Cuomo Signs Legislation on Variable Rates, Foreign Liability
ALBANY, N.Y. -- Gov. Mario M. Cuomo has signed into law three bills affecting the financial services industry. The new laws:
* Authorize variable interest rates on open-end credit loans and on motor vehicle and other retail installment contracts.
* Grant national banks in New York State the same protection as state-chartered banks against double liability for funds in foreign countries.
* Increase the amount of group credit life insurance that can be written on a borrower.
In a related development, $170 million in mortgage funds issued by the State of New York Mortgage Agency were made available yesterday to first-time home buyers. Some 49 banks, mortgage companies, and credit corporations are distributing the funds.
Under the new interest rate law, banks can extend variable rates on credit card purchases, store credit cards, automobile loans, cash advances, and overdraft loans.
The law mandates that interest rates cannot be changed more frequently than quarterly and must be in accordance with a published index that is readily available, independently verifiable, beyond the control of banks, and approved by the state superintendent of banks.
The state Banking Board is required to adopt regulations on relevant disclosure and notices for borrowers.
The law also prohibits conversion of a credit agreement to a variable-rate agreement until the bank provides 30 days' written notice and the borrower either writes a letter of acceptance or uses the credit card after the 30-day period. The bank could not convert from variable back to a fixed-credit agreement within one year from the date the variable rate went into effect.
Although the law is effective immediately, banks must wait for the state Banking Board to promulgate rules and regulations governing the new variable rates. Bankers Are 'Delighted'
The New York State Bankers Association is "delighted" with the new law, according to association vice president Michael P. Smith, who said the bill was "the natural evolution after the passage of the installment loan variable rate legislation last year."
The law will be good for both consumers and lenders, Mr. Smith said. "If the customers choose to go to variable rates, the rates will follow and be pegged to market rates," he said.
Gov. Cuomo also signed an amendment that provides additional consumer protection by mandating that not only must changes in the rate correspond directly to changes in the index, but also that the interest rate itself must either correspond directly to the selected index or to that index plus or minus additional percentage points.
It also prohibits banks from adding any factor to increase the rate, except for periodic index movements, without the approval of the Banking Board.
Under the foreign-liability law, banks are liable for deposits payable at their foreign branches only to the extent a local bank in that location would be liable. …