Committee advances bill to align Indiana consumer credit code, raises cap on nonrefundable prepaid finance charges

A House committee advanced Senate Bill 464, a Department of Financial Institutions (DFI) annual bill that updates Indiana's Uniform Consumer Credit Code, clarifies several definitions and procedures for lenders and credit unions, and — after an amendment — raises the cap on nonrefundable prepaid finance charges for subordinate-lien consumer loans from 2% to 3%. The committee voted 12-1 to pass the bill after adopting amendments by roll call and by consent.

Senator Greg Bassler, the bill's sponsor in the Senate, told the committee the measure makes four main changes: several statutory date alignments with federal law, updated credit union audit requirements, a technical correction to language from a 2020 UCCC update, and an amendment to the UCCC definition of "principal" clarifying that proceeds held solely as security for a loan are not considered principal. "There are essentially four things that are taking place with this bill," Bassler said as he summarized the measure for the panel.

The clarification of "principal," Bassler said, is intended to prevent confusion about how interest is calculated when a financial institution holds part of a loan's proceeds as security. He offered an example in which a lender makes a $2,000 loan but holds $1,000 on deposit as security: the bill text is intended to ensure interest is assessed only on the borrower's actual principal, not on amounts held as security.

A key floor amendment (amendment number 3) drew extended testimony. The amendment would raise the statutory maximum nonrefundable prepaid finance charge for nonrevolving subordinate-lien loans (commonly second mortgages or home equity loans) from 2% to 3%, aligning…