On April 13, Governor Terry Branstad signed into law SF 2228, the Motor Vehicle Records and Dealer Licensing Act. The act amends Chapter 321 of Iowa Code 2016 to, among other things, require that the full price of the “documentary fee” included in the purchase of a motor vehicle be “clearly and conspicuously disclosed in any motor vehicle purchase agreement with the customer.” Defined as “a fee that may be charged to a customer by a motor vehicle dealer for the preparation of documents related to an application for motor vehicle registration and an application for issuance of a certificate of title, and the performance of other related services for the customer,” a documentary fee excludes costs or fees charged to a motor vehicle dealer or a dealer’s customer by a third party. For each vehicle sold in a transaction, a documentary fee is limited to $180, unless a form of electronic applications, titling, registering, and transfers is involved, at which point the documentary fee cannot exceed $155. Pursuant to SF 2228, the Department of Transportation must establish and implement a program to allow for electronic applications, titling, registering, and funds transfers for vehicles subject to registration by January 1, 2018.
On May 18, the CFPB issued a report titled “Single-Payment Vehicle Title Lending.” The report provides an overview of the CFPB’s analysis of “de-identified data from vehicle title lenders consisting of nearly 3.5 million loans made to over 400,000 borrowers in ten states during 2010-2013.” The CFPB examined loan patterns (re-borrowing and rates of default) for single-payment auto loan titles. A loan contained in the CFPB’s study has three possible outcomes: (i) repaid without subsequent borrowing; (ii) default; or (iii) re-borrowing on the same day or within a certain specified period (14, 30, or 60 days) of time after repayment. According to the report, auto title loans have high rates of consumers re-borrowing: “[o]ver 80% of vehicle title loans are re-borrowed on the same day a previous loan is repaid, and 87% of loans are re-borrowed within 60 days.” The CFPB further contends that only about one in every eight loan sequences is repaid without a consumer having to re-borrow. Additional findings highlighted in the report include: (i) approximately one-third of loan sequences default, with one in every five borrowers having a vehicle repossessed by the lender for failure to repay; and (ii) approximately two-thirds of the loans are in sequences of seven loans or more and about half are in sequences of ten or more loans, with no more than 15% of the sequences maintaining three loans or fewer. Read more…
On April 4, Alabama Governor Robert Bentley signed into law HB 7, which amends Section 8-32-2 of the Code of Alabama. Specifically, the bill defines road hazard and expands the definition of a vehicle service contract to include (i) certain damages caused by a road hazard; (ii) the replacement of an inoperable, lost, or stolen key or key fob; and (iii) other services approved by the Alabama Commissioner of Insurance.
Massachusetts AG Healey Continues Subprime Auto Loan Review; Lenders to Pay $7.4 Million in Consumer Relief
On March 16, Massachusetts AG Maura Healey announced that two national auto lenders, based in South Carolina and California respectively, agreed to collectively pay $7.4 million in relief to more than two thousand Massachusetts consumers to resolve allegations that they charged excessive interest rates on subprime auto loans. Under the terms of the assurance of discontinuance, the companies will eliminate the alleged excessive interest on certain loans resulting from add-on GAP insurance coverage, forgive outstanding interest on the loans, and reimburse consumers that already paid interest. The South Carolina-based lender will pay approximately $1.7 million in relief to consumers, while the California-based lender will pay the remaining $5.7 million. The settlement agreements further require the lenders to pay $225,000 for implementation of the agreements and to undergo additional auditing to determine if other loans are subject to refunds.
These settlements are part of AG Healey’s subprime loan review initiative. In November 2015, as part of this initiative, AG Healey announced a $5.4 million settlement with a national auto lender to resolve allegations similarly related to the practice of charging inflated interest rates because of add-on GAP insurance coverage.
On March 11, the Maryland House Committee on Economic Matters reported unfavorably on Maryland House Bill 530. Introduced on February 1, 2016, the bill would have repealed and reenacted, with amendments, Maryland Commercial Law and Annotated Code of Maryland by adding language requiring an assignee of certain documents – retail installment agreements, a note, or other evidence of a loan – relating to the finance purchase of a motor vehicle to provide payment to the seller of the motor vehicle within two business days after approval of the assignment. After the unfavorable report, the bill was withdrawn from consideration.