Bill 303

                    Current Status

Bill Number:               303
Ratification Number:       235
Act Number:                153
Introducing Body:          Senate
Subject:                        First mortgage real estate
                           loans

(A153, R235, S303)

AN ACT TO AMEND SECTIONS 37-3-105, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO FIRST MORTGAGE REAL ESTATE LOANS, SO AS TO PROVIDE THAT IF THE ORIGINATION CHARGE AND OTHER PREPAID CHARGES SUBSTANTIALLY EXCEED THE CUSTOMARY CHARGE FOR A CONSUMER LOAN THE CREDITOR IS SUBJECT TO THE INVESTIGATION BY THE ADMINISTRATOR OF CONSUMER AFFAIRS; 37-3-201 RELATING TO LOAN FINANCE CHARGE FOR CONSUMER LOANS OTHER THAN SUPERVISED LOANS, SO AS TO DELETE THE PROVISION STATING THAT THE FINANCE CHARGE MAY BE CONTRACTED FOR AND EARNED AT THE SINGLE ANNUAL PERCENTAGE RATE; 37-5-108, AS AMENDED, RELATING TO UNCONSCIONABLE ACTS TO INDUCE A CONSUMER TO SECURE A LOAN OR TO COLLECT A DEBT, SO AS TO PROVIDE THAT THERE MAY BE A FINDING OF UNCONSCIONABILITY WITH REGARD TO A CONSUMER LOAN WHEN THERE IS A GROSS DISPARITY BETWEEN PRICE OF PROPERTY OR SERVICES SOLD AND THE VALUE OF THE PROPERTY OR SERVICES OR WHEN PREPAID CHARGES SUBSTANTIALLY EXCEED THE CUSTOMARY CHARGE FOR A LOAN AND PROVIDE THAT THE COURT MAY CONSIDER ANY BARGAINING DISPARITY BETWEEN THE PARTIES TO DETERMINE UNCONSCIONABILITY.

Whereas, the General Assembly finds that since the passage of Act 385 of 1982, certain creditors have charged points, origination fees, or other prepaid finance charges in a manner and in an amount which may have misled debtors about the true nature of their obligations. It is not the intent of the General Assembly that deregulation of rates should lead to misrepresentation of rates or unconscionable rates of credit service charges, loan finance charges, or unconscionable prepaid charges of any kind. These amendments are adopted to clarify the application of the unconscionability provisions of the Consumer Protection Code to consumer credit transactions and to prevent deception, misdisclosure, and overreaching in consumer credit transactions. The General Assembly intends this act should in no way impair or affect in any manner any causes of action which may have accrued prior to the effective date of this act, whether based upon charges substantially exceeding usual and customary charges or for any other reason. The General Assembly also intends that no negative implication may be drawn from this act. Now, therefore, Be it enacted by the General Assembly of the State of South Carolina:

Charges

SECTION 1. Item (c) of subsection (2) of Section 37-3-105 of the 1976 Code is amended by adding at the end:

"If an origination charge, prepaid finance charge, prepaid points, service, or other prepaid charge substantially exceeds the usual and customary charge for a particular type of loan, the creditor is subject to the provisions of Part 1 of Chapter 6 of Title 37, notwithstanding that the origination charge, prepaid finance charge, prepaid points, service, or other prepaid charge is properly disclosed as part of the finance charge for purposes of complying with the Federal Truth in Lending Act or part or all of the origination charge, prepaid finance charge, prepaid points charge, service, or other prepaid charges are rebatable or refundable upon prepayment or acceleration of the obligation."

Limitation on section

SECTION 2. Subsection (3) of Section 37-3-201 of the 1976 Code is amended to read:

"(3) This section does not limit or restrict the manner of calculating the finance charge, whether by way of add-on, discount, single annual percentage rate, or otherwise, so long as the rate of the finance charge does not exceed that permitted by this section.

If the loan is a precomputed consumer credit transaction:

(a) the finance charge may be calculated on the assumption that all scheduled payments will be made when due; and

(b) the effect of prepayment is governed by the provisions on rebate upon prepayment (Section 37-3-210)."

Finding of unconscionability

SECTION 3. Subsection (4)(c) of Section 37-5-108 of the 1976 Code, as amended by an Act of 1985 bearing Ratification Number 185, is further amended to read:

"(c) in the case of a consumer credit sale, consumer lease, consumer rental-purchase agreement, or consumer loan, gross disparity between the price of the property or services sold, leased or loaned and the value of the property, services or loan measured by the price at which similar property, services or loans are readily obtainable in consumer credit transactions by like consumers;".

Further

SECTION 4. Section 37-5-108 of the 1976 Code is amended by adding:

"(9) Nothing in this title may be construed to prevent a finding of unconscionability where a creditor assesses an origination charge, prepaid finance charge, service, or other prepaid charge which substantially exceeds the usual and customary charge for the particular type of consumer credit transaction. In such a transaction the court shall consider the relative sophistication of the debtor and the creditor, the relative bargaining power of the debtor and creditor, and any oral or written representations made by the creditor regarding the credit service charge or the loan finance charge of the consumer credit transaction."

Time effective

SECTION 5. This act shall take effect upon approval by the Governor.