TITLE 5

Banking

Banks and Trust Companies

CHAPTER 9. REGULATIONS GOVERNING BUSINESS OF BANKS AND TRUST COMPANIES

Subchapter III. Bank Closed End Credit


As used in this subchapter:

(1) "Bank," "borrower" and "individual borrower" have the meanings given in subchapter II of this chapter.

(2) "Business day" means, with respect to recission under § 976 of this title, all calendar days except Sundays and legal public holidays.

(3) "Closed end credit" means the extension of credit by a bank to a borrower pursuant to an arrangement or agreement which is not a revolving credit plan as defined in subchapter II of this chapter.

(4) "Conspicuously displayed" means highlighted through the use of capitalization, bold print, underlining or some combination thereof.

(5) "Loan" means any single extension of closed end credit.

(6) "Right of recission" means, with respect to any short-term consumer loan, the right to return any amount borrowed, in full, on or before the close of business of the business day following the day on which such sum has been disbursed or advanced, without the incursion of any fee or other charges.

(7) "Rollover" means, with respect to any short-term consumer loan, the extension of an outstanding and unpaid indebtedness beyond the stated repayment period solely on the basis of the payment of a fee without approval of a new loan application.

(8) "Short-term consumer loan" means a loan of $500 or less made to an individual borrower that charges interest and/or fees for which the stated repayment period is less than 60 days and is not secured by title to a motor vehicle.

(9) "Workout agreement" means an agreement between an individual borrower and a bank, trust company or savings bank for the repayment of an outstanding and unpaid indebtedness which requires a net reduction of not less than 10% of such indebtedness per payment period.

63 Del. Laws, c. 2, § 5; 73 Del. Laws, c. 398, § 1.;

Any bank may, subject to any limitations on lending authority contained in its charter or otherwise imposed by law and subject to the other provisions of this subchapter, offer and extend closed end credit to a borrower and in connection therewith, may charge and collect any periodic interest, interest charges and other charges permitted by this subchapter and may take such security as collateral in connection therewith as may be acceptable to the bank.

63 Del. Laws, c. 2, § 5; 66 Del. Laws, c. 283, § 12.;

A bank may charge and collect periodic interest in respect of a loan at such daily, weekly, monthly, annual or other periodic percentage rate or rates as the agreement governing, or the bond, note or other evidence of, the loan provides or as established in the manner provided in such agreement, bond, note or other evidence of the loan and may calculate such periodic interest by way of simple interest or such other method as the agreement governing, or the bond, note or other evidence of, the loan provides. If the interest is precomputed it may be calculated on the assumption that all scheduled payments will be made when due. For purposes hereof, a year may but need not be a calendar year and may be such period of from 360 to 366 days, including or disregarding leap year, as the bank may determine.

63 Del. Laws, c. 2, § 5; 66 Del. Laws, c. 283, §§ 13, 14.;

If the agreement governing, or the bond, note or other evidence of, the loan so provides, the periodic percentage rate or rates of interest charged and collected in respect of the loan may, if the interest is not precomputed and taken in advance, vary in accordance with a schedule or formula. Such periodic percentage rate or rates may vary from time to time as the rate determined in accordance with such schedule or formula varies and such periodic percentage rate or rates, as so varied, may be made applicable to all or any part of outstanding unpaid amounts of such loan on and after the effective date of such variation. This section shall not be construed to limit the authority of a bank to charge and collect interest in respect of a loan in the manner and at the rate or rates authorized in any other section of this subchapter. Without limitation, a permissible schedule or formula hereunder may include provision in the agreement governing the loan for a change in the periodic percentage rate or rates of interest applicable to all or any part of outstanding unpaid amounts, whether by variation of the then applicable periodic percentage rate or rates of interest, variation of an index or margin or otherwise, contingent upon the happening of any event or circumstance specified in the loan agreement, which event or circumstance may include the failure of the borrower to perform in accordance with the terms of the loan agreement.

