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Consumer Credit Regulation: 4.8.6.2 Property Inspection Fees

Many credit contracts are written broadly to allow creditors to impose both late fees after a delinquency and “property inspection fees” for home-secured loans.262 A California decision holds that property inspection fees are not late fees, and may be charged in addition to late fees, which are capped by California law.263 This analysis would appear to undermine the concept of late fees as a form of liquidated damages.

Consumer Credit Regulation: 4.8.6.3 Attorney Fees upon Default

It is common for consumer credit contracts to make the debtor liable for attorney fees that the creditor incurs in collecting the debt if the debtor defaults. Attorney fee contractual provisions and statutory limitations are discussed in NCLC’s Collection Actions.264

Consumer Credit Regulation: 4.8.7 Other Post-Consummation Charges

Sometimes a charge is imposed after consummation for an optional privilege or service. The Wyoming Supreme Court held that a charge for paying by telephone or internet did not fall within the definition of “credit service charge” in its version of the UCCC.278 The court concluded that since it was a charge for an optional payment method it was not imposed “as an incident to the extension of credit.” The court also found it persuasive that the charge was imposed not by the original creditor, but by its assignee.

Consumer Credit Regulation: 14.1 Introduction

This chapter discusses various schemes by which a lender provides a lump sum in exchange for an interest in a future stream of income, such as wages, pensions, government benefits, or structured settlements. Lenders may characterize these transactions as assignments, sales of income, advances, or similar names.1 However, transactions the lender treats as a sale or assignment often are disguised high-cost loans.

Consumer Credit Regulation: 11.3.1 Background

Today, most consumer transactions to finance the purchase of vehicles are structured as retail installment sales and governed by a state retail installment sales act (RISA) or motor vehicle retail installment sales act (MVRISA). Cars have long been sold through installment payments,28 but prior to the enactment of RISAs and MVRISAs in the 1940s and 1950s29 the cost and terms of retail installment credit were generally unregulated.

Consumer Credit Regulation: 11.3.2.1 General

Most state retail installment sales acts (RISAs) include within their scope installment sales of goods and services, and many also include various types of consumer leases38 and revolving credit.39 A relatively small number of RISAs specify a minimum or maximum cash sale price or dollar amount that must be met in order for the statute to apply.

Consumer Credit Regulation: 11.3.2.3 Revolving Charge Accounts

Many RISAs regulate revolving charge accounts—open-end lines of credit issued by retailers such as department stores or home-heating fuel suppliers for purchase of their merchandise. Typically, bank-issued credit cards that can be used not just at one retailer are outside the scope of a state RISA. On the other hand, the Third Circuit interpreted Pennsylvania’s revolving charge account provision as encompassing bank-issued credit cards.61

Consumer Credit Regulation: 11.3.2.5 Rate Exportation and Federal Preemption

Federal law allows national banks, federal savings associations, and federally insured, state-chartered banks, savings associations and credit unions to export their home state interest limits to the state where a transaction occurs. Rate exportation, though, is much less of an issue for RISAs than for other state consumer credit legislation. The entity originating the credit in a retail installment sale is the seller, and the seller is almost never a financial institution.

Consumer Credit Regulation: 11.3.3 Licensure

In a number of states, RISAs or MVRISAs require that retail installment sellers be licensed.73 If a state has a separate MVRISA, it may require licensure for motor vehicle dealers extending credit, even if the RISA does not require licensure for sellers more generally.

Consumer Credit Regulation: 11.3.4.1 Limits on Finance Charges

All RISAs and MVRISAs permit sellers to impose an interest charge or a charge comparable to interest in connection with a retail installment agreement.79 Where a transaction is covered by the RISA or MVRISA statute, then that more specific interest rate cap applies, not that of the state’s general usury statute.80 Appendix C,

Consumer Credit Regulation: 14.3.3 Relationship Between Lender and the Original Obligor

Some courts find persuasive evidence that a transaction is actually a disguised loan where the lender collects payments from the borrower, rather than directly collecting the income stream supposedly purchased from the original obligor.28 The “salary buyers” of the early 20th century often structured transactions in this way: they would “purchase” a borrower’s next pay packet at a discount and have the borrower execute documents purporting to assign the right to collect the wages of the original obligor.29

Consumer Credit Regulation: 14.4 Military Pensions and Benefits

A few companies specialize in providing lump sums in exchange for military veterans’ promises to redirect their monthly pension or disability benefits directly to the lender for a number of years. Typically, prospective borrowers contact the lender in response to advertisements placed in military newspapers, magazines, or internet sites giving the appearance of military approval.

Consumer Credit Regulation: 11.3.5.1 Deferral Charges

Many RISAs authorize sellers or creditors to receive a deferral charge in the event that the parties agree, before or after default, to a deferral of all or part of one or more unpaid installments. Some statutes state simply that the creditor may charge a rate not exceeding the one previously disclosed to the consumer.98 A greater number of statutes provide specific methods to be used in the calculation.

Consumer Credit Regulation: 11.3.5.2 Late Fees

Most courts hold that, because they are contingent, late charges are not interest for purposes of state law.103 Instead, a number of RISAs separately limit the fee or charge that a creditor may impose for a late payment.

Consumer Credit Regulation: 11.3.5.3 Other Fees

Some RISAs restrict clauses making the consumer liable for the creditor’s attorney fees in a collection suit.110 However, one court held that it was not a violation of such a provision for the creditor to seek attorney fees in a collection action where the contract did not have a clause allowing fees.111

Consumer Credit Regulation: 11.3.5.4 Rebates of Unearned Interest

Consumers often pay off retail installment contracts early. A common reason for an early payoff is that the consumer trades in the item purchased and buys a new one. An installment contract also will involve unearned interest when the consumer defaults, and the creditor accelerates the credit obligation so that the full amount is due early.

Consumer Credit Regulation: 11.3.6 Security Interests and Repossession

A common feature of state RISAs is a limitation on the types of security interests that may be taken in connection with the sale. Some prohibit creditors from taking security interests in real property in connection with retail installment sales.122 Many limit security interests to the items purchased in the transaction.123 A number of RISAs restrict self-help repossessions or provide post-repossession protections.