Current through Register Vol. 54, No. 45, November 9, 2024
Section 13.23 - Discount of installment loans(a) It was not the intent of the Banking Law Commission to make a change in the installment lending provisions of the prior Banking Code (No. 112 (1933) Pa.L. 624 (repealed 1965)) nor to change the industry's custom of calculating interest on a discount basis. It was the purpose of the act to clarify the prior law and the practices followed under it.(b) It is a banking practice, in calculating discount at a $6 per $100 per annum rate, to deduct the 6% (equivalent to the $6 charge) from 100%, thus arriving at a remainder of 94%. By dividing 94% into the maximum loan of $5,000, the face amount becomes $5,319.14 resulting in discount of $319.14. The following should illustrate clearly the results of calculating interest on a discount basis versus interest on an add-on basis: (1)Discount basis.| Principal | $5,000 |
| Plus Interest at 6% for 1 year on a discount basis | 319.14 |
| Plus Costs | 150 |
| Face amount of note | $5,469.14 |
| Less Interest and Costs | 469.14 |
| Net proceeds to borrower | $5,000 |
(2)Add-on basis.| Principal | $5,000 |
| Plus Interest at 6% for 1 year | 300 |
| Plus Costs | 150 |
| Face amount of note | $5,450 |
| Less Interest and Costs | 450 |
| Net proceeds to borrower | $5,000 |
(c) The Department interprets the law to mean that the maximum principal amount or net proceeds of an installment loan, computed either on an add-on basis or a discount basis, may not exceed $5,000 to a borrower.The provisions of this §13.23 adopted by Secretary's Letter "M," dated March 21, 1968.