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IBA E-News 4-19-19



Statehouse Summary

The end of the 2019 Indiana General Assembly looms, with only two weeks left before sine die, officially set for April 29. Committee work concluded last week as all committee reports were due by Thursday. This past week brought both a second reading deadline on Monday in the Senate and third reading deadlines for the House and Senate mid-week. The remaining time for session will be reserved for the conference committee process, a period where lawmakers reconcile the changes made to bills in the second half of session. The IBA will be closely monitoring conference committees as they emerge over the coming days for changes and additions to legislation.

House Bill 1136 - Uniform Consumer Credit Code.

Authors: Rep. Woody Burton, R-Whiteland / Sen. Andy Zay, R-Huntington

Summary of legislation: (Amended) This bill makes the following changes to the Uniform Consumer Credit Code (UCCC): (1) The bill amends the provisions authorizing specified additional charges for consumer loans to permit a lender to contract for and receive a transaction fee for a revolving loan account that may not exceed the greater of: (A) 2% of the amount of the transaction; or (B) $10. (Current law authorizes the lender to charge a transaction fee in the lesser of these two amounts.). (2) It replaces the authorized $5 delinquency charge (subject to indexing by the Department of Financial Institutions [DFI]) for consumer credit sales and consumer loans with a nonindexed delinquency charge of: (A) $5, if installments are due every 14 days or less; (B) $25, if installments are due every 15 days or more; or (C) $25, in the case of a single installment due at least 30 days after the sale or loan is made. (3) The bill specifies that a creditor may not charge or collect a delinquency charge on a payment that: (A) is paid within 10 days after its scheduled due date; and (B) is otherwise a full payment of the payment due for the applicable installment period; if the only delinquency with respect to a consumer credit sale or a consumer loan is attributable to a delinquency charge for an earlier installment. (4) The bill specifies that an initial pleading related to a debt collection action filed by a debt buyer must include certain information. It makes a violation a deceptive act. HB 1136 1 Study Committee: The bill also urges the Legislative Council to assign to an interim study committee, for study during the 2019 interim, the topic of revisions to the UCCC. It sets forth issues for consideration by an interim study committee assigned this topic.

Latest action: The bill passed a House concurrence vote on April 18 by a vote of 68-23. The bill now awaits the governor’s signature. 