63 Del. Laws, c. 2, § 5; 68 Del. Laws, c. 303, § 23.;

In addition to or in lieu of periodic interest at a periodic percentage rate or rates permitted by §§ 963 and 964 of this title, a bank may charge and collect, as interest, in respect of a loan:

(1) Loan fees, points, finders fees and other front-end and periodic charges; provided, however, that in the case of a loan to an individual borrower, no such front-end or periodic charge may be charged and collected unless the agreement governing, or the bond, note or other evidence of, the loan so provides;

(2) Reasonable fees for services rendered or for reimbursement of expenses incurred in good faith by the bank or its agents in connection with such loan, including, without limitation, commitment fees, official fees and taxes, premiums or other charges for any guarantee or insurance protecting the bank against the borrower's default or other credit loss, or costs incurred by reason by examination of title, inspection, recording and other formal acts necessary or appropriate to the security of the loan, filing fees, attorney's fees and travel expenses; provided, however, that in the case of a loan to an individual borrower, no such fee may be charged and collected unless the agreement governing, or the bond, note or other evidence of, the loan so provides;

(3) Returned payment charges;

(4) Documentary evidence charges; and

(5) Subject to any limitations contained in this subchapter, such other fees and charges as are set forth in the agreement governing, or the bond, note or other evidence of, the loan.

63 Del. Laws, c. 2, § 5; 66 Del. Laws, c. 283, §§ 15, 16; 71 Del. Laws, c. 19, § 51.;

A bank may at any time or from time to time permit a borrower to defer installment payments of a loan and may, in connection with such deferral, charge and collect, as interest, deferral charges and may also require payment by such borrower, as interest, of the additional cost to the bank of premiums for continuing in force, until the end of such period of deferral, any insurance coverage provided in connection with the loan pursuant to § 967 of this title.

63 Del. Laws, c. 2, § 5; 66 Del. Laws, c. 283, § 17.;

(a) A bank may request but not require an individual borrower to be insured in respect of a loan under a life, health, accident, health and accident or other permissible insurance policy, whether group or individual, and in the event that a loan to an individual borrower is secured by an interest in real or personal property, the bank may require the borrower to obtain insurance, from an insurer acceptable to the bank, against loss of or damage to such property, or against the liability arising out of the ownership or use of the property and may finance the premiums for such insurance.

(b) In the case of a borrower borrowing for other than personal, household or family purposes, a bank may require the borrower to obtain insurance, from an insurer acceptable to the bank, under a life, health, accident, health and accident or other credit or other permissible insurance policy, whether group or individual, and in the event that the borrower's loan is secured by an interest in real or personal property, the bank may require the borrower to obtain insurance, from an insurer acceptable to the bank, against loss of or damage to such property, or against the liability arising out of the ownership or use of the property and may finance the premiums for such insurance.

(c) The offer and placement of insurance under this section shall be subject in all respects to the applicable provisions of Title 18.

63 Del. Laws, c. 2, § 5.;

If the agreement governing a loan so provides, a bank may impose, as interest, a late or delinquency charge upon any outstanding unpaid installment payments or portions thereof under the loan agreement which are in default; provided, however, that in the case of a loan to an individual borrower, no such late or delinquency charge may be charged or imposed unless the agreement governing, or the bond, note or other evidence of, the loan so provides and that no more than 1 such late or delinquency charge may be imposed in respect of any single such installment payment or portion thereof regardless of the period during which it remains in default; and provided further, however, that for the purpose only of the preceding proviso all payments by the borrower shall be deemed to be applied to satisfaction of installment payments in the order in which they become due. Nothing contained in this section shall limit, restrict or otherwise affect the right of a bank under and pursuant to §§ 963 and 964 of this title to change the periodic percentage rate or rates of interest applicable to the loan agreement between the bank and a borrower upon the occurrence of a delinquency or default or other failure of the borrower to perform in accordance with the terms of the loan agreement.

63 Del. Laws, c. 2, § 5; 66 Del. Laws, c. 283, § 18; 68 Del. Laws, c. 303, § 24; 71 Del. Laws, c. 19, § 52.;

(a) An individual borrower may prepay a loan in full at any time.

