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Repossessions: 11.3.2.3 Interest and Penalties After Acceleration

An important issue is whether state law or the credit agreement authorizes the creditor to charge interest on the accelerated balance due on the debt, as of the date of acceleration, until this amount is repaid. The contract may specify that the interest rate stated in the credit agreement will apply to any amount outstanding after acceleration, and state law will usually permit this provision.84 Absent such a provision, state law may specify the interest rate, if any, to be applied, both prejudgment and postjudgment.

Repossessions: 13.1 Introduction

This chapter details the primary affirmative remedies available to consumers in repossession cases. (, supra, analyzes defenses to deficiency judgment claims.) In many situations, consumers will raise the claims discussed in this chapter as counterclaims in deficiency actions, and they can also be cast as defenses if there is an advantage in doing so. However, it is also possible to bring these claims in affirmative actions against the creditor.

Repossessions: 13.2.1 Overview

When a secured party fails to comply with Article 9, UCC § 9-625 specifies extremely potent, but often overlooked, remedies that the consumer may invoke. These remedies include:

Repossessions: 13.2.2 Injunctive Relief

If the secured party is not proceeding in accordance with Article 9, section 9-625(a) authorizes the court to order or restrain collection, enforcement, or disposition on appropriate terms and conditions. Former UCC § 9-507(1) was narrower in that it only applied if the secured party was violating Part 5 of Article 9, and it only allowed the court to issue orders regarding disposition, not collection and enforcement.

Repossessions: 13.2.3.1 Availability of Actual Damages

Actual damages are available under UCC § 9-625(b) and (c)(1) for any violation of Article 9, not just violations of the rules about remedies for default that are contained in Part 6 of Article 9. The most common violations for which actual damages will be sought will still be those relating to the secured party’s duties under Part 6, particularly wrongful repossession8 or disposition of collateral.

Repossessions: 13.2.3.2 Components of Actual Damages; Attorney Fees

Under UCC § 9-625(b) and (c), the consumer may recover actual damages or statutory damages, whichever is greater. Actual damages are authorized in the amount of “any loss” caused by a violation of Article 9. The official comments state that actual damages should be measured as those reasonably calculated to put an eligible claimant in the position that it would have occupied had no violation occurred.13

Repossessions: 13.2.4.1 Generally

If the collateral is consumer goods, UCC § 9-625(c)(2) offers statutory damages of the finance charge plus ten percent of the principal for any violation of Part 6 of Article 9.

Repossessions: 11.3.2.4 Force-Placed Insurance Premiums Hidden in a Revised Payment Schedule

When a creditor claims a balance due far in excess of what the consumer expected, the explanation is often that the creditor has purchased expensive physical damage insurance covering the collateral and added the premium to the principal after the original credit terms were established. Credit agreements will specify that if the consumer’s physical damage insurance lapses, the creditor can purchase coverage and assess the premium to the consumer. This coverage is called force-placed insurance because the consumer does not voluntarily purchase it.

Repossessions: 11.3.3 Insurance Rebates

The typical secured transaction involves the consumer paying for various types of insurance. Credit life, credit accident and health, and credit unemployment insurance protect the consumer’s ability to repay the debt against risks of the debtor’s death, disability, or lost employment.90 Credit property insurance, automobile physical damage insurance, GAP insurance, and manufactured home policies protect the collateral against damage, theft, or fire. Service contracts and breakdown insurance insure against the need to repair the collateral.

Repossessions: 11.3.4.1 Generally

A key component in a deficiency or surplus calculation is the collateral’s value. A number of motor vehicle installment sales statutes and other state laws specify the exact manner of determining the collateral’s value.92 These more specific statutes override the UCC’s provisions in this area.93

Repossessions: 11.3.4.3 When Sale Involves Additional Property or Charges

The repossessed collateral’s sale price is not a valid value when one price has been obtained for a lot of items including the collateral, and the price the creditor allocates to the other items in the package is artificially high.104 Similarly, a vehicle’s sale price at a private retail sale often includes a finance charge, insurance, service contracts, trade-in allowances, and components other than the price for the basic repossessed property.

Repossessions: 11.3.4.4 When Collateral Purchased in Part with a Trade-In or Other Non-Cash Proceeds

If the secured party receives non-cash proceeds from a commercially reasonable sale of the collateral, the secured party can hold off applying the sale proceeds to the balance of the debt until the proceeds have been converted to cash.105 The official comments clarify, however, that it would not be commercially reasonable for a secured party that is in the business of selling or financing vehicles to resell a vehicle on credit and treat the credit contract as non-cash proceeds.106 The secured pa

Repossessions: 11.3.5.1 Special Rule for Determining Value

A secured party cannot sell to itself at a private sale.113 In addition, whether the Article 9 disposition is public or private, special “insider” rules apply to sales to the secured party, a person related to the secured party,114 or a secondary obligor, such as a dealer subject to a recourse agreement.115 If such a sale involves a price “significantly below the range of proceeds that a complying disposition to a [non-insider] would have brought,”

Repossessions: 11.3.5.2 Who Is an Insider?

Section 9-615(f) focuses on a group of parties who lack the incentive to maximize the collateral’s resale price.125 It applies when the collateral is sold to the secured party itself, to a secondary obligor, or to a person related to the secured party.

Repossessions: 13.2.4.4 Who May Seek Statutory Damages?

Statutory damages under UCC § 9-625(c)(2) are available only to a person who is a debtor (defined as the person who owns the collateral)54 or a secondary obligor at the time the secured party failed to comply with Part 6 of Article 9. Therefore, a person who is the primary obligor but does not have an interest in the collateral is entitled only to actual damages, not statutory damages. The explicit inclusion of secondary obligors resolves a split among the courts under the former version of Article 9.

Repossessions: 13.2.4.6 Calculation of Statutory Damages

When a creditor violates Article 9, Part 6, and the collateral is consumer goods, the consumer is entitled to the greater of the consumer’s actual damages or the minimum damages set out in UCC § 9-625(c)(2).62 Statutory minimum damages are computed by adding the “credit service charge” or “time price differential” (that is, the finance charge) and ten percent of the “principal amount of the debt” (that is, the amount financed) or “cash price.”63 The “time price differential,” a term used when th