Senate Bill 613 - Consumer Credit

Authors: Sen. Andy Zay, R-Huntington / Rep. Matt Lehman, R-Berne

Summary of legislation: (Amended) This bill makes the following changes to the Uniform Consumer Credit Code (UCCC): (1) Repeals a provision specifying a reference base index for use by the Department of Financial Institutions (Department) in adjusting specified dollar amounts designated as subject to change throughout the UCCC. (2) Replaces: (A) the tiered credit service charge authorized for consumer credit sales; and (B) the 25% loan finance charge authorized for consumer loans; with a flat charge of 36% per year on the unpaid balances. (3) Increases the: (A) minimum credit service charge for consumer credit sales; and (B) minimum loan finance charge for consumer loans; from $30 (subject to indexing) to $50 (not subject to indexing). (4) Eliminates indexing of the authorized $5 delinquency charge for consumer credit sales and consumer loans. (5) Provides that a seller in a consumer credit sale may take a security interest in goods sold if the debt secured is at least $1,500 (not subject to indexing), versus $300 (subject to indexing) in current law. (6) Changes the authorized nonrefundable prepaid finance charge for consumer loans not secured by an interest in land from $50 to $100. (7) Repeals: (A) the definition of "supervised loan"; and (B) the provision establishing the authorized loan finance charge for supervised loans. (8) Provides that for a consumer loan: (A) with a loan finance charge greater than 25%; and (B) in which the principal is $4,000 or less (not subject to indexing); a lender may not contract for an interest in land as security. (Current law prohibits a lender from contracting for an interest in land as security if the loan principal is $4,000 or less (subject to indexing) without regard to the loan's finance charge.) (9) Provides that consumer loans having a loan finance charge exceeding 25% and in which the principal is $4,000 or less are payable over a period of not more than: (A) 37 months if the principal is more than $1,100 (versus $300, subject to indexing, in current law) but not more than $4,000; or (B) 25 months if the principal is $1,100 (versus $300, subject to indexing, in current law) or less. (Current law specifies these maximum loan terms for loans with a principal amount of $4,000 or less (subject to indexing) without regard to the loan's finance charge.) (10) Provides that a creditor in a consumer loan transaction may not contract for or receive a separate charge for property casualty insurance unless the amount financed exclusive of charges for the insurance is at least $1,000 (versus $300, subject to indexing, in current law), and the value of the property is at least $1,000 (versus $300, subject to indexing, in current law). This bill authorizes a lender that is licensed by the department to make small loans under the UCCC to make unsecured consumer installment loans under the same license. It defines an "unsecured consumer installment loan" as a loan: (1) with a principal amount that is: (A) more than $605 and not more than $1,500; and (B) payable in three or more substantially equal periodic payments; and (2) in which the lender holds one or more checks of the borrower for a specific period, or is authorized to debit the borrower's account on one or more occasions for a specific period, before the lender deposits the check or debits the account. This bill requires that the loan term for an unsecured consumer installment loan be at least six months but not more than nine months. It provides for the following with respect to unsecured consumer installment loans: (1) An authorized finance charge and monthly maintenance fee. (2) An annual fee assessed on lenders of $1,000 per license and $1,000 per Indiana branch location (after the first location), for financial education programs. The bill prohibits: (1) the renewal of an unsecured consumer installment loan; and (2) a borrower from having: (A) a small loan and an unsecured consumer installment loan; or (B) more than one unsecured consumer installment loan; outstanding at the same time. It also establishes requirements for the licensure and conduct of persons issuing small dollar loans. This bill defines "small dollar loan" as a loan with a maximum loan amount of $3,000 and a term of: (1) at least 180 days; and (2) not more than 36 months. It provides that with respect to a small dollar loan, a lender may contract for a loan finance charge of not more than 72%. It also provides for an annual fee assessed on lenders of $1,000 per license and $1,000 per Indiana branch location (after the first location), for financial education programs.

This bill establishes the Consumer Financial Education Fund (Fund) for the purpose of paying expenses incurred by the Department relating to consumer financial education. The bill provides that the annual fees required to be paid by: (1) lenders licensed to make small dollar loans and unsecured consumer installment loans; and (2) lenders licensed to make small dollar loans; shall be deposited in the fund. The bill also specifies that a "rate," for purposes of the loansharking statute, includes a nonrefundable prepaid finance charge. The bill replaces language conforming the loan rate for the criminal loansharking statute to the maximum loan finance charge for consumer loans under the UCCC, with language specifying that a loan is considered loansharking if it is made at a rate greater than 72% per year on the unpaid balance of the principal. The bill also makes conforming amendments throughout the UCCC and the Indiana Code.

Latest action: The bill died due to a lack of action as the bill was not brought forward for a vote before the third reading deadline in the House.

House Bill 1487 - Business Services of the Secretary of State

Authors: Rep. Martin Carbaugh, R-Fort Wayne / Sen. Eric Koch, R-Bedford

Summary of legislation: This bill amends the law concerning the business practices of the Secretary of State, including: (1) access to information maintained by the Secretary of State; (2) use of electronic information and transmissions; (3) striking the current Uniform Commercial Code (UCC) financing statement form; adding use of a format that meets certain criteria for the filings; and amending the UCC fees; (4) adding to the requirement to include a notary public's Indiana county on an authentication certificate; (5) amending requirements concerning notary public examination and education; (6) prohibiting performance of a notarial act: (a) to benefit oneself or one's spouse; or (b) when a commission is suspended or revoked; (7) specifying a notarial act fee applies; (8) providing for issuance of a certificate of fact for a notary public per signature; (9) requiring maintenance of a remote notary public electronic journal for 10 years; and (10) providing for nonresident corporate service of process on the Secretary of State. The bill repeals current law concerning excavation contractor filings and precontracting documentation of compliance with underground facility damage law. It also requires the formatting of certain documents to be approved by the International Association of Commercial Administrators or the Secretary of State. The bill specifies October 1, 2019, as the date for a fee increase concerning the indexing of certain documents. It makes the law concerning remote notarial acts applicable only to a remote notarial act performed after the earlier of the effective date of certain administrative rules or July 1, 2020. It also increases the fee that a notary public may charge for a remote notarial act from $15 to $25. The bill also provides that, for certain filings, the provision of an electronic mail address is discretionary. The bill makes a technical amendment and conforming changes.