(b) If interest charged pursuant to § 963 of this title in respect to a loan to an individual borrower has been precomputed and taken in advance, then, in the event of prepayment of the entire indebtedness, the bank shall refund to such borrower the unearned portion of the precomputed interest charge. This refund shall be in an amount not less than the amount which would be refunded if the unearned precomputed interest charge were calculated in accordance with the actuarial method, except that the borrower shall not be entitled to a refund which is less than $5. The unearned portion of the precomputed interest charge is, at the option of the bank, either:

(1) That portion of the precomputed interest charge which is allocable to all originally scheduled or, if deferred, all deferred payment periods, or portions thereof, ending subsequent to the date of prepayment. The unearned precomputed interest charge is the total of that which would have been earned for each such period, or portion thereof, had the loan not been precomputed, by applying to unpaid balances of principal, according to the actuarial method, an annual percentage rate based on the precomputed interest charges, assuming that all payments were made as scheduled, or as deferred, if deferred. The bank, at its option, may round this annual percentage rate to the nearest one-quarter of 1 percent; or

(2) The total precomputed interest charge less the earned precomputed interest charge. The earned precomputed interest charge shall be determined by applying an annual percentage rate based on the total precomputed interest charge, under the actuarial method, to the unpaid balances for the actual time those balances were unpaid up to the date of prepayment.

(c) As used in subsection (b) of this section:

(1) "Actuarial method" means the method of allocating payments made on a loan between the outstanding balance of the loan and interest pursuant to which a payment is applied first to the accumulated interest and any remainder is subtracted from the outstanding balance of the loan.

(2) "Precomputed interest charge" means interest as computed by the add-on, discount or other similar method.

(3) "Payment period" means the time period within which periodic installment payments of a loan are due as provided in the agreement governing, or the bond, note or other evidence of, the loan.

(d) If a charge was made to an individual borrower for premiums for insuring such borrower under an insurance policy pursuant to § 967 of this title, then, in the event of prepayment, the bank shall refund to such borrower the excess of the charge to such borrower therefor over the premiums paid or payable to the bank, if such premiums were paid or payable by the bank periodically, or the refund for such insurance premium received or receivable by the bank, if such premium was paid or payable in a lump sum by the bank, provided that no such refund shall be required if it amounts to less than $5.

(e) In connection with any prepayment of any loan by an individual borrower, the bank may not impose any prepayment charge, except that in the case of a residential mortgage loan, the bank may charge and collect any prepayment penalty or charge specified in the agreement governing, or the bond, note or other evidence of, the loan.

(f) The terms of prepayment of any loan made to a borrower other than an individual borrower shall be as the bank and the borrower may agree.

63 Del. Laws, c. 2, § 5.;

(a) An individual borrower may, with the consent of the bank, refinance the entire outstanding and unpaid amount of a loan, and the bank may charge and collect, as interest, a refinancing charge in connection with any such refinancing.

(b) For the purposes of this section, the entire outstanding and unpaid amount of a loan shall be deemed to be:

(1) If the interest and charges in respect of the loan were not taken in advance, the total of the unpaid balance and the accrued and unpaid interest and charges on the date of refinancing; or

(2) If the interest and charges on the loan were precomputed and taken in advance, the amount which the borrower would have been required to pay upon prepayment on the date of refinancing pursuant to § 969 of this title governing refund upon prepayment.

63 Del. Laws, c. 2, § 5; 66 Del. Laws, c. 283, § 19.;

In the event an individual borrower defaults under the terms of a loan, the bank may, if such borrower's account is referred to an attorney (not a regularly salaried employee of the bank) or to a third party for collection and if the agreement governing, or the bond, note or other evidence of, the loan so provides, charge and collect from the borrower a reasonable attorney's fee. In addition, following an individual borrower's default, the bank may, if the agreement governing, or the bond, note or other evidence of, the loan so provides, recover from such borrower all court, alternative dispute resolution or other collection costs (including, without limitation, fees and charges of collection agencies) actually incurred by the bank.

