Section 40. Borrower prepayment; right to cancel

A. In order to prepay a payday loan in full, a borrower shall only be required to pay the principal amount advanced as well as any accrued and unpaid fees. A borrower shall be permitted to make partial payments, in increments of not less than $5.00, on the loan at any time without charge. The licensee shall give the borrower signed, dated receipts for each payment made, which shall state the balance due on the loan.

B. For purposes of the Act and this chapter, the interest and loan fee permitted by subsections A and B of § 6.2-1817 of the Code of Virginia shall be deemed accrued on a straight line basis over the term of a payday loan. A licensee shall calculate interest charges using either a 360-day year or a 365-day year. The verification fee permitted by subsection C of § 6.2-1817 of the Code of Virginia shall be deemed accrued in full at the time a payday loan is made.

C. 1. A borrower choosing to prepay his payday loan in full shall only be responsible for the verification fee and the pro-rata portion of the total interest and loan fee based upon the number of days that have elapsed between the loan disbursement date and the date of repayment. (For example, if a $400 loan with a simple annual interest rate of 36%, a 20% loan fee, a $5.00 verification fee, a term of 28 days, and a 360-day year is prepaid in full after seven days, the borrower shall only be required to pay in cash or good funds instrument $427.80 ($400 + $2.80 interest + $20 loan fee + $5.00 verification fee) to the licensee.)

2. A borrower choosing to make partial payments on a payday loan shall only be responsible for the verification fee and the pro-rata portion of the total interest and loan fee based upon the timing and amount of such partial payments. (For example, given a $500 loan with a simple annual interest rate of 36%, a 20% loan fee, a $5.00 verification fee, a term of 31 days, and a 360-day year, a borrower making a partial payment of $200 after 15 days shall only be required to pay a total of $603.91 to the licensee ($500 principal + $103.91 interest and fees). In this example, $60.89 of the borrower's $200 partial payment would be applied toward interest ($7.50) and fees ($48.39 loan fee + $5.00 verification fee) and the remaining $139.11 would be applied toward principal, thereby resulting in an outstanding balance of $360.89 until maturity. Based on this outstanding balance, the charges for the remainder of the term are $5.77 (interest on $360.89 for 16 days) + $37.25 (loan fee on $360.89 pro-rated for 16 days).)

D. If a borrower enters into an extended payment plan and subsequently elects to prepay it in full, the borrower shall only be responsible for the verification fee, any interest that accrued prior to the borrower entering into the extended payment plan, and the pro-rata portion of the total loan fee based upon the number of days that have elapsed between the loan disbursement date and the date the loan would have been due if the borrower had not entered into the extended payment plan. The total payoff amount shall be reduced by the amount of any installment payments made by the borrower prior to prepaying the extended payment plan in full.

1. Example: Assume that a borrower who is paid on a semimonthly basis (minimum term of 31 days) obtains a $500 loan on April 1 with an extended payment plan, an extended payment plan term of 60 days, no interest (interest does not accrue during the term of an extended payment plan), a 20% loan fee, a $5.00 verification fee, and installment payments of $151.25 due on April 16, May 1, May 16, and May 31. Since the borrower is paid on a semimonthly basis, the loan fee shall accrue over a period of 31 days. If the borrower prepays the extended payment plan in full on April 21, the borrower shall only be required to pay in cash or good funds instrument the principal ($500), a pro-rata portion of the loan fee ($64.52), and the verification fee ($5.00) for a total of $569.52 to the licensee. If the borrower made an installment payment of $151.25 on April 16, the payoff amount on April 21 would be $418.27 ($569.52 - $151.25).

2. Example: Assume that a borrower who is paid on a semimonthly basis obtains a $500 loan on April 1 with a simple annual interest rate of 36%, a 20% loan fee, a $5.00 verification fee, a term of 31 days, and a 360-day year. Next assume that the borrower elects an extended payment plan on April 23 with a term of 60 days and installment payments of $154 due on May 8, May 23, June 7, and June 22. If the borrower prepays the extended payment plan in full on June 2, the borrower shall only be required to pay in cash or good funds instrument the principal ($500), the interest that accrued prior to the borrower electing an extended payment plan ($11), the entire loan fee ($100), and the verification fee ($5.00) for a total of $616 to the licensee. If the borrower made installment payments of $154 on both May 8 and May 23, the payoff amount on June 2 would be $308 ($616 - $154 - $154).

E. If a borrower enters into an extended term loan and subsequently elects to prepay it in full, the borrower shall only be responsible for the verification fee and the pro-rata portion of the total interest and loan fee based upon the number of days that have elapsed between the loan disbursement date and the loan maturity date (i.e., the date the fourth installment is due). The total payoff amount shall be reduced by the amount of any installment payments made by the borrower prior to prepaying the extended term loan in full.

Example: Assume that a borrower obtains a $500 extended term loan on April 1 with a simple annual interest rate of 36%, a 20% loan fee, a $5.00 verification fee, a 360-day year, a 60-day term, and installment payments of $158.75 due on April 16, May 1, May 16, and May 31. If the borrower prepays the extended term loan in full on May 20, the borrower shall only be required to pay in cash or good funds instrument the principal ($500), the interest that accrued for 49 days ($24.50), a pro-rata portion of the loan fee ($81.67), and the verification fee ($5.00) for a total of $611.17 to the licensee. If the borrower made installment payments of $158.75 on April 16, May 1, and May 16, the payoff amount on May 20 would be $134.92 ($611.17 - $158.75 - $158.75 - $158.75).

F. Unless it results in the prepayment in full of an extended payment plan or extended term loan pursuant to subsection D or E of this section, a partial payment, excess payment, installment payment, or other payment received by a licensee in advance of the date the funds are due under the terms of the extended payment plan or extended term loan shall not result in a modification of the payment schedule or a pro-rata adjustment of the total interest, if any, or loan fee. Payments made by a borrower pursuant to an extended payment plan or extended term loan shall be first applied to any past due installment and then to the next regularly scheduled installment.

G. Notwithstanding any provision of this section, a borrower shall have the right to cancel a payday loan (including an extended term loan or a loan repayable by means of an extended payment plan) at any time before the close of business on the next business day following the date of the loan by paying to the licensee, in the form of cash or good funds instrument, the principal amount advanced to the borrower. The licensee shall not be entitled to charge or receive any interest or fees, including a verification fee, when a borrower cancels a payday loan.

Historical Notes

Derived from Volume 18, Issue 24, eff. July 22, 2002; amended, Virginia Register Volume 25, Issue 04, eff. January 1, 2009; Volume 28, Issue 20, eff. June 1, 2012.

Statutory Authority

§§ 6.2-1815 and 12.1-13 of the Code of Virginia.