE SHOWN ABOVE. TO CANCEL YOU MUST
RETURN ALL OF THE CASH PROCEEDS TO THE LENDER. THE
LENDER WILL REFUND TO YOU ALL FEES IF YOU CANCEL
THIS TRANSACTION.
(c) The written agreement shall be
accompanied by a separate paper which contains all disclosures
required by the federal Truth in Lending Act (12 U.S.C. § 1601,
et seq.) and the federal Reserve Board Regulation 'Z' and the
consumer education information. The consumer education
information shall be prepared by the Commissioner and shall
inform the consumer of matters such as the complaint process
through the Commissioner's office, the relative cost of short-
term consumer loans, the availability of other forms of credit,
the right of the customer to elect a repayment plan, and any
other matters the Commissioner thinks are necessary or
beneficial to consumers.
(d) The written agreement shall not contain any of
the following provisions:
(1) A hold harmless clause.
(2) A confession of judgment clause.
(3) A mandatory arbitration clause that is
oppressive, unconscionable or substantially in
derogation of the rights of consumers. Arbitration
clauses that comply with the standards set forth in
the statement of principles of the National
Consumer Dispute Advisory Committee of the American
Arbitration Association in effect on the effective
date of this Act shall be presumed not to violate
this subsection.
(4) Any provision in which the borrower
agrees not to assert a claim or defense arising out
of the contract.
(5) Any waiver by the borrower of any
provision of this Article.
"§ 53-281.3. Deferred deposit transactions limited.
(a) A lender shall not knowingly enter into a
deferred deposit transaction with a borrower whom the lender
knows has other transactions in the aggregate exceeding the
principal amount of three hundred dollars ($300.00) or knows
would exceed three transactions regardless of value. It shall be
mandatory for the lender to meet both of the following
conditions:
(1) The borrower signs a certification in
substantially the following form: I UNDERSTAND
THAT NORTH CAROLINA LAW PROHIBITS A PERSON FROM
HAVING MORE THAN $300.00 IN DEFERRED DEPOSIT CHECKS
OUTSTANDING AT ONE TIME. I OWE THE FOLLOWING
DEFERRED DEPOSIT AMOUNTS AND NO OTHERS: (Write
the amount you owe and the names of the licensees
or write 'NONE'). This certification shall not
constitute the basis of a criminal prosecution
under G.S. 14-100.
(2) The lender shall verify the accuracy
of this certification by:
a. A query of all of the lender's own
records, and
b. A query of a subprime credit reporting
service.
(b) Within 90 days after the effective date of
this Act, each lender shall subscribe to a subprime credit
reporting service, designated by the Commissioner, which has the
capability of verifying the number and loan amounts of
outstanding deferred deposit transactions entered into by any
borrower with any lender licensed under this Act. Within 30 days
of the effective date of this Act, the Commissioner shall issue
a "Request for Proposal" from subprime credit reporting services
capable of verifying the information described in this
subsection and within 45 days of the effective date of this Act,
the Commissioner shall designate that service which is capable
of providing such verification and charges the lowest cost per
query.
(c) Each lender shall report to the subprime
credit reporting service the information necessary for the
subprime credit reporting service to verify the number and loan
amounts of outstanding deferred deposit transactions entered
into by borrowers with lenders licensed under this Article.
(d) A lender must pay the proceeds from a deferred
deposit transaction to the borrower in the form of a check from
the lender. Upon the borrower's request, the lender may cash the
lender's check if the lender has cash available to do so. The
borrower shall not be charged an additional finance charge or
fee for cashing the lender's check.
"§ 53-281.4. Mandatory repayment plan.
If the borrower elects and so informs the lender at
any time prior to the maturity date of the deferred deposit
transaction, the borrower may declare an inability to repay and
the lender shall accept a mandatory repayment plan with the
following terms:
(1) The borrower and the lender sign a
repayment plan agreement providing for four equal
installments due on each of the borrower's next
four paydays, with at least 14 days between the
installments.
(2) The borrower agrees not to enter into
any additional deferred deposit transactions during
the term of the repayment plan.
(3) Upon completion of the plan, the
lender shall report the borrower's positive payment
history to consumer credit reporting agencies.
(4) Upon completion of the plan, the
borrower is prohibited from entering into any
deferred deposit transactions with any lender for
at least one pay period.
(5) The lender may collect a fifteen-
dollar ($15.00) processing charge for each
repayment plan.
"§ 53-281.5. Prohibited practices regarding deferred
deposit transactions.
In addition to the prohibited practices under G.S. 53-
283, the following are prohibited regarding deferred deposit
transactions:
(1) Taking or attempting to take any
security other than the borrower's instrument.
(2) Taking or attempting to take more than
a single check or other instrument from the
borrower in connection with a single
transaction.
(3) Selling, offering, or soliciting any
application for credit insurance in connection with
a transaction.
(4) Tying the transaction to any other
transaction, offer, or obligation of the
borrower.
(5) Failing to comply with the
Commissioner's request for assistance in resolving
a complaint.
(6) Using or threatening to use criminal
process to collect a dishonored check, unless fraud
is involved.
(7) Assigning or selling to another lender
an instrument taken in connection with a deferred
deposit transaction unless the instrument bears the
following endorsement: THIS INSTRUMENT WAS GIVEN
BY ITS MAKER TO SECURE A DEFERRED DEPOSIT
TRANSACTION UNDER G.S. 53-281.1 AND THE ASSIGNEE IS
DEEMED TO HAVE KNOWLEDGE OF AND SHALL BE BOUND BY
THE TERMS AND CONDITIONS OF THE LOAN AGREEMENT
BETWEEN THE BORROWER AND THE ORIGINAL LENDER.
(8) Failing to report accurately and
promptly a borrower's positive repayment activity
under G.S. 53-281.4 to credit reporting
agencies.
(9) Failing to collect and provide
information regarding the number, total, and
average transaction amounts and any other
information the Commissioner may request."
SECTION 4. G. S. 53-286 reads as rewritten:
"The Commissioner may order and impose civil penalties upon
any person required to be licensed under this Article for
violations of this Article or rules adopted thereunder. Civil
penalties may also be imposed upon persons acting on behalf of a
licensee or any other person who violates this Article.
Civil penalties shall not exceed one thousand
dollars ($1,000) ten thousand dollars ($10,000)
per violation. All civil money penalties collected under
this Article shall be paid to the county school fund. The
Commissioner may also order repayment of unlawful or excessive
fees charged to customers. The imposition or pendency of any
order or penalty by the Commissioner shall not limit the right
of any customer to pursue any available civil remedies."
SECTION 5. This act becomes effective October 1,
2003, and applies to transactions made on or after that date.