2005 Legislation
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SENATE BILL NO. 1031 – Vehicle equity loans, short-term


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S1031.......................................by COMMERCE AND HUMAN RESOURCES
VEHICLE EQUITY LOANS - Adds to existing law to set forth provisions
applicable to short-term vehicle equity loans; to define a term; to provide
for regulation; to require licensure; to set forth loan procedures; and to
provide for loan business practices.
01/19    Senate intro - 1st rdg - to printing
01/20    Rpt prt - to Com/HuRes

Bill Text

  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-eighth Legislature                   First Regular Session - 2005
                                       IN THE SENATE
                                    SENATE BILL NO. 1031
  1                                        AN ACT
  6    Be It Enacted by the Legislature of the State of Idaho:
  7        SECTION  1.  That  Chapter  46,  Title 28, Idaho Code, be, and the same is
  8    hereby amended by the addition thereto of a NEW PART, to be known  and  desig-
  9    nated as Part 5, Chapter 46, Title 28, Idaho Code, and to read as follows:
 10                                        PART 5
 11                           SHORT-TERM VEHICLE EQUITY LOANS
 12        28-46-501.  DEFINITION  --  REGULATION. (1) As used in this part, the term
 13    "short-term vehicle equity loan" means a loan for a consumer  purpose  secured
 14    by a motor vehicle upon which interest is charged at an annual percentage rate
 15    exceeding  thirty-six percent (36%). "Short-term vehicle equity loan" does not
 16    include a regulated loan made for the purpose of purchasing a motor vehicle.
 17        (2)  For purposes of this part, short-term vehicle equity loans are  regu-
 18    lated consumer credit transactions and all provisions of the Idaho credit code
 19    relating  to  regulated  loans apply to short-term vehicle equity loans and to
 20    persons engaged in the business of short-term vehicle equity loans.
 21        28-46-502.  LICENSE REQUIRED. (1) No person shall engage in  the  business
 22    of  making or offering to make short-term vehicle equity loans or arranging or
 23    offering to arrange a short-term vehicle equity loan for a third party  lender
 24    in  a short-term vehicle equity loan transaction without having first obtained
 25    a license in accordance with part 3, chapter 46, title 28, Idaho Code. A sepa-
 26    rate license shall be required for each location from which such  business  is
 27    conducted.
 28        (2)  A  borrower  who  enters into a short-term vehicle equity loan with a
 29    person not licensed as required by this section shall  not  be  bound  by  the
 30    terms of the short-term vehicle equity loan agreement, and the borrower's only
 31    liability is for the return of the principal sum borrowed plus interest at the
 32    rate set by statute for interest on judgments.
 33        (3)  A  person  licensed  in accordance with part 3, chapter 46, title 28,
 34    Idaho Code, who is a licensed motor vehicle dealer,  or  who  is  directly  or
 35    indirectly  affiliated  by  common ownership or control with a person who is a
 36    motor vehicle dealer, must provide notification to the administrator  of  such
 37    affiliation  or status as a licensed motor vehicle dealer prior to engaging in
 38    any short-term vehicle equity loan transaction. Notification shall be filed in
 39    a manner to be determined by the administrator.
 40        28-46-503.  SHORT-TERM VEHICLE EQUITY LOAN PROCEDURES. (1) Each short-term
  1    vehicle equity loan must be documented in a written agreement  signed  by  the
  2    borrower.  The  loan agreement must include the name of the licensee, the date
  3    of the loan, the principal amount of the loan, and a statement  of  the  total
  4    amount  of fees charged as a condition of making the loan, expressed both as a
  5    dollar amount and as an annual percentage rate (APR). The loan agreement shall
  6    also contain a description of the motor  vehicle  utilized  as  collateral  to
  7    secure  the  short-term vehicle equity loan, including the vehicle year, make,
  8    model and identification number.
  9        (2)  The principal amount of a short-term vehicle equity  loan  shall  not
 10    exceed  the  retail  value,  as  determined  by common motor vehicle appraisal
 11    guides, of the motor vehicle used as collateral to secure  the  loan.  If  the
 12    motor  vehicle being used as collateral for the short-term vehicle equity loan
 13    is not listed in a common appraisal guide, the licensee shall otherwise deter-
 14    mine the probable retail value in good faith.
 15        (3)  Subject to section 28-46-504(4), Idaho Code, and  subsection  (7)  of
 16    this  section,  a  licensee  may assess, as the sole finance charge associated
 17    with a short-term vehicle equity loan, interest at any rate permitted pursuant
 18    to section 28-42-201, Idaho Code. Interest shall accrue on a daily  basis  and
 19    no part of the interest shall be deemed to be fully earned. A licensee may not
 20    charge  an origination fee, credit fee, delinquency fee, or any similar fee in
 21    conjunction with a short-term vehicle equity loan. The licensee shall also  be
 22    entitled  to  charge the borrower the licensee's actual cost of perfecting the
 23    licensee's security interest on the motor vehicle certificate of title.