Latest action: The House author concurred with the changes made to the bill in the Senate and passed a House concurrence vote 71-24. The bill now awaits a signature by the governor to become law.

Senate Bill 563 - Economic Development

Authors: Sen. Travis Holdman, R-Markle / Rep. Todd Huston, R-Fishers

Summary of legislation: The bill contains the following provisions:

Small Business Innovation Voucher Program: The bill establishes the small business innovation voucher program (program) to provide vouchers to eligible small businesses to be used by the business to purchase research and development support or other forms of technical assistance and services from an Indiana institution of higher education or other authorized research provider. It provides that the Indiana Economic Development Corporation (IEDC) shall administer the program. It also provides that the program is subject to appropriation from the General Assembly.

Income Apportionment: The bill amends the definition of "sales" and adds a definition of "telecommunication services" and "broadcast services" under the state adjusted gross income (AGI) tax provisions. The bill amends the provisions for determining when sales, other than sales of tangible personal property, are derived from sources within Indiana for purposes of determining the state adjusted gross income of corporations and nonresident persons.

Mutual Economic Assistance Agreement: The bill also provides that the IEDC may enter into an agreement for mutual economic assistance and a payment agreement with similar agency or body of a state bordering Indiana.

The bill provides for the following tax credit changes and redevelopment tax credit:
Industrial Recovery Tax Credit - The bill provides that a taxpayer (with certain exceptions) is not entitled to receive an industrial recovery tax credit for a qualified investment made after December 31, 2019.

Economic Development for a Growing Economy (EDGE) Tax Credit - The bill amends the definition of“incremental income tax withholdings” for purposes of the EDGE tax credit to accommodate nonresident employees covered by a mutual economic assistance agreement and payment agreement. Community Revitalization Enhancement District (CRED) - It permits a taxpayer to claim an income tax credit for qualified investments made after a CRED has expired if the taxpayer satisfies certain conditions.

Venture Capital Investment (VCI) Tax Credit - It allows a taxpayer to assign all or part of a venture capital investment tax credit, subject to certain limitations.

Hoosier Business Investment (HBI) Tax Credit - The bill amends the definition of "qualified investment "under the Hoosier Business Investment (HBI) tax credit to include the purchase of: (1) retooled or refurbished machinery; (2) new energy conservation and pollution control equipment; and (3) new onsite digital manufacturing equipment. The bill also adds State Gross Retail and Use Taxes to the types of taxes against which a taxpayer may claim an HBI tax credit. The bill provides that an owner of a pass-through entity may not claim the HBI tax credit against the state gross retail and use tax paid by the owner, and that the credit may not be claimed against the state gross retail and use tax collected and remitted by a taxpayer as a retail merchant. The bill provides that the HBI tax credit for new onsite digital manufacturing equipment for a tax credit is not to exceed 25% of the qualified investment and for a limited time period.

Headquarters Relocation Tax Credit - The bill amends the headquarters relocation tax credit to extend the credit to an eligible business that: (1) acquired at least $4 million in venture capital within either six months prior to or six months after applying for the credit; and (2) commits to: (A) relocating its headquarters to Indiana; or (B) relocating the number of jobs that equal 80% of the business's payroll to Indiana. The bill provides that the total amount of headquarters relocation tax credits that may be approved in a state fiscal year for all eligible businesses that qualify for the tax credit under the new provision may not exceed $5 million.

Redevelopment Tax Credit - The bill establishes the redevelopment tax credit. It requires a taxpayer to apply to the IEDC for the credit. It provides that a taxpayer may claim a credit against state tax liability if: (1) the taxpayer makes a qualified investment for the redevelopment or rehabilitation of real property located within a qualified redevelopment site; and (2) the qualified investment is approved by the IEDC. The bill provides that the amount of the credit is equal to: (1) the qualified investment made by the taxpayer and approved by the IEDC in an agreement; multiplied by (2) the applicable credit percentage determined by the IEDC. It specifies the maximum applicable credit percentages that apply to qualified investments. The bill caps the redevelopment tax credit at $50 M per state fiscal year with certain exceptions. It allows a taxpayer to assign all or part of a redevelopment tax credit, subject to certain limitations. It also authorizes the IEDC to include in an agreement for the tax credit provisions that require the taxpayer to repay all or part of a credit awarded over a period of years. The bill provides that an agreement for the redevelopment tax credit must include a repayment provision for the amount of any credit award that exceeds $10 million. It also requires the IEDC to establish measurements for evaluating the performance of the redevelopment tax credit and evaluate the tax credit program on a biennial basis.

