La. Admin. Code tit. 10 § I-703

Current through Register Vol. 50, No. 11, November 20, 2024

Section I-703 - Variable Rate Loans

A. Pursuant to R.S. 6:25.1 (Act 640 of 1981) and R.S. 9:3554(B), banks, savings and loan associations, other supervised financial organizations, and licensed lenders are hereby authorized to make, purchase or participate in loans bearing simple interest from date on a variable rate basis consistent with the following regulations promulgated by the Commissioner of Financial Institutions.

1. Purpose. This regulation is issued by the commissioner of Financial Institutions under authority granted by R.S. 6:25.1 (Act 640 of 1981) and R.S. 9:3554(B).

2. Scope. This regulation shall apply to all loans or other extensions of credit which are made, purchased, or participated in by banks, savings and loan associations, other supervised financial organizations and licensed lenders, and which bear simple interest from date on a variable rate basis.

3. Definitions. As used herein, the following definitions shall apply.

Bank- any bank organized under the laws of the United States of America or of any state or foreign nation, and any subsidiary or parent holding company of a bank. (Nonbank subsidiaries of bank holding companies are considered to be banks or other supervised financial organizations for the purposes of this regulation.)

Index- any basis on which the interest rate charged on a loan may vary in accordance with the agreement of the parties.

Licensed Lender- shall have the same meaning as defined under R.S. 9:3516(19), that is, a person, other than a supervised financial organization, engaged in the business of making supervised loans.

Prime Rate or Base Rate- the interest rate established from time to time, one or more times, by the board of directors and/or management of a bank, savings and loan association, or any supervised financial organization as its "prime" or "base" lending rate, whether or not that interest rate is published or otherwise made known to the general public.

Savings and Loan Association- any savings and loan association, thrift institution, or savings bank organized under the laws of the United States of America or of any state, and any wholly-owned subsidiary or parent holding company of a savings and loan association.

Supervised Financial Organization- shall have the same meaning as defined under R.S. 9:3516 (26), that is, a banking or similar organization organized, certified and supervised by an agency of either the United States of America or of the state of Louisiana pursuant to the banking, currency, and related laws of the United States of America or of the State of Louisiana.

Variable Rate- the manner of computing simple interest on a loan whereby the rate of simple interest varies from time to time, one or more times, over the term of the extension of credit with changes in a contractual index rate or is adjusted in accordance with a formula specified in the promissory note or credit agreement governing the loan.

4. General Rule. Banks, savings and loan associations, other supervised financial organizations, and licensed lenders are authorized to make, purchase or participate in loans bearing simple interest from date on a variable rate basis.

5. Calculation of and Basis for Change in Rate

a. The simple rate of interest on a variable rate loan may vary with changes in an index or may be adjusted in accordance with a formula specified in the promissory note or credit agreement governing the loan.

b. It shall be permissible for a supervised financial organization to charge and collect simple interest on a variable rate basis indexed to the institution's own "prime" or "base" lending rate.

6. Rate Adjustment. This regulation sets no limitations on the frequency of interest rate adjustments or on the amount of any incremental change in the interest rate in variable rate loans.

7. Relationship to Other Laws

a. This regulation shall not be construed to limit the manner or method of contracting for interest in connection with any loan or other extension of credit.

b. Banks, savings and loan associations, other supervised financial organizations and licensed lenders are permitted to enter into variable rate loan transactions pursuant to this regulation which are governed by any applicable Louisiana or federal credit laws and regulations, including but not limited to:

i.Article 2924 of the Louisiana Civil Code;

ii. the Louisiana Consumer Credit Law (R.S. 9:3510, et seq.);

iii. the Louisiana Motor Vehicle Sales Finance Act (R.S. 6:951, et seq.);

iv.R.S. 9:3503, et seq.;

v.R.S. 6:654;

vi.R.S. 9:3509;

vii.R.S. 12:703.

c. This regulation shall not supersede the requirements of R.S. 6:957(F) as added by Act 580 of 1981 with regard to variable rate retail installment contracts for the purchase of a residential mobile home.

d. This regulation shall additionally not supersede the adjustable rate mortgage regulations promulgated by the Office of Financial Institutions for state banks as published in Volume 7, Number 7, Louisiana Register, July 20, 1981, as well as the adjustable rate mortgage regulations promulgated by the Office of the Comptroller of the Currency for National banks ( 12 CFR §29.1 et seq.).

e. This regulation shall additionally not supersede the adjustable mortgage loan regulations promulgated by the Office of Financial Institutions for state savings and loan associations as published in Volume 7, Number 7, Louisiana Register, July 20, 1981, as well as the adjustable mortgage loan regulations promulgated by the Federal Home Loan Bank Board for federal savings and loan associations ( 12 CFR §545 . 6-4 a).

f. Notwithstanding any other laws to the contrary, particularly Article 1939 of the Louisiana Civil Code, loans subject to these regulations shall be exempt from the application of the prohibition against interest on interest.

8. Effect on Other Variable Rate Loans. The promulgation of this regulation shall not be construed to raise questions as to, or provide a basis for any challenge to, the validity or enforceability of variable rate loans which may have been entered into prior to the promulgation hereof or as to the validity or enforceability of variable rate loans or other extensions of credit by creditors not subject to this regulation.

9. ARM/AML Regulations

a. The Office of Financial Institutions does hereby reissue and re-promulgate the adjustable-rate mortgage regulations promulgated by the Office of Financial Institutions for state banks as published in Volume 7, Number 7, Louisiana Register, July 20, 1981, said regulations to be promulgated under authority granted by R.S. 6:237(B).

b. The Office of Financial Institutions does hereby reissue and repromulgate the adjustable mortgage loan regulations promulgated by the Office of Financial Institutions for state savings and loan associations as published in Volume 7, Number 7, Louisiana Register, July 20, 1981, said regulations to be promulgated under the authority granted by R.S. 6:902(B).

10. Effective Date. This regulation shall take effect on the date of final publication.

La. Admin. Code tit. 10, § I-703

Promulgated by the Department of Commerce, Office of Financial Institutions, LR 8:232 (May 1982).

AUTHORITY NOTE: Promulgated in accordance with R.S. 6:25.1 and R.S. 9:3554(B).