404. Credit service charge limitation. 1. A seller may, in a retail instalment contract or obligation, contract for and, if so contracted for, the holder thereof may charge, receive and collect a credit service charge computed on the principal balance of the contract or obligation from the date thereof to and including the date when the final instalment is payable, at the rate or rates agreed to by the buyer.
2. Except as provided in subdivision three of this section, such credit service charge shall be computed on the principal balance on contracts or obligations payable in successive monthly instalments substantially equal in amount for a period of one year. On contracts or obligations providing for instalments extending for a period less than or greater than one year, the credit service charge shall be computed proportionately.
3. When a retail instalment contract or obligation provides for unequal or irregular instalments, the credit service charge shall be at the effective rate provided for in subdivision one of this section, having due regard for the schedule of instalments.
4. As an alternative to the credit service charge provided for above, a seller may, in a retail instalment contract or obligation, contract for and, if so contracted for, the holder may charge, receive and collect a credit service charge calculated on the unpaid principal balances of the contract for the time each is outstanding, according to a generally accepted actuarial method at rates that may vary from time to time and in accordance with the provisions of the contract or obligation. On any contract or obligation with a variable rate credit service charge made pursuant to this subdivision, each rate shall be determined at regular intervals as set forth in the contract or obligation and in accordance with such regulations as the superintendent of financial services shall prescribe but said rate shall not vary more often than once in any three month period and shall be based on a published index that is (a) readily available, (b) independently verifiable, (c) beyond the control of the holder, and (d) approved by the superintendent.
The superintendent of financial services shall adopt regulations with respect to retail installment contracts or obligations that provide for a variable rate of credit service charge, including but not limited to: (a) providing for disclosure to the buyer by the holder of the circumstances under which the rate may increase, any limitations on the increase, the effect of an increase and an example of the payment terms that would result from an increase; (b) providing for disclosure to the buyer by the holder of a history of the fluctuations of the index over a reasonable period of time; and (c) providing for notice to the buyer from the holder prior to any rate increase or change in the terms of payment.
5. The credit service charge shall be inclusive of all charges incident to investigating and making the contract or obligation, and for the extension of the credit provided for in the contract or obligation, and no fee, expense or other charge whatsoever shall be taken, received, reserved or contracted for except as otherwise provided in this article.
Last modified: February 3, 2019