SECTION 83.606. Maximum Term and Maximum Installment Account Handling Charge

(a) Scope. This section applies only to a loan made under Texas Finance Code, Chapter 342, Subchapter F.

(b) Definitions. In this section, the following terms have the following meanings:

(1) Cash advance--Has the meaning provided by Texas Finance Code, §341.001(3).

(2) Irregular transaction--Has the meaning provided by Texas Finance Code, §342.001(1).

(3) Month--Has the meaning provided by Texas Finance Code, §341.002(a).

(4) Regular transaction--Has the meaning provided by Texas Finance Code, §342.001(2).

(5) Scheduled installment earnings method--Has the meaning provided by Texas Finance Code, §342.002(a).

(6) True daily earnings method--Has the meaning provided by Texas Finance Code, §342.002(b).

(c) Cash advance or principal balance. The cash advance or principal balance of a loan contract under this section may not include the acquisition charge, installment account handling charge, default charges, deferment charges, or the return check fees authorized by Texas Business and Commerce Code, §3.506.

(d) Maximum term of loan.

(1) Generally. The maximum term of a loan under this section may not exceed the equivalent monthly term provided by Texas Finance Code, §342.255.

(2) Calculation of maximum term.

(A) Subchapter F loans $100 or less. For a loan with a cash advance of $100 or less, the maximum term of a loan is the lesser of:

(i) one month for each multiple of $10 of cash advance; or

(ii) six months.

(B) Subchapter F loans more than $100. For a loan with a cash advance more than $100, one month for each multiple of $20 of cash advance, rounded down to the lower integer.

(C) Examples.

(i) If the cash advance of the loan is $55, the maximum term of the loan is 5 months ($55 ÷ $10 = 5.5 rounded down to 5).

(ii) If the cash advance of the loan is $115, the maximum term of the loan is 5 months ($115 ÷ $20 = 5.75 rounded down to 5).

(e) Maximum installment account handling charge for loan contract using the add-on method.

(1) Generally. On a regular transaction using the sum of the periodic balances method, a loan contract may provide for an installment account handing charge computed using an add-on rate that does not exceed the add-on rates authorized under Texas Finance Code, §342.252 or §342.259. The installment account handling charge is based upon the cash advance of the loan and the term of the loan.

(2) Calculation of maximum installment account handling charge.

(A) Base installment account handling charge.

(i) For a cash advance equal to or more than $30 but not more than $100, the maximum installment account handling charge is:

(I) $3 a month if the cash advance is not more than $35;

(II) $3.50 a month if the cash advance is more than $35 but not more than $70; or

(III) $4 a month if the cash advance is more than $70 but not more than $100.

(ii) For a cash advance that is more than $100 but not more than the maximum cash advance determined under Texas Finance Code, §342.251, the maximum installment account handling charge is the ratio of $4 a month for each $100 of the cash advance.

(B) Odd days interest. For a regular transaction using the precomputed add-on rates, an authorized lender may not assess, charge, or collect any interest (installment account handling charge) for the odd days. In this subparagraph, "odd days" means a number of days determined under the method described by §83.502(b)(1) or (2) of this title (relating to Treatment of Periods Less than a Full Month Before the First Installment Date).

(f) Maximum installment account handling charge for loan contract using the scheduled installment earnings method or the true daily earnings method.

(1) Generally. On a regular transaction or irregular transaction, a loan contract may provide for an installment account handling charge computed using the scheduled installment earnings method or the true daily earnings method. The installment account handling charge may not exceed the equivalent rate or effective return of the installment account handling charge for the original scheduled term of the loan.

(2) Scheduled installment earnings method. For a loan contract using the scheduled installment earnings method, the maximum installment account handling charge is computed by applying a daily rate to the unpaid principal balance as defined by this section, as if each payment will be made on its scheduled installment date. A payment received before or after the due date does not affect the amount of the scheduled reduction in the unpaid principal. The computation of the installment account handling charge must comply with the United States rule as defined by §83.102(29) of this title (relating to Definitions).

(3) True daily earnings method. For a loan contract using the true daily earnings method, the maximum installment account handling charge is computed by applying a daily rate to the unpaid principal balance as defined by this section. The computation of the installment account handling charge must comply with the United States rule as defined by §83.102(29) of this title. The earned installment account handling charge is computed as follows:

(A) multiplying the unpaid principal balance by the daily rate; and

(B) multiplying the results of subparagraph (A) of this paragraph by the number of days the actual unpaid principal balance is outstanding.

