A N A C T
RELATING TO INTEREST AND USURY
It is enacted by the General Assembly as follows:
SECTION 1. Section 6-26-2 of the General Laws in Chapter 6-26 entitled "Interest and Usury" is hereby amended to read as follows:
6-26-2. Maximum rate of interest -- (a) Subject to the provisions of title 19, no person, partnership, association, or corporation loaning money to or negotiating the loan of money for another, except duly licensed pawnbrokers shall, directly or indirectly, reserve, charge, or take interest on a loan, whether before or after maturity, at a rate which shall exceed the greater of twenty-one percent (21%) per annum or the alternate rate specified in subsection (b) of this section of the unpaid principal balance of the net proceeds of the loan not compounded, nor taken in advance, nor added on to the amount of the loan.
(b) The alternate rate shall mean the rate per annum which is equal to nine percentage points (9%) plus an index which is the domestic Prime Rate as published in the Money Rates section of The Wall Street Journal on the last business day of each month preceding the later of the date of the debtor's agreement or the date on which the interest rate is redetermined in accordance with the terms of the debtor's agreement. If the Wall Street Journal ceases publication of the Prime Rate, the Director of Business Regulation shall designate a substantially equivalent index. In the event an index is published as a range of rates, then the lowest rate shall be the index.
(c) For purposes of this section, interest shall not be construed to include charges pursuant to chapters 30 and 31 of title 27; premiums for insurance in an amount not exceeding the reasonable value of property offered as security for a loan against any substantial risk of loss, liability, damage, or destruction in conformity with the insurance laws of this state; premiums for insurance providing loss of income or involuntary unemployment coverage if the coverage is not a factor in the approval by the lender of the extension of credit and the debtor gives specific written indication that the cost of this coverage has been conspicuously disclosed to the debtor, that the debtor realizes that the coverage is not a condition for the extension of credit, and that the debtor voluntarily desires the coverage; commercial loan commitment or availability fees to assure the availability of a specified amount of credit for a specified period of time or, at the borrower's option, compensating balances in lieu of the fees; reasonable attorney's fees customarily charged for the preparation of loan, security, or mortgage documents and for the collection of defaulted loans; fees for title examination or title insurance; other customary and reasonable costs incident to the closing, supervision, and collection of loans in this state; and consideration received for the redemption, sale, transfer, or other disposition of equity securities by a small business investment company licensed under the provisions of the United States "Small Business Investment Act of 1958" [15 U.S.C. section 631 et seq.], as amended, or an entity which would qualify for regulation as a business development company under the provisions of the "Investment Company Act of 1940" [15 U.S.C. section 80a-1 et seq.], as amended, whether or not the equity securities were acquired by such small business investment company or business development company in connection with or as an incident to the extension of credit. Any of the foregoing charges, if paid or advanced by the lender, may be considered part of the net proceeds of the loan, and if paid by the debtor, shall not be deducted from the net proceeds of the loan.
(d) Notwithstanding anything to the contrary in this chapter or in any other provision of Rhode Island law, with respect to credit card transactions: (1) the provisions of subsection (a) of this section shall not be applicable; (2) the interest rate shall be as agreed upon between lender and debtor; and (3) the following fees shall be construed as interest: fees for late payment, cash advance fees, overlimit fees, returned check fees and annual membership fees.
Notwithstanding the provisions of subsection (a) herein and/or any other provisions in this chapter to the contrary, there shall be no limitation on the rate of interest which may be legally charged for the loan to, or use of money by a commercial entity, where the amount of money loaned exceeds the sum of one million dollars ($1,000,000) and where repayment thereof is not secured by a mortgage against the principal residence of any borrower; provided, that said commercial entity shall have first obtained a pro forma methods analysis performed by a certified public accountant licensed in the state of Rhode Island indicating that the loan is capable of being repaid.
SECTION 2. This act shall take effect upon passage.