BILL ANALYSIS H.B. 2674 By: Hunter, T. 03-23-95 Committee Report (Unamended) BACKGROUND Article 1.03 of the Consumer Credit Code (Article 5069-1.03, VTCS) establishes the rate of interest applicable to a contract when no specified rate of interest is agreed upon by the parties to the agreement. In that situation it also prohibits the charging of interest until the 30th day after the sum is due and payable. It is the only provision in the Consumer Credit Code that provides that statutory interest-free "window" after the debt is due. The standard Chapter 1 penalties for violation apply. The problem presented by Article 1.03 arises as a result of its application to "open accounts". Although this practice is very uncommon, the application of Article 1.03 presents a problem because the standard business practice with respect to these accounts is to begin charging interest on the day payment is due. Thus a person who conducts business via the "open account" method is subject to the draconian Chapter 1 penalties even though the person does not charge interest at a rate greater than the six percent limit imposed by Article 1.03. PURPOSE The purpose of HB 2674 is to amend Article 1.03 to delete the current prohibition against charging interest in the 30 day "window." The bill would not affect the interest rate and would apply only to a contract with respect to which the parties have not agreed to an interest rate. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Article 1.03 of the Consumer Credit Code (Article 5069-1.03, VTCS) to delete the language providing that, with respect to the limited number of contracts to which it applies, a creditor may not charge interest until 30 days after payment is due. The bill would in no way affect the legal interest ceiling and it would apply only to an account with respect to which the parties have not agreed to an interest rate. SECTION 2. Emergency clause. SUMMARY OF COMMITTEE ACTION The committee convened in a public hearing on March 27, 1995 to consider HB 2674. The following people testified in favor of the bill: Rep. Hunter; and Sam Kelley. The motion to report HB 2674 favorably without amendments, with the recommendation that it do pass and be printed, prevailed by a record vote of: 5 Ayes, 0 Nays, 0 PNV, 4 Absent.