63 Del. Laws, c. 2, § 5; 66 Del. Laws, c. 283, § 20; 72 Del. Laws, c. 15, § 14.;

This subchapter shall not be deemed to prohibit a bank, in connection with a loan to other than an individual borrower, from:

(1) Extending or deferring the scheduled payment of all or any portion of any installment or installments payable under such loan;

(2) Permitting prepayment or refinancing of such loan in whole or in part;

(3) Charging and collecting any charges in connection with the matters referred to in subdivisions (1) and (2) of this section; or

(4) Charging and collecting late or delinquency charges, attorneys' fees or collection charges.

63 Del. Laws, c. 2, § 5.;

Any other law of this State limiting the rate or amount of interest, discount, points, finance charges, service charges or other charges which may be charged, taken, collected, received or reserved shall not apply to extensions of credit made in accordance with this subchapter.

63 Del. Laws, c. 2, § 5.;

(a) The provisions of this subchapter are not exclusive and a bank may at its option elect to extend credit either pursuant to this subchapter or as otherwise permitted by applicable law.

(b) Section headings and captions contained in this subchapter are inserted only as a matter of convenience and for reference and do not, and shall not be construed to, define, limit, extend or describe the scope of this subchapter or the meaning or intent of any section hereof.

63 Del. Laws, c. 2, § 5.;

All terms, conditions and other provisions of and relating to any extension of closed end credit as contained in this subchapter or in the agreement governing, or the bond, note or other evidence of the loan (other than those which are interest under this subchapter), including, without limitation, provisions relating to the method of calculating interest, reasons for default and the right to cure any default, rights to accelerate, choice of law, rights to charge and collect attorney's fees, court and collection costs, repayment schedule, balloon payments, loan term and the refunding of unearned interest or insurance charges, shall be and hereby are deemed to be material to the determination of interest under Delaware law, under the most favored lender doctrine, and under § 85 (12 U.S.C. § 85) of the National Bank Act or § 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (12 U.S.C. § 1831d).

66 Del. Laws, c. 283, § 23.;

The agreement governing, or the bond, note or other evidence of a loan between a bank and an individual borrower shall be governed by the laws of this State.

66 Del. Laws, c. 283, § 24.;

The State Bank Commissioner may prescribe regulations to carry out the purpose of this chapter.

66 Del. Laws, c. 403, § 2.;

(a) In addition to such other limitations and requirements as are imposed pursuant to other provisions of this subchapter, short-term consumer loans shall be subject to the following:

(1) No bank, trust company or savings bank shall make more than 4 rollovers of an existing short-term consumer loan. A bank, trust company or savings bank may, following not more than the maximum allowable number of rollovers, enter into a workout agreement with the borrower or take such other actions as are lawful to collect any outstanding and unpaid indebtedness.

(2) No bank, trust company or savings bank shall make a short-term consumer loan unless such loan is subject to a right of recission on the part of the individual borrower.

(3) No bank, trust company or savings bank shall pursue or threaten to pursue criminal action against an individual borrower in connection with the nonpayment of any amount due, including the unpaid return of any check or automated clearinghouse transaction.

(b) In addition to such other disclosure requirements as are imposed pursuant to other provisions of this subchapter, short-term consumer loans shall be subject to the following: No bank, trust company or savings bank shall make a short-term consumer loan unless the application for such loan, which application shall be written in both English and Spanish, contains a written disclosure, conspicuously displayed, that:

(1) The loan is designed as a short-term cash flow solution and not designed as a solution for longer term financial problems;

(2) Additional fees may accrue if the loan is rolled over; and

(3) Credit counseling services are available to consumers experiencing financial problems.

(c) Nothing in this section prohibits a lender from refinancing the principal amount of a short-term consumer loan, subject to the limitations and requirements imposed herein.

(d) The Commissioner is authorized to promulgate rules and regulations to exempt certain loans or classes of loans from the requirements of this section.

73 Del. Laws, c. 398, § 2.;