Code of Virginia

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Code of Virginia
Title 6.2. Financial Institutions and Services
Chapter 4. Certain Lending Practices
4/21/2021

Article 1. Late Charges and Rebates of Unearned Interest.

§ 6.2-400. Amount of late charge; when charge can be made.

A. As used in this section:

"Late charges" does not include charges imposed upon acceleration of the entire debt or costs of collection and attorney fees as otherwise permitted by law by reason of a default by the debtor.

"Timely payment" means a payment made by the date fixed for payment or within a period of seven calendar days after such due date.

B. Any lender or seller may impose a late charge for failure to make timely payment of any installment due on a debt, whether installment or single maturity, provided that such late charge does not exceed five percent of the amount of such installment payment and that the charge is specified in the contract between the lender or seller and the debtor.

C. If any federal governmental agency or organization shall adopt any rules or regulations dealing with the application of late penalties as to loans insured or guaranteed by such federal agency or organization, then such rules and regulations shall control as to such loans insured or guaranteed by them.

D. Any provision for late charges in excess of the amount permitted by this section shall be void as to such excess but shall not otherwise affect the validity of the obligation.

1987, c. 622, § 6.1-330.80; 2010, c. 794.

§ 6.2-401. Acceleration clause in note evidencing installment loan; effect of acceleration.

A. Any note or other contract evidencing an installment loan or other installment sales obligation with add-on interest may provide that the entire unpaid loan balance, at the option of the holder, shall become due and payable upon default in payment of any installment without impairing the negotiability of the note, if otherwise negotiable.

B. Upon such acceleration, the holder of the contract of indebtedness shall not be entitled to judgment for unearned interest, but the balance owing shall be computed as follows:

1. On loans payable in equal periodic installments with an initial maturity and corresponding amortization period not exceeding 61 months, the accelerated balance shall be calculated as if the borrower had made a voluntary prepayment and obtained as of the date of acceleration an interest credit based upon the Rule of 78 rebate method as defined in § 6.2-403; and

2. On other loans, the accelerated balance shall be calculated under a method at least as favorable to the borrower as the actuarial method.

C. The accelerated balance shall bear interest at the rate shown, or that should have been shown as the annual percentage rate under a truth in lending disclosure pursuant to federal law if the transaction was a consumer credit transaction.

1987, c. 622, § 6.1-330.89; 1990, c. 338; 1991, cc. 171, 365; 2010, c. 794.

§ 6.2-402. Notice of use of Rule of 78 rebate method.

Where any loan or sale on credit contains a provision that a rebate of unearned interest shall be calculated in accordance with the Rule of 78 rebate method as defined in § 6.2-403, the note or other instrument evidencing the loan or sale on credit shall contain a notice advising the borrower of the effect of the interest calculation. The notice shall be in all capital letters and in 10-point type, and shall be substantially as follows:

NOTICE: IF YOU PAY THIS LOAN OR SALE ON CREDIT PARTIALLY OR IN FULL BEFORE ITS DUE DATE, THE AMOUNT OF INTEREST YOU PAY WILL BE GREATER THAN THE AMOUNT OF INTEREST YOU WOULD PAY FOR A SIMPLE INTEREST LOAN OF THE SAME PRINCIPAL AMOUNT.

1990, c. 941, § 6.1-330.85:1; 2010, c. 794.

§ 6.2-403. The Rule of 78.

A. The Rule of 78 is so named because the integers one through 12 added together total 78.

B. The amount of the rebate of unearned interest to be credited upon the acceleration or anticipation of a loan on which such rebate is required to be calculated under the Rule of 78 shall be calculated as follows:

1. Determine the denominator of the fraction, to be used as provided in subdivision 3, by adding the integers corresponding to the number of months over which the loan is to be repaid according to its terms, which in the example of a four-year loan would be the sum obtained by adding all of the integers in the series one through 48.

2. Determine the numerator of the fraction, to be used as provided in subdivision 3, by adding in inverse sequence the integers corresponding to the number of months remaining on the loan after payment is anticipated, which in the example of a four-year loan anticipated after the third month, would be the sum obtained by adding all of the integers in the series 45 through one.

3. Multiply the original amount of interest that would have been paid over the life of the loan by a fraction that has as its denominator the number determined as in subdivision 1 and as its numerator the number determined as in subdivision 2. The product is the amount of unearned interest to be rebated under the Rule of 78.

C. Payment anticipated between scheduled payment dates shall not be considered but instead the succeeding scheduled payment date shall be used in determining the amount of unearned interest to be rebated under the Rule of 78 pursuant to this section.

1987, c. 622, § 6.1-330.86; 2010, c. 794.

§ 6.2-404. When use of Rule of 78 prohibited or permitted.

A. The Rule of 78 shall not be used to determine the amount of unearned interest to be rebated if payment of the debt is anticipated on any (i) loan of money made after January 1, 1991, with an initial maturity of more than 61 months; or (ii) sales contract made after January 1, 1991, that necessitates a loan as described in clause (i).

B. On any loan of money made with an initial maturity and corresponding amortization period of 61 months or less and that is payable in equal periodic installments, the Rule of 78 may be used to determine the amount of unearned interest to be rebated if payment of the debt is anticipated on the loan or contract.

1990, c. 338, § 6.1-330.86:1; 1991, c. 171; 2010, c. 794.

§ 6.2-405. References to sections regulating rebates of unearned interest and prepayment penalties.

A. This article does not affect the application of §§ 6.2-420 through 6.2-423 regarding the imposition of prepayment penalties or rebates of unearned interest on certain loans secured by a lien on real estate.

B. This article does not affect the application of § 6.2-1409 regarding the imposition of prepayment penalties or rebates of unearned interest on loans made by an industrial loan association.

2010, c. 794.