6126 - Requirements as to open-end loans.
§ 6126. Requirements as to open-end loans. The following shall apply: (1) A mortgage lender may make open-end loans and may contract for and receive thereon interest and charges as set forth under this chapter. (2) A mortgage lender shall not compound interest by adding any unpaid interest authorized by this section to the unpaid principal balance of the consumer's account, provided, however, that the unpaid principal balance may include the additional charges authorized by this subchapter. (3) Interest authorized by this section shall be deemed not to exceed the maximum interest permitted by this subchapter if the interest is computed in each billing cycle by any of the following methods: (i) by converting the monthly rate to a daily rate and multiplying the daily rate by the applicable portion of the daily unpaid principal balance of the account, in which case the daily rate shall be 1/30 of the monthly rate; (ii) by multiplying the monthly rate by the applicable portion of the average monthly unpaid principal balance of the account in the billing cycle, in which case the average daily unpaid principal balance is the sum of the amount unpaid each day during the cycle divided by the number of days in the cycle; or (iii) by converting the monthly rate to a daily rate and multiplying the daily rate by the average daily unpaid principal balance of the account in the billing cycle, in which case the daily rate shall be 1/30 of the monthly rate. (4) For all of the methods of computation in paragraph (3)(i), (ii) and (iii), the billing cycle shall be monthly, and the unpaid principal balance on any day shall be determined by adding to any balance unpaid as of the beginning of that day all advances and other permissible amounts charged to the consumer and deducting all payments and other credits made or received that day. (5) The consumer may at any time pay all or any part of the unpaid balance in the consumer's account without prepayment penalty or, if the account is not in default, the consumer may pay the unpaid principal balance in monthly installments. Minimum monthly payment requirements shall be determined by the licensee and set forth in the agreement evidencing the open-end loan. (6) A mortgage lender may contract for and receive the fees, costs and expenses permitted by this subchapter on other first or secondary mortgage loans, subject to all the conditions and restrictions set forth in this subchapter, with the following variations: (i) If credit life or disability insurance is provided and if the insured dies or becomes disabled when there is an outstanding open-end loan indebtedness, the insurance shall be sufficient to pay the total balance of the loan due on the date of the consumer's death in the case of credit life insurance or all minimum payments which become due on the loan during the covered period of disability in the case of credit disability insurance. The additional charge for credit life insurance or credit disability insurance shall be calculated in each billing cycle by applying the current monthly premium rate for insurance, as the rate may be determined by the Insurance Commissioner, to the unpaid balances in the consumer's account, using any of the methods specified in paragraph (3) for the calculation of loan charges. (ii) No credit life or disability insurance written in connection with an open-end loan shall be canceled by the licensee because of delinquency of the consumer in the making of the required minimum payments on the loan unless one or more of the payments is past due for a period of 90 days or more, and the licensee shall advance to the insurer the amounts required to keep the insurance in force during the period, which amounts may be debited to the consumer's account. (iii) The amount, terms and conditions of any insurance against loss or damage to property must be reasonable in relation to character and value of the property insured and the maximum anticipated amount of credit to be extended. (7) Notwithstanding any other provisions in this chapter to the contrary, a mortgage lender may retain any security interest in real or personal property until the open-end loan is terminated, provided that, if there is no outstanding balance in the account and there is no commitment by the licensee to make advances, the mortgage lender shall, within ten days following written demand by the consumer, deliver to the consumer a release of the mortgage, indenture, deed of trust or any other similar instrument or document on any real property taken as security for the open-end loan. The mortgage lender shall include on all billing statements provided in connection with an open-end loan a statement that the licensee retains a security interest in the consumer's real property whenever the security interest has not been released. (8) A mortgage lender may charge, contract for, receive or collect on any open-end loan account an annual fee not to exceed $50 per year.