Credit Evaluations - The bill requires the IEDC to collect data on the effectiveness of an assignment of both the venture capital investment tax credit and the redevelopment tax credit and report its findings to the Legislative Council before November 1, 2022.

Certified Technology Parks - The bill changes the recertification period for certified technology parks from three to four years. It provides that once a certified technology park reaches its cap, an additional amount equal to incremental income taxes shall be captured. It requires a redevelopment commission that has designated a third-party manager or operator of a certified technology park to transfer to the manager or operator the amount owed within 30 days of receiving a distribution.

Latest action: The bill was dissented upon. The House and Senate are working through various provisions in the bill with the goal of having a conference committee report completed in the coming week.





IRS Issues Second Round of Proposed Regulations on Opportunity Zones

The Internal Revenue Service on Wednesday issued a highly anticipated package of proposed regulations on the Opportunity Zone tax incentive, which allows investors to take proceeds from capital gains and invest them in defined qualified opportunity funds. Assuming holding periods are satisfied, a portion of the initial deferred gain may be exempt from tax and post-investment appreciation may be totally exempt.

The 169-page proposal provides guidance on the “substantially all” requirements and for the holding period and use of the tangible business property. It also addresses calculations for gain inclusion transactions, treatment of leased property, use of qualified zone property and sourcing of income. In addition, it provides guidance on reasonable periods for qualified opportunity fund investments.

In many cases, investors, developers and other parties have been waiting for this additional guidance prior to making their investments. The incentive has attracted significant interest from investors, with estimates of pending investment dollars totaling more than $20 billion.

Otting: OCC Sees Fewer MRAs Issued for AML Concerns

Comptroller of the Currency Joseph Otting on Monday expressed his positive view of banks’ efforts to comply with anti-money laundering regulations. In remarks at an industry conference, Otting pointed to a decrease in the number of Matters Requiring Attention related to anti-money laundering compliance that the agency has issued recently as a sign that “for the first time in a long time now, the standards are relatively good.”

Otting noted that MRAs related to money laundering and the Bank Secrecy Act “really ballooned up between 2012 and 2017” but that “now, as institutions have been able to demonstrate high-quality programs, those MRAs are now down significantly.”

State Regulators Back Cannabis-Banking Bill

Banking regulators from 24 states and Puerto Rico called on congressional leaders to advance legislation to create a safe harbor for financial institutions that serve cannabis-related businesses in states where cannabis is legal. In a joint letter, the state agency heads said a safe harbor would reduce the risk associated with these largely cash-based businesses and bring their operations into the compliance framework.

Industry-advocated legislation to establish a cannabis-banking safe harbor was introduced in the Senate last week after companion legislation passed out of the House Financial Services Committee last month. The House version of the bipartisan Secure and Fair Enforcement Banking Act (H.R. 1595/S. 1200) advanced out of committee on a 45-15 vote, while the Senate version was introduced with 21 original co-sponsors.

Treasury Secretary Steven Mnuchin last week encouraged Congress to find a bipartisan solution to conflicting state and federal laws on cannabis regulation, noting that the IRS has built rooms to hold cash from cannabis-related businesses.

Calabria Sworn in as FHFA Director

Mark Calabria, who spoke at the 2018 IBA Annual Washington Trip, was sworn in as director of the Federal Housing Finance Agency after his confirmation by the Senate earlier this month. At the ceremony in Washington Calabria said he enters office with a “sense of urgency” to address vulnerabilities in the housing-finance system.

Calabria will play a key role in the debate over reforming Fannie Mae and Freddie Mac. During his confirmation hearing, Calabria said he will follow the lead of Congress in reforming the housing-finance system, though at his swearing-in he cited President Donald Trump’s recent memo on housing reform.

Read Calabria’s remarks.

Read more from FHFA.