Consumer Banking and Payments Law: CONNECTICUT
Conn. Gen. Stat. §§ 1-266 to 1-286
Date enacted: The Act was approved May 23, 2002, and effective October 1, 2002.
Conn. Gen. Stat. §§ 1-266 to 1-286
Date enacted: The Act was approved May 23, 2002, and effective October 1, 2002.
Del. Code Ann. tit. 6, §§ 12A-101 to 12A-117 (after E-Sign enactment, but before effective date)
Date enacted: The Act was approved and effective July 14, 2000.
Non-Uniform Sections: § 12A-117, choice of forum: added section not in uniform law; statute omits optional uniform law sections on government.
E-Sign Consumer Protections: not explicit.
This section provides a list of notable subjects that may arise in automobile sales and finance transactions, pinpointing the subsections where such topics are discussed in this and other NCLC treatises. The references to sections of various NCLC treatises are all live links, but the link will provide access only if a subscription includes the applicable referenced treatise.
Investigation Techniques and Discovery
Manufactured home credit sales and other manufactured home financing raise special issues not applicable to motor vehicle or other types of installment sales. This difference results both from the ways the manufactured homes are sold and from the fact that manufactured homes involve a consumer’s residence.
The disclosure requirements of the Truth in Lending Act (TILA) apply to manufactured-home credit just as they would to any other credit transaction. TILA also places a number of substantive limits on residential mortgage transactions. Because TILA defines the term “dwelling” to include manufactured homes,559 these substantive limits generally apply to manufactured-home finance, whether state law treats them as personalty or realty.
Most states have statutes that specify if and when manufactured homes can be classified as real property. This classification may apply if the home is attached to land that the homeowner owns, or, in some states, is renting on a long-term lease.597 The statues often set forth a procedure for a manufactured home to become real property,598 but the statute may be unclear as to whether this is the only process to convert the home to real property.
If the consumer’s defenses and claims are significant enough, the consumer’s claims and defenses can offset all remaining indebtedness, and the consumer can also recover any amount paid under the loan or contract. This is a maximum amount that the consumer can recover from the assignee or lender for the seller’s misconduct. Of course, the consumer can recover amounts over and above the FTC Holder Rule maximum if the consumer has independent claims against the holder for the holder’s own conduct (for example for collection abuse).632
This set of summaries encompasses state statutes that allow lenders other than depository institutions to extend unsecured open-end consumer credit, by credit card or otherwise, for cash advances. It excludes open-end credit statutes that are limited to:
The law traditionally has taken a dim view of the compounding of interest.167 The courts have recognized that compounding increases the yield that a creditor receives, and have questioned the use of compounding even when the ultimate yield that it provides is below the usury ceiling.168 The basic concern seems to be that compounding is deceptive, so that “an improvident debtor is not likely to realize the extent to which the interest will accumulate.”169
A final issue raised by the concept of spreading is the term over which interest payments may be spread. This issue can arise in two basic situations: when the term of the credit is shortened, usually by default or prepayment; and when there is more than one credit transaction between the same debtor and creditor.
Parity statutes can be interpreted to set off surprising ricochet effects that allow for rate exportation or federal agency preemption in ways not foreseen by either Congress or the state legislature enacting the parity laws. For example, Tennessee allowed state-chartered savings associations, but not state-chartered banks, to charge interest rates as high as 24%. Nevertheless, a Tennessee appellate court allowed a state-chartered bank to charge 24% interest because Tennessee national banks, under the most favored lender doctrine, can charge the state savings association rate of 24%.
Mandatory arbitration provisions are nearly universal in consumer credit contracts. Creditors insist on this requirement because it significantly limits their exposure to class-wide damages, punitive damages awards, discovery, publicity, and even individual damage claims.48 As a general rule, consumer litigants will want to avoid arbitration requirements for these very reasons.
Usury laws frequently distinguish business from consumer credit, allowing higher interest rates or completely eliminating usury ceilings for business transactions. The distinction may be accomplished by limiting the scope of a usury law to “consumer” credit. For example, the Uniform Consumer Credit Code (UCCC) applies only to credit extended “primarily for a personal, family, household, or agricultural purpose.”952
This section considers the question whether events after a loan’s origination can make the loan usurious.
In some states, usury restrictions apply only if a loan’s principal is under a certain amount.1049 Under such circumstances, creditors want to increase the size of the loan instead of splitting it into smaller loans. For example, in California until January 1, 2020, a loan under $2,500 was restricted to interest rates under 28%,1050 but there were no restrictions on the interest rate for loans over $2,500.1051
This chapter examines installment loans from non-bank lenders. These loans were a widespread form of subprime credit thirty or more years ago, but in recent years have been overshadowed by other forms of credit. As states and regulators clamp down on payday loans, however, high-rate lenders are beginning to migrate back into installment lending, offering new products with new types of abusive terms and features.
State installment loan laws fall into several patterns. Some are based on the Uniform Consumer Credit Code (UCCC). As discussed in more detail in § 2.3.10, supra, the National Conference of Commissioners on Uniform State Laws (now known as the Uniform Law Commission) promulgated a comprehensive code for consumer credit in 1968, with a revised version in 1974.
National banks and federal savings associations can export their home state’s interest rates,47 and this right extends to federally insured state depository institutions.48 However, a non-depository lender cannot export another state’s rates for loans it originates, even if it sells the loan to a depository.49
Although some states have repealed their caps for closed-end consumer installment loans, a 2017 report showed that all but seven states still capped both interest rates and loan fees such as origination fees or monthly loan fees that are imposed as a condition of the extension of credit for a six-month $500 loan, and all but ten states capped them for a two-year $2,000 loan.75 The interest rate cap and allowable additional loan fees vary dramatically from state to state, with effective rates ranging from 16% to 116% for a $500 six-month loan.
Most states with caps have separate caps for the interest rate and additional loan fees, rather than a more transparent, single APR cap. As a result, where both types of cap are used, the interest rate cap stated in a law will not accurately reflect the maximum allowed cost of a loan.
Many installment loan statutes allow the lender to charge loan fees in addition to interest, but they place a cap on the amount of each fee that can be charged. Nevertheless, some statutes cap most, but not all, loan fees. Interpreting such a statute as placing no limits whatsoever on the amount of the uncapped fee would render the other caps on fees and interest rates meaningless, a result that the legislature is unlikely to have intended.
The way interest caps for certain state installment loan laws are set out may give lenders an incentive to engage in loan splitting. For example, if the lending law allows a higher interest rate on the first $1,000 of a loan than on the remainder, a lender may seek to split a $1,500 loan into two $750 loans in order to charge the higher rate on the full $1,500. A lending law may allow an interest rate that is higher than that allowed by a more general usury law, but only for loans below a certain amount.
Although the majority of states limit interest rates and loan fees for closed-end consumer installment loans, as of the end of 2022, two states, Delaware125 and Missouri126 place no limits on interest for installment loans, and in five states, Alabama, Idaho, South Carolina, Utah, and Wisconsin, there is no
A prohibition of unconscionability has some potential to act as an outer limit on finance charges in the states that do not provide a numerical cap on rates.139 As of the end of 2022, of the states that do not provide a numerical cap on interest rates for some or all loans between $500 and $2,500, five—Alabama, Idaho, South Carolina, Utah, and Wisconsin—do provide a cap of sorts in the form of a statutory prohibition of unconscionability in the state lending law.