Small personal loan: the APR and rates they must publish for you

A small personal loan is the low-amount loan granted by finance companies licensed under Act 106-1965. This guide is not about how to ask for one, but about what the lender is required to tell you and to publish before you sign: the APR with every charge inside it, and last week’s maximum, minimum and average rates.

Anyone considering a small personal loan with a licensed finance company in Puerto Rico. The disclosure duties fall on the licensee — the licensed lender — not on you.

• That the lender be licensed. Act 106-1965 provides that the Commissioner of Financial Institutions issues the licence after investigating the applicant’s financial responsibility, experience, character and general fitness.Verified against the official source
• That the licensee maintain liquid assets of at least fifty thousand dollars ($50,000) available for use in running the business of each authorized office, under amended Article 6(c).Verified against the official source
• That the licensee obtain and keep in force a performance surety bond of no less than twenty-five thousand dollars ($25,000), issued by a bonding or insurance company licensed and authorized to do business in Puerto Rico by the Office of the Commissioner of Insurance.Verified against the official source
• That the licensee begin operations within three months of the licence being issued. If it does not, the Commissioner shall cancel the licence and retain the moneys claimed and received.Verified against the official source

• The law publishes no document list for the consumer: the duties it creates fall on the lender. What you can ask for in writing before signing is the APR and the breakdown of fees, commissions, charges and penalties the law requires to be included in it.

1. 1

   Step 1: Ask for the APR, not the interest rate

   That is the distinction the law draws. Article 12A requires every licensee to tell you the Annual Percentage Rate (APR), calculated under the Truth in Lending Act and Regulation Z of the Consumer Financial Protection Bureau, and that figure shall include the nominal interest rate and other costs associated with the credit: fees, commissions, charges, penalties and any other cost related to the loan. The interest rate alone tells you less; the APR is the one the law designed so you can compare offers fairly and informedly.

2. 2

   Step 2: Last week’s rates must be public

   Every licensee shall publish weekly, in one (1) newspaper of general circulation and on its website or corporate social media, the maximum rate, the weighted average rate and the minimum interest rate of the small personal loans it granted the week before. If you are comparing finance companies, those three figures are the starting point and you do not have to ask anyone for them: the law puts them in public.

3. 3

   Step 3: The terms, in plain language and prominent

   The same article closes with a duty of form, not only of content: the terms of each loan must be presented clearly and prominently, using simple language accessible to the average consumer. If you are handed a contract where the charges are in fine print or buried among clauses, that requirement exists and you can invoke it.

4. 4

   Step 4: Check the lender is licensed by OCIF

   Act 106-1965 builds the whole industry on a licence issued by the Commissioner of Financial Institutions. The Commissioner issues it upon finding that the applicant’s financial responsibility, experience, character and general fitness justify the belief that the business will be run lawfully and fairly, and that the licence will be convenient and advantageous for the community. A lender operating without that licence is outside the law described here.

5. 5

   Step 5: What changed in the capital requirement, and why it matters to you

   The minimum liquid asset requirement for a licence dropped from two hundred thousand dollars ($200,000) to fifty thousand dollars ($50,000) available to operate during the first two years, and a performance bond of no less than twenty-five thousand dollars ($25,000) was added. From the second year of operation, up to fifty per cent (50%) of the minimum liquid asset requirement may be met with certificates of deposit pledged to the Commissioner or with irrevocable and standby letters of credit issued in the Commissioner’s favour by banks authorized in Puerto Rico. The law defines “liquid assets” as cash, cash equivalents and highly liquid securities freely available for the operation, quickly convertible into cash without material risk of loss of value. It matters to you because it means you will see new and smaller finance companies in the market: the statement of motives expressly says the purpose is to reduce entry barriers and encourage competition.

6. 6

   Step 6: Finance companies already operating do not have to close

   The law carries a grandfather clause worth knowing if your lender is small and has been in the neighbourhood for years: any person who, on this Act’s effective date, was engaged in the small personal loan business with liquid assets under $200,000 may continue operating that business.

The loan is applied for at the licensed finance company. The regulator of those licensees, the issuer of their licences and the body that will adopt the rate-publication regulation is the Office of the Commissioner of Financial Institutions (OCIF). The performance bond is issued by a bonding or insurance company licensed by the Office of the Commissioner of Insurance. The law publishes no address, phone or portal for either office.

• Comparing lenders by the nominal interest rate: the law requires them to tell you the APR, which also includes fees, commissions, charges and penalties.
• Believing the lender’s rates are private information: the law requires publishing them weekly in a newspaper of general circulation and on its website or social media.
• Thinking the weekly publication shows what you will be charged: those are the maximum, minimum and weighted average rates of the loans granted the week before.
• Accepting a contract with the charges in fine print: the law requires the terms to be presented clearly and prominently, in plain language.
• Assuming a small finance company is not legitimate: the law lowered the minimum capital to $50,000 and lets anyone already in the business with under $200,000 keep operating.
• Taking for granted that the weekly publication is already happening: it depends on a regulation the law gave OCIF one hundred twenty (120) days to adopt.

These are the government pages this guide is based on.

• Oficina del Comisionado de Instituciones Financieras (OCIF)

  OCIF

  bvirtualogp.pr.gov