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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.

Consumer Credit Regulation: 11.3.7 RISA Disclosure Requirements

Many state RISAs and MVRISAs require disclosure of particular costs and charges related to the credit transaction as well as other costs and terms.125 These disclosure requirements are important not only in themselves, but also because they may operate as definitions of terms that are used in applying the statute’s substantive limits. For example, if the RISA limits finance charges in relation to the “cash price,” the meaning of that term may be derived from a disclosure requirement.126

Consumer Credit Regulation: 11.3.8.1 Single Document Rule Requirement

Certain RISAs, MVRISAs, or other consumer credit statutes require that the entire agreement be contained in a single document.140 Some of these even have state prescribed forms for credit application and contracts for the sale of vehicles.141 Other statutes do not use words like “single document” but may achieve a similar result as the single document rule142

Consumer Credit Regulation: 11.3.9 Contract Completion and Delivery Requirements

Many state installment sales statutes require that the contract be “completed as to all essential provisions” before the buyer signs and that an exact signed copy of the contract, containing certain specified terms, be delivered to the buyer.161 These statutes may give the consumer a remedy against an installment seller who withholds the contract, planning to discard it if financing falls through.162 For example, a federal court found a violation of the Michigan MVRISA where a seller did not giv

Consumer Credit Regulation: 11.3.10.2 Remedies in UCCC States

Even states that have adopted the Uniform Consumer Credit Code differ among themselves with respect to remedy. For example, some UCCC states provide for a remedy in the event that only specified, enumerated provisions are violated, while others are more general in their application.

Consumer Credit Regulation: 11.4.1 Background

The design of most cities and suburbs, a lack of public transportation in both rural and urban areas, and numerous other factors make life without a car difficult if not impossible for many. A survey by the U.S. Census Bureau found that approximately 85% of adults commute to work using a personal vehicle.189 For the foreseeable future many Americans will need a car to be productive, engaged members of society.

Consumer Credit Regulation: 11.4.2.1 General

For a consumer with a particular credit risk and type of automobile purchase, automobile finance companies establish a “buy rate,” which is the minimum interest rate that the assignee finance company will accept to purchase that RISC from the dealer. The dealer is allowed to increase the financing rate beyond the buy rate, up to a maximum amount. The dealer and finance company split the difference, often with the lion’s share going to the dealer.

Consumer Credit Regulation: 11.4.2.2 Discrimination Claims Based on Dealer Markups

At one time, the most successful approach to challenging dealer markups was class-wide Equal Credit Opportunity Act claims against automobile finance companies’ pricing policies that allow dealer discretionary markups. These claims were not directly based upon individual dealer discrimination, but upon the disparate impact of the pricing policies on protected groups, such as African Americans.204

Consumer Credit Regulation: 11.4.3.1 The Practices Described

Hidden interest is the practice of inflating the cash price for credit customers as a way of hiding the real cost of credit. Consider a cash buyer quoted $10,000 for a car and a credit purchaser quoted $12,000 for the same vehicle. If the hidden $2,000 interest were added to the existing finance charge, the credit’s effective interest rate would increase significantly.

Consumer Credit Regulation: 11.4.3.2 Hidden Finance Charges As a Usury Violation

Usury violations can occur if hidden interest is incorrectly allocated as part of the amount financed rather than part of the finance charge. The usury violation occurs where the hidden interest is treated as a finance charge and the resulting interest rate exceeds the state usury cap. The applicable usury statute in a vehicle installment sale typically will be the state’s RISA or MVRISA. Of course if the state statute has no interest rate cap, there can be no usury violation.

Consumer Credit Regulation: 14.6 Litigation Financing

An entire industry has developed around the concept of “litigation finance.”122 These transactions purport to provide a cash payment to a plaintiff in a lawsuit in exchange for a share of the potential judgment or settlement of legal actions. They differ from settlement factoring, described in the preceding section, because the judgment or settlement does not yet exist.

Consumer Credit Regulation: 14.7 Probate Lending

A relatively new practice of inheritance buying or “probate lending” has arisen that follows many of the same patterns as other purchases of income. Companies specializing in this practice advance funds to heirs or beneficiaries whose inheritances are tied up in probate.152 The advance is eventually repaid from the heir’s or beneficiary’s interest in the court-supervised estate.

Truth in Lending: 2.2.2.6 Obligations to Pay That Are Conditional, for Indeterminate Amounts, or Are Repaid Only Through an Assignment or Security Can Still Be Debts

A related argument to the claim that a “non-recourse” transaction is not credit is the claim that there is no obligation to repay and thus no debt because repayment is to be taken solely from an assignment of, or a security in, the consumer’s money or assets, with no independent or contractual obligation to repay if that security is insufficient. Similarly, lenders may claim that there is no debt if the obligation to repay is contingent on an event that may not happen or the amount of repayment is uncertain. None of these arguments stands up.