O.C.G.A. § 7-3-17 (2019)
Closing fees; refund or credit; pro rata basis
Notwithstanding the provisions of subsection (b) of Code Section 13-1-14, when any installment loan upon which a closing fee has been charged by a licensee is prepaid by any means within 90 days of the date of the loan, the borrower shall be entitled to a refund or credit of the closing fee, calculated as follows: the installment lender shall determine, on a daily pro rata basis over the original term of the loan, the amount of the closing fee that has accumulated prior to the prepayment. The installment lender shall refund or credit the borrower with the pro rata amount that has not accumulated prior to the prepayment; provided, however, that the installment lender may retain from the collected closing fee the greater of the accumulated pro rata closing fee or $25.00.
History
Code 1981, § 7-3-17, enacted by Ga. L. 2024, p. 354, § 1-37/HB 876, effective July 1, 2024. Effective date. This Code section became effective July 1, 2024.
Annotations
Law reviews. - For article discussing methods of computation of finance charges in Georgia consumer credit contracts, see 30 Mercer L. Rev. 281 (1978).
JUDICIAL DECISIONS
Section compensates lender for profits lost when loan prepaid. - In enacting O.C.G.A. § 7-3-17, the General Assembly made a specific exception to the general limitation of O.C.G.A. § 7-3-14 on interest and to the general prohibition in O.C.G.A. § 7-3-15 on further charges, with a view toward compensating a lender for lost profits when a debtor voluntarily repays the debtor's loan. Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981).
Section applicable to prepaid interest and insurance but makes no mention of loan fee charges. - Georgia law provides a specific refund system upon prepayment of loans. It applies to prepaid interest and insurance charges but makes no mention of a loan fee charge. Jones v. Community Loan & Inv. Corp., 526 F.2d 642 (5th Cir.), on rehearing, 544 F.2d 1228 (5th Cir. 1976), cert. denied, 431 U.S. 934, 97 S. Ct. 2642, 53 L. Ed. 2d 250 (1977).
Rule of 78's violates this section. - Given the purpose of the Industrial Loan Act, O.C.G.A. § 7-3-1 et seq., the strict construction which Georgia courts have applied to it, its general limitation on interest rates charged on such small loans in O.C.G.A. § 7-3-14, its general prohibition in O.C.G.A. § 7-3-15 on charges in excess of those authorized, and the commission regulations, which, according to accepted interpretive principles, appear to exclude anything but pro rata computations of interest on rebates and refinancing, it would seem that the use of the Rule of 78's to compute the interest rebate and the refinancing of a loan agreement pursuant to that Act violates O.C.G.A. § 7-3-17. Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981).
Determination of refund by Rule of 78's is permitted. - Computation of refunds of unearned interest according to Rule of 78's when borrower pays time balance in full before maturity is permitted. Pollard v. Congress Fin. Corp., 153 Ga. App. 357, 265 S.E.2d 296 (1980). (But see, Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981)).
Rule of 78's applicable in refinancing situation. - One statute the General Assembly has written to allow for use of the Rule of 78's in situations involving the prepayment of all or any part of the unpaid balance of an installment contract prior to maturity should be held applicable when a borrower retires one note held by a particular lender by using the proceeds of a second note from the same lender. The General Assembly's decision to allow more than a pro rata loss of interest in prepayment situations indicates the General Assembly's desire to allow a similar loss by the borrower in a refinancing situation since both transactions are initiated by the borrower and are evidences of the borrower's failure to fulfill the borrower's contractual obligation to repay the lender pursuant to the initial installment contract. That failure has caused the General Assembly to exact a penalty against the borrower in the form of allowing a creditor's use of the Rule of 78's in a prepayment situation, and in the absence of a clear statement to the contrary, the same penalty should be exacted against the refinancing borrower. Simpson v. Termplan, Inc., 535 F. Supp. 36 (N.D. Ga. 1981). (But see, Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981)).
Industrial Loan Act, O.C.G.A. § 7-3-1 et seq., authorizes the lender to use the Rule of 78's to compute interest rebates in refinancing cases and the Act does not require lenders to compute such rebates on a pro rata basis. Varner v. Century Fin. Corp., 253 Ga. 27, 317 S.E.2d 178 (1984). (But see, Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981)).
Nothing less than refund of all unearned interest permitted when creditor accelerates. - When there is not a prepayment, the Rule of 78's cannot be used to compute interest refund and when acceleration was made at half-way point in contract but less than 50 percent of total interest charged was refunded, nothing less than a refund of all unearned interest when the creditor accelerates can be permitted. Garrett v. G.A.C. Fin. Corp., 129 Ga. App. 96, 198 S.E.2d 717 (1973).
Cited in Brown v. Quality Fin. Co., 112 Ga. App. 369, 145 S.E.2d 99 (1965); Cook v. First Nat'l Bank, 130 Ga. App. 587, 203 S.E.2d 870 (1974); Harlow v. Walton Loan Corp., 174 Ga. App. 311, 329 S.E.2d 616 (1985).
RESEARCH REFERENCES
Am. Jur. 2d. - 53A Am. Jur. 2d, Moneylenders and Pawnbrokers, §§ 46 et seq., 51 et seq.
ALR. - Personal liability for repayment of loan or advance under contract which expressly provides for repayment from proceeds of crop or other property and contains no express promise for repayment otherwise, 111 A.L.R. 1062.