Administrative Interpretation No. 1Scope of Other Business Authority Under G.S. 53-172
Withdrawn, February 2, 1993.
Administrative Interpretation No. 2Consumer Finance Licensee Affiliates of SubsidiariesMortgage Banker/Broker Registration
Administrative Interpretation No. 2 entitled "Consumer Finance Licensee Mortgage Lender/Broker Registration," dated December 13, 1988, is hereby revoked in its entirety and reissued as follows.
G.S. 53-235(d), effective August 1, 1989, requires affiliates or subsidiaries operating in the same office of a licensee under the North Carolina Consumer Finance Act to register with the Commissioner in accordance with G.S. 53-235(a) and (b). They are, however, exempt from payment of an application or annual fee.
In order for a licensee to retain its existing other business authority heretofore granted under G.S. 53-172 to operate in the same location as this affiliate or subsidiary, or to hereafter be approved for such authority, the affiliate or subsidiary must be registered with the Commissioner under the Mortgage Banker/Broker Act, G.S. 53-233 et seq.
October 15, 1992 (Revised)
Administrative Interpretation No. 3Credit Property Insurance
G.S. 53-189 permits a consumer finance licensee (licensee) to write credit property insurance in accordance with G.S. 58-341, et seq. (now G.S. 58-57-1, et seq).
G.S. 58-57-90(b) limits the amount of credit insurance that may be written to the lesser of the value of the property or the amount of the initial indebtedness (interpreted to mean the loan principal plus unearned interest).
G.S. 58-63-15(13) declares it an unfair or deceptive act or practice for a lender to require a borrower to purchase property insurance which results in coverage which exceeds the replacement value of the collateral at the time of the loan or extension of credit.
A licensee may not write credit property insurance on personal property that cannot be taken as collateral. Therefore, credit property insurance cannot be written on household goods which are prohibited from use as collateral under the Federal Trade Commission Credit Practices Rule, 16 C.F.R. 444.2(a)(4) (1984).
G.S. 58-57-90(b) requires the Department of Insurance to collect data on credit property insurance written in North Carolina. It is the policy of the Commissioner to review credit property insurance written in connection with a consumer finance loan. Any apparent violations of the credit property insurance lawss will be reported to the Department of Insurance, which is charged with the enforcement of insurance laws.
Administrative Interpretation No. 4Non-Filing Insurance
G.S. 53-177 allows a consumer finance licensee to collect from a borrower the fee necessary to record a security interest under the Uniform Commercial Code (G.S. 25-9-302 et seq.) or under the motor vehicle statutes (G.S. 20-58 et seq.) . With full disclosure to the borrower, the lender may use this fee in one of the following ways.
1. Pay the collected fee to the appropriate recording agency and thereby perfect its security interest.2. Collect a fee equal to a non-filing insurance premium and purchase non-filing insurance. The non-filing premium is set by the Commissioner of Insurance.3. Collect an amount equal to the non-filing insurance premium and retain same thereby self-insuring against the risk of not perfecting a security interest. The amount collected for self-insurance must be reported as part of the finance charge under the Truth in Lending regulations.
G.S. 25-9-403(2) provides that a perfected security interest remains valid for a period of five years. Generally, a refinancing does not affect a perfected security interest. Therefore, while a security interest remains perfected, a lender may not collect any additional filing fees, non-filing insurance premiums, or self-insurance fees when the loan is refinanced.
When non-filing insurance isk purchased on the initial loan, the coverage generally terminates upon refinancing. Therefore, if the loan is refinanced, a lender may collect another non-filing insurance premium and purchase new non-filing insurance.
If a lender elected to self-insure against the risk of not perfecting a security interest on the initial loan, for a period of five years he should avoid collecting a non-filing insurance premium or an amount equal to that premium for self-insurance provision is to compensate the lender only for the risk of not filing. If a lender perfects a security interest when a loan is initially made, that interest is protected when the loan is refinanced. If a lender does not perfect a security interest on the initial loan, it is inappropriate, although it is not illegal, for him to collect multiple self-insurance fees during the period that the security interest would have been protected.
G.S. 53-166(d) provides that loan contracts which violate the Consumer Finance Act are void, and the licensee has no right to collect, receive, or retain any principal or charges whatsoever with respect to these loans.
March 22, 1990
Administrative Interpretation No. 5Ancillary Proceedings and Judgments
G.S. 53-173(c) provides that if a judgment is obtained on a consumer finance debt of $3,000 or less, neither the judgment nor the loan shall carry, from the date of the judgment, interest in excess of 8% per annum. This post judgment interest rate restriction is also made applicable to loans of $10,000 or less by G.S. 53-176.
The purpose of this administrative interpretation is to state the position of this office on the effect of ancillary proceedings and judgments on the contract interest rate and the application of interest following judgments.
Ancillary Proceedings
An order in an ancillary proceeding is not a final judgment. Therefore, until a final judgment has been entered by the court in a civil action to collect a debt to which an ancillary proceeding has been attached, a consumer loan contract may continue to accrue interest at the contract rate.
Judgments
Unlike an ancillary proceeding, a judgment is a final decision by the court on the merits of a case. In a civil action to collect a debt, a judgment merges the debt and becomes the only evidence of the indebtness. Thus, when a consumer finance licensee obtains a judgment against a consumer finance debtor, either a money judgment or property judgment, that judgment merges the debt and becomes the only evidence of the loan account. Interest rates on these judgments apply as follows.
1. When a money judgment is entered, the 8% rate of interest accrues from the date of judgment.2. When the court enters a property judgment, the judgment rate of 8% replaces the contract rate of interest from the date of the judgment. Following the entry of a property judgment, a consumer finance licensee must act promptly to dispose of the collateral property and credit the proceeds from disposition against the underlying debt. If after this credit there remains an unpaid balance, then the licensee may bring an action to recover the deficiency. A deficiency judgment, if granted, may accrue interest at 8%.
Application of Interest
The 8% judgment rate of interest may be charged only upon the principal amount of the indebtedness given by the judgment. It may not be applied against accrued interest which is included in the judgment. A party cannot be forced to pay interest on interest.
March 22, 1990.