(4) Maximum effective rate. The maximum effective rates for loan contracts using the scheduled installment earnings method or the true daily earnings method are presented in the following figure.

Attached Graphic

(5) Maximum daily rate. After taking into consideration the maximum term of the loan found under subsection (d) of this section, the daily rate for a loan contract using the scheduled installment earnings method or true daily earnings method is the lower of:

(A) 1/365 of the equivalent contract rate shown on the loan contract; or

(B) 1/365 of the maximum effective rate contained in Figure: 7 TAC §83.606(f)(4) for the equivalent monthly period.

(6) Effective rate for regular transactions and irregular transactions.

(A) Regular transaction. For a regular transaction using the scheduled installment earnings method or true daily earnings method, the effective rate may not exceed the maximum effective rate contained in Figure: 7 TAC §83.606(f)(4) for the equivalent monthly period excluding any odd days.

(B) Irregular transaction. For an irregular transaction using the scheduled installment earnings method or true daily earnings method, the maximum effective rate is determined by taking the closest monthly effective rate assuming the loan contract was payable in substantially equal successive monthly installments beginning one month from the date of the loan.

(i) The closest monthly period is determined as follows:

(I) counting the number of days from the date of the loan to the originally scheduled maturity date;

(II) dividing the results of subclause (I) of this clause by 365;

(III) multiplying the results of subclause (II) of this clause by 12.

(ii) If the results of clause (i) of this subparagraph are .5333 or more between the two monthly periods, the closest monthly period is rounded up to the next monthly period. For example, if the closest monthly period is determined to be 14.5333 months, the maximum annualized daily rate is the effective rate for 15 months.

(iii) If the results of clause (i) of this subparagraph are less than .5333 between the two monthly periods, the closest monthly period is rounded down to the next monthly period. For example, if the closest monthly period is determined to be 14.50 months, the maximum annualized daily rate is the effective rate for 14 months.

(g) Prepaid interest in the form of points. Prepaid interest in the form of points is not permitted for a Subchapter F loan contract.

(h) Disclosure of finance charge under Truth in Lending Act. In disclosing the finance charge and determining the annual percentage rate for disclosure purposes under the Truth in Lending Act, 15 U.S.C. §§1601 - 1667f, the acquisition charge and installment account handling charge must be considered finance charges.

(i) Application of payment.

(1) Generally. For a loan contract using the scheduled installment earnings method or the true daily earnings method, a payment must be applied to the borrower's account in the following order or, at the authorized lender's option, under another method of applying a payment that is more favorable to the borrower:

(A) the straight line allocation of the acquisition charge using the original scheduled term of the loan based on the proportional scheduled payment that was paid or scheduled to be paid;

(B) default charges authorized by Texas Finance Code, §342.257;

(C) return check fees authorized by Texas Business and Commerce Code, §3.506;

(D) accrued interest authorized under this section; and

(E) principal.

(2) Straight line allocation of acquisition charge.

(A) Definition. The acquisition charge per scheduled installment payment will be allocated on a straight line basis. A straight line basis is calculated by dividing the original amount of the acquisition charge by the original term of the loan. The allocation of the acquisition charge for the final payment may be adjusted to account for any rounding adjustments.

(B) Example. If an authorized lender made a loan with a cash advance of readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=193122&p_tloc=9775&p_ploc=1&pg=2&p_tac=&ti=7&pt=5&ch=83&rl=606,000 that was payable in 10 equal scheduled installments of $150 and had an acquisition charge of $100, the allocation of the acquisition charge would be $10 per scheduled installment.

(C) True daily earnings method and partial payments. On loan contracts using the true daily earnings method, an authorized lender must consider the proportional percentage of the scheduled payment that is made by the borrower when allocating the acquisition charge. If the borrower in the example described in subparagraph (B) of this paragraph made a payment in the amount of $75, the allocation of the acquisition charge for this partial payment would be proportional amount of $5 ($75 payment made by the borrower ÷ $150 scheduled installment x $10 allocation per scheduled installment).

(D) Prepayment in full. The acquisition charge is fully earned at the inception of the loan. Notwithstanding subparagraph (A) of this paragraph, if a loan is prepaid in full, then the authorized lender may collect the remaining amount of the acquisition charge that has not been paid.

Source Note: The provisions of this §83.606 adopted to be effective November 7, 2013, 38 TexReg 7692; amended to be effective July 10, 2014, 39 TexReg 5142; amended to be effective November 8, 2018, 43 TexReg 7338