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U.S. Code as of:
01/19/04
Section 1615. Prohibition on use of Rule of 78's in connection with mortgage refinancings and other consumer loans
(a) Prompt refund of unearned interest required
(1) In general
If a consumer prepays in full the financed amount under any
consumer credit transaction, the creditor shall promptly refund
any unearned portion of the interest charge to the consumer.
(2) Exception for refund of de minimus amount
No refund shall be required under paragraph (1) with respect to
the prepayment of any consumer credit transaction if the total
amount of the refund would be less than $1.
(3) Applicability to refinanced transactions and acceleration by
the creditor
This subsection shall apply with respect to any prepayment of a
consumer credit transaction described in paragraph (1) without
regard to the manner or the reason for the prepayment, including
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(A) any prepayment made in connection with the refinancing,
consolidation, or restructuring of the transaction; and
(B) any prepayment made as a result of the acceleration of
the obligation to repay the amount due with respect to the
transaction.
(b) Use of "Rule of 78's" prohibited
For the purpose of calculating any refund of interest required
under subsection (a) of this section for any precomputed consumer
credit transaction of a term exceeding 61 months which is
consummated after September 30, 1993, the creditor shall compute
the refund based on a method which is at least as favorable to the
consumer as the actuarial method.
(c) Statement of prepayment amount
(1) In general
Before the end of the 5-day period beginning on the date an
oral or written request is received by a creditor from a consumer
for the disclosure of the amount due on any precomputed consumer
credit account, the creditor or assignee shall provide the
consumer with a statement of -
(A) the amount necessary to prepay the account in full; and
(B) if the amount disclosed pursuant to subparagraph (A)
includes an amount which is required to be refunded under this
section with respect to such prepayment, the amount of such
refund.
(2) Written statement required if request is in writing
If the customer's request is in writing, the statement under
paragraph (1) shall be in writing.
(3) 1 free annual statement
A consumer shall be entitled to obtain 1 statement under
paragraph (1) each year without charge.
(4) Additional statements subject to reasonable fees
Any creditor may impose a reasonable fee to cover the cost of
providing any statement under paragraph (1) to any consumer in
addition to the 1 free annual statement required under paragraph
(3) if the amount of the charge for such additional statement is
disclosed to the consumer before furnishing such statement.
(d) Definitions
For the purpose of this section -
(1) Actuarial method
The term "actuarial method" means the method of allocating
payments made on a debt between the amount financed and the
finance charge pursuant to which a payment is applied first to
the accumulated finance charge and any remainder is subtracted
from, or any deficiency is added to, the unpaid balance of the
amount financed.
(2) Consumer, credit
The terms "consumer" and "creditor" have the meanings given to
such terms in section 1602 of this title.
(3) Creditor
The term "creditor" -
(A) has the meaning given to such term in section 1602 of
this title; and
(B) includes any assignee of any creditor with respect to
credit extended in connection with any consumer credit
transaction and any subsequent assignee with respect to such
credit.
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