 24        (4)  The administrator may require a licensee, at the licensee's  expense,
 25    to  provide  prospective borrowers with a consumer information pamphlet before
 26    entering into a short-term vehicle equity loan agreement. The  pamphlet  shall
 27    contain  information  as determined by the administrator and shall be prepared
 28    by or at the direction of the administrator.
 29        (5)  Upon the consummation of a short-term vehicle equity loan, a licensee
 30    shall immediately take into possession the motor vehicle certificate of  title
 31    evidencing  the  borrower's ownership of the motor vehicle utilized as collat-
 32    eral to secure the short-term vehicle equity loan.
 33        (6)  A licensee shall, within twenty-four (24) hours of receiving  payment
 34    in  full  of  the amount due under a short-term vehicle equity loan agreement,
 35    release any liens which it has filed or recorded  against  the  motor  vehicle
 36    utilized  as collateral to secure the short-term vehicle equity loan. A licen-
 37    see shall also, within twenty-four (24) hours of receiving payment in full  of
 38    the  amount  due  under  the short-term vehicle equity loan agreement, provide
 39    evidence of lien releases to the borrower and return to the borrower the motor
 40    vehicle certificate of title which had been retained at  the  consummation  of
 41    the  loan. For purposes of this subsection (6), in order to confirm the avail-
 42    ability of funds if a borrower has repaid the short-term vehicle  equity  loan
 43    by  personal or business check, a licensee may delay its action to release any
 44    lien created pursuant to the short-term vehicle equity loan or to  return  the
 45    certificate  of  title  of a motor vehicle utilized as collateral for a short-
 46    term vehicle equity loan for a period of time not to exceed eleven (11)  busi-
 47    ness days.
 48        (7)  (a) A  licensee  shall  post  at  each of its licensed locations and,
 49        prior to the consummation of a short-term vehicle equity loan, provide  to
 50        each borrower a written notice separately setting forth the following five
 51        (5) disclosure statements:
 52             (i)   "A short-term vehicle equity loan is intended to address short-
 53             term, not long-term, financial needs."
 54             (ii)  "A  short-term  vehicle  equity  loan  is a high cost loan. You
 55             should consider other low-cost loans that may be  available  to  meet
  1             your financial needs."
  2             (iii) "If  you fail to repay the full amount of your short-term vehi-
  3             cle equity loan before the end of the maturity date or any  extension
  4             of the maturity date, or if you fail to make any scheduled payment as
  5             required  by  your  loan agreement, the lender may take possession of
  6             your vehicle and sell it in a commercially reasonable manner. If  the
  7             lender  sells  your  vehicle, you are entitled to any proceeds of the
  8             sale in excess  of the amount owed on the  loan  and  the  reasonable
  9             expenses of repossession and sale actually incurred by the lender."
 10             (iv)  "If  you take out a one-month $400.00 short-term vehicle equity
 11             loan from this licensed location, and if you pay off that  loan  when
 12             due, your total finance charge will be $........."
 13             (v)   "If  you  elect  to  renew  your short-term vehicle equity loan
 14             rather than pay it in full when due, you  will  be  required  to  pay
 15             additional interest."
 16        (b)  For  the  purposes  of  this  subsection (7), notice of the terms set
 17        forth in paragraph (a) of this subsection shall be displayed in  at  least
 18        twelve  (12)  point  bold  type immediately above the borrower's signature
 19        line on the licensee's  short-term  vehicle  equity  loan  agreement.  The
 20        licensee  shall  also conspicuously post the terms at each of its licensed
 21        locations on signage with lettering of  not  less  than  forty-eight  (48)
 22        point bold type.
 23        (8)  A  borrower may rescind a short-term vehicle equity loan, at no cost,
 24    no later than the end of the next business day following the day on which  the
 25    loan  is  made  by  paying the principal amount of the loan to the licensee in
 26    cash or other immediately available funds.
 27        (9)  The amount advanced to the borrower by the licensee in  a  short-term
 28    vehicle  equity  loan  may  be  paid  to the borrower in the form of cash, the
 29    licensee's business check, a money order, an electronic funds transfer to  the
 30    borrower's account, or other reasonable electronic payment mechanism, provided
 31    however,  that the borrower is not required to pay the licensee any additional
 32    fee to access the proceeds of the short-term vehicle equity loan.
 33        (10) A short-term vehicle equity loan shall be structured to be  either  a
 34    fully  amortizing  loan,  for  a term of no more than twelve (12) months, or a
 35    single installment loan with a term of no more than one (1) month.
