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10 Pa. Code § 13.23. Discount of installment loans.

§ 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Commission to make a change in the installment lending provisions of the prior Banking Code (No. 112 (1933) Pa.L. 624 (repealed 1965)) nor to change the industry’s custom of calculating interest on a discount basis.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.

Plus Interest at 6% for 1 year on a discount basis319.14
Plus Costs150
Face amount of note$5,469.14
Less Interest and Costs469.14
Net proceeds to borrower$5,000

   (2)  Add-on basis.

Plus Interest at 6% for 1 year300
Plus Costs150
Face amount of note$5,450
Less Interest and Costs450
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.

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