Previously, Section 8-820 of the Nebraska Statutes (Bank Personal Loan Law) provided for a $10 “minimum charge in lieu of interest” on loans, to take the place of any interest charge. This led to a disclosure problem under Regulation Z, as the minimum charge had to be disclosed as an Annual Percentage Rate (APR). The amount was amended from $10 to $7.50 in that Regulation Z will not require a $7.50 charge to be so disclosed. It states that if the amount financed is less than $75, the maximum finance charge you can show without needing an APR is $5.00. If the amount financed is more than $75, the maximum finance charge you can show without needing an APR disclosure is $7.50.
If the above rule is followed, you will not have to disclose a minimum charge in lieu of interest as an APR. You need only disclose the minimum charge under “Finance Charge” and list it as a “charge in lieu of interest.” Remember, if you charge $7.50 for a loan under $75, you will still have to show it as an APR in that Regulation Z must be followed precisely.
CAUTION: If you do elect to use a minimum charge, do not additionally provide for an INTEREST charge during the term of the loan. This would be a Regulation Z violation in itself. A comment such as “see minimum charge” would appear appropriate. There is no prohibition on making a charge for interest at the contracted-for rate on the principal amount after maturity.
Note that the minimum charge in lieu of interest has been reduced to $7.50 only in the bank personal loan law and that the charge may still be up to $10 under the general usury rate of 16% set forth in Section 45-101.03(1) of the Nebraska Statutes. If you use the $10 charge for single-payment loans, you must disclose the charge as an APR. You may, however, limit yourself to $5.00 or $7.50, as set forth above and avoid such disclosure.
You are also reminded that there are no Regulation Z disclosure requirements for strictly agricultural or business loans.