The Financial Institutions Bureau through its Consumer Finance Division will be periodically conducting examinations of banking institutions licensed as sales finance companies under the provisions of the Motor Vehicle Sales Finance Act.

These examinations will be in addition to the regular annual examination of your bank conducted by the Bureau's Bank and Trust Division. There will be no charge for the examination. The report of our findings will be discussed with the appropriate officer at the conclusion of the examination.

For those licensees not totally familiar with the statute, we have set forth below positions taken by this Bureau relative to certain provisions of the Act for your reference and use. If you have any questions, contact Mr. A. J. Trierweiler, Director, Consumer Finance Division by calling 517/373-3470. (Editor s Note: A. Ann Gaultney is now the director of the Consumer Finance Division, circa 1996.)

Section 18--Maximum Rates of Charge Permissible

Finance charges covering the sale of a motor vehicle on an installment sale contract shall not exceed the rates indicated under three classifications.

The basis for classification is the calendar year in which a sale is made. As an example:

In connection with sales made in 1977 a maximum rate of 7% per $100.00 per year applies to 1977, 1976, and any 1978 models which may have been introduced in 1977 (Class I); 9% per hundred per year applies to 1975 models (Class II); and 12% per hundred per year applies to 1974 and older models (Class III).

Section 19--Extensions Fees--Costs--Methods of Rebate
     (Not to be confused with a service fee.)

The following maximum rates may be charged in the classification set forth on payments extended or deferred:

Class I One percent per month (Same as one percent of balance).
Class II One and one-half percent per month (Same as one and one-half percent of balance).
Class III Two percent per month (Same as two percent of balance).

1. Compute the unearned portion of the original finance charge using the original contract terms.

2. Compute a rebate on the extension charge by prorating such charge. (Example: An installment sale contract originally covering a Class I motor vehicle provides for monthly payment of $100. A payment is extended for ten months at a total charge of $10 based upon one percent per month on the amount extended for the period of extension. The installment sale contract is prepaid in full two months following extension. The buyer would be entitled to a rebate of such extension charge in the amount of $8.)

Section 19(a)

In the event of refinancing, the Act permits reclassification of the motor vehicle and application of a rate within the legal maximum for the class in which the motor vehicle falls at the time of such refinancing.

Section 19(c)--Refinancing

Credit life and/or health and accident insurance premiums may not be included in a refinanced contract if such coverage was not included in the original contract, except through a "restoration of payments" and then at a rate of not to exceed seven percent simple interest as therein provided.

Section 20--Default Charge

A maximum default charge of two percent of the monthly payment or payments in arrears may be collected when the payment is received eleven days after the due date. On a twelve-month contract no more than twelve late charges may be assessed.

Section 21--Rebate of Unearned Finance Charge

Due to the different periods a finance charge for a month is considered earned, some misunderstanding has arisen as to the proper method of figuring a rebate. From the date of contract 1/30 of a month for each day to the tenth day may be charged or a charge of $15 collected whichever is greater; commencing the eleventh day a full month may be earned. (Example: Contract dated April 1, 1977, paid in full May 10, 1977, would reflect one full month earned and if desired 9/30 of the second month).

Section 21(b)

At such time a balance is liquidated prior to maturity by prepayment, refinancing or termination by surrender or repossession of the motor vehicle, the holder of the installment sale contract shall immediately rebate to the buyer the unearned portion of the refinance charge. A payment by an insurance company on behalf of a deceased customer constitutes a prepayment of the obligation and a rebate should be paid to the surviving spouse or the estate.

Section 31(c)--Service Fee Paid to Seller From Finance Charge
     (None to be charged buyer.)

Reference to "24 months" means from the inception of the contract and not 24 months from the end of the first twelve-month period.

Class I - Two percent of principal financed plus 1/12 of such amount for each month over twelve months, but not to exceed 24 months from date of contract. In no case under Class I can the amount paid exceed four percent.

Class II and III - Three percent of principal financed plus 1/12 of such amount for each month over twelve months, but not to exceed 24 months from date of contract. In no case can the amount paid exceed six percent.

Section 37

It is the responsibility of the financial institution purchasing indirect automobile contracts (includes motor homes) to make certain the dealer is properly licensed as an installment seller.

Rebate--Credit Life Insurance Premiums

The following practice should be adhered to in prepayment of credit life insurance premiums:

1. If fifteen days or less have elapsed in the month at the time of refund, the current month is not earned and no charge is made.

2. If sixteen days or more have elapsed in the month at the time of refund, the current month is fully earned and may be charged.

Warranty Policies

A dealer-sold service contract or warranty policy may be part of the obligation on a security agreement providing the amount financed is made a separate item on the security agreement.

Filing Fees

There was a change in the Uniform Commercial Code filing requirements as a result of enactment of Public Act No. 27 of 1976, effective March 4, 1976.

The Act amended filing fee procedures under the provisions set forth by the Code to perfect security interest in a motor vehicle. The statute provides filing only with the Secretary of State for a certificate of title containing a statement with regard to such security interest. Act No. 27 eliminates dual filing, and consequently titled vehicles should no longer be filed with the County Register of Deeds.

Signed:	Richard J. Francis, Commissioner
	A. J. Trierweiler, Director, Consumer Finance Division
Dated:	September 19, 1977