By the Division of Banks

Applicability Small Loans Act And Small Loans Rate Order On Banks

Generally, Mass. Gen. Laws ch. 140 § 114A has been considered to exempt financial institutions from the licensing requirements of the Small Loans Law and to subject such financial institutions to the Small Loans Rate Order governing licensees. On the latter issue, said Section 114A specifically provides that such an institution shall "not take, receive, reserve or charge interest, expenses and other considerations for making or securing a loan of six thousand dollars or less in excess of those permitted by section one hundred." Other provisions of the statute provide that charges in excess of the Small Loan Rate Order by a financial institution could be declared void but that split rates on different portions of a loan are allowed provided that the composite rate does not exceed the maximum. The last sentence of Section 114A provides that "[e]xtension, default or deferment charges shall not be deemed to be interest, expenses and other considerations in determining the maximum rate of charge that may be taken, received, reserved or charged for said loan." No such similar provision exists in Section 100 or the regulation establishing the Small Loans Rate Order. It is the position of the Division of Banks that a licensee is not permitted to make any charge other than as specifically permitted by Section 100. Accordingly, licensees are not permitted to charge a late charge on simple interest loans of six thousand dollars or less. Additionally, the Division concludes that a bank or credit union governed by Section 114A may charge a default or late fee and that such charge is not to be calculated as interest toward the maximum amount allowed by the Small Loan Rate Order. The Division negates, in part, that portion of Opinion # 97-087 regarding the imposition of a late charge to borrowers whose loans are simple interest and subject to the Small Loans Law and the Small Loans Rate Order. However, licensees are not permitted to charge a default or late fee on simple interest consistent with that portion of Opinion # 97-087.