North Carolina Consumer Finance Act Amendments Now Effective

The North Carolina General Assembly enacted legislation to amend the North Carolina Consumer Finance Act on June 27, 2023, with the changes taking effect October 1, 2023. These changes include significant amendments to the scope of the Consumer Finance Act and practice requirements that apply to licensees under the law. Companies that make, service, or collect loans in North Carolina should review the changes.

The amended Consumer Finance Act now applies to persons making consumer loans of $25,000 or less with APR that exceeds North Carolina’s statutory 16% usury limit. Prior to October 1, the law applied only to loans of $15,000 or less with APR exceeding 16%. The amendments do not change the fact that the licensing requirement is limited to loans where the interest and charges exceed the rate that the lender otherwise would be permitted by North Carolina law to charge. Accordingly, a loan originated by a bank pursuant to the bank’s interest rate exportation authority under federal banking law remains beyond the scope of the Consumer Finance Act. The amended Consumer Finance Act also adds a new licensing requirement to service a consumer loan of $25,000 or less where the APR exceeds the rate that is otherwise permitted by law. The North Carolina Commissioner of Banks recently posted an “FAQ” on its website that states that “[a]ny business that receives scheduled periodic payments from consumers in relation to a [Consumer Finance Act] loan must be licensed to lawfully collect the payments beginning October 1, 2023.” We think this statement indicates that—at least for now—the North Carolina Commissioner of Banks interprets the new servicer licensing requirement as applying to servicing and collecting a loan that was made pursuant to the Consumer Finance Act by a North Carolina-licensed nondepository lender. The Commissioner of Banks’ “FAQs” also confirm that a Consumer Finance Act licensee has authority to both originate and service loans and that a separate license is not required to service loans that were made pursuant to the Consumer Finance Act.

Other significant changes to the Consumer Finance Act that became effective October 1 include:

• Licensed lenders may contract for finance charges on loans of $12,000 or less at a tiered rate that does not exceed 33% annually on the first $4,000 of the loan, 24% on the portion of the loan between $4,001 and $8,000, and 18% on the remainder of the unpaid principal balance. Loans of more than $12,000 may bear finance charges up to 18% annually.
• Licensed lenders may now contract for a processing fee of up to $30 on loans of $3,000 or less or the lesser of $150 or 1% of the amount financed on loans exceeding $3,000.
• The permissible late fee amount has been increased from $15 to $18. Licensees may also collect late payment fees upon default and acceleration and may include accrued late fees in the amount financed if an existing loan is refinanced.
• Licensees must provide a disclosure at the time a loan is made that informs the borrower that the loan is made subject to the Consumer Finance Act.
• Licensees must notify regulators of a change in control at least 30 days prior to the closing date of the transaction that will result in the change in control.