 36        (11) (a) A licensee may allow a borrower to  renew  a  single  installment
 37        short-term vehicle equity loan for additional periods provided that:
 38             (i)   The  term of each renewal period is no greater than that of the
 39             original loan term;
 40             (ii)  No interest or charges from prior loan or renewal  periods  are
 41             capitalized or added to the principal amount in any renewal;
 42             (iii) The interest rate associated with the short-term vehicle equity
 43             loan is not increased from the rate charged in previous periods;
 44             (iv)  No additional fees are charged in conjunction with any renewal;
 45             and
 46             (v)   Beginning  with  the sixth renewal and at each renewal thereaf-
 47             ter, the borrower pays to the licensee no less than ten percent (10%)
 48             of the original principal balance of the  short-term  vehicle  equity
 49             loan in addition to any outstanding interest owed.
 50        (b)  Notwithstanding  paragraph  (a)(v) of this subsection (11), if at the
 51        maturity of any renewal requiring principal reduction  a  borrower  cannot
 52        repay  at least ten percent (10%) of the original principal balance of the
 53        loan in addition to the accrued interest, a licensee may either declare  a
 54        borrower   in   default   and  take  those  actions  provided  in  section
 55        28-46-504(4), Idaho Code, or the licensee may allow the loan to be renewed
  1        for an additional period provided that:
  2             (i)   The renewal otherwise complies with subsection (11)(a) of  this
  3             section; and
  4             (ii)  Solely  for  the  purpose  of calculating an applicable finance
  5             charge, on such renewal the licensee  shall  reduce  the  outstanding
  6             principal  balance  of  the loan by ten percent (10%) of the original
  7             amount financed. For purposes of calculating the  ten  percent  (10%)
  8             principal  reduction,  the  licensee  may include principal reduction
  9             payments,  if any, previously made by or on behalf of the borrower so
 10             that the principal balance upon which interest will accrue thereafter
 11             is less than the principal balance of the previous renewal period  by
 12             an  amount equal to at least ten percent (10%) of the original amount
 13             financed. Any reduction of principal given by the  licensee  pursuant
 14             to  this  section shall remain owing by the borrower but shall not be
 15             permitted to accrue interest thereafter.
 16        (c)  Notwithstanding the provisions of paragraphs (a) and (b) of this sub-
 17        section (11), no licensee shall renew a  short-term  vehicle  equity  loan
 18        more  than eleven (11) consecutive times following the initial loan agree-
 19        ment. Nothing in this paragraph (c) prohibits a licensee from  contracting
 20        with  a  borrower  for  the  repayment,  whether  in  a  lump  sum  or  by
 21        installments,  of  any outstanding balance owed following eleven (11) con-
 22        secutive renewals, provided that no new fees or interest may be charged or
 23        collected by the licensee in connection with such repayment agreement.
 25    licensee  shall  not  extend  more  than two (2) concurrent short-term vehicle
 26    equity loans secured by the same motor vehicle. The combined principal  amount
 27    financed  of loans secured by the same motor vehicle shall not exceed the loan
 28    limit set forth in section 28-46-503(2), Idaho Code. No licensee shall  accept
 29    repayment  of a short-term vehicle equity loan through the proceeds of another
 30    short-term vehicle equity loan made by the same licensee or a  person  related
 31    to the licensee by common control.
 32        (2)  No  licensee  shall  threaten  a  borrower  with criminal action as a
 33    result of any payment deficit.
 34        (3)  No licensee shall engage in unfair or deceptive  acts,  practices  or
 35    advertising in the conduct of a short-term vehicle equity loan business.
 36        (4)  Except  in the event of the intentional destruction or concealment of
 37    the collateral by the borrower, or in the event the borrower takes any action,
 38    through falsely obtaining a duplicate certificate of title or otherwise,  that
 39    diminishes  the licensee's security interest, upon the borrower's default of a
 40    short-term vehicle equity loan, a licensee's sole remedy shall be  limited  to
 41    seeking possession and sale of the motor vehicle securing the loan pursuant to
 42    part 6, chapter 9, title 28, Idaho Code. Upon obtaining possession of the col-
 43    lateral, the licensee shall cease the accrual of interest.
 44        (5)  Except  in  the  event of the borrower's intentional damage or inten-
 45    tional destruction of the collateral, no licensee shall pursue a borrower  for
 46    any deficiency following the resale of a repossessed motor vehicle.
 47        (6)  Upon the repossession and sale of a motor vehicle utilized as collat-
 48    eral  to secure a short-term vehicle equity loan, a licensee shall return as a
 49    surplus to the borrower any funds received through the sale in excess  of  the
 50    amounts  owed  by  the borrower pursuant to the short-term vehicle equity loan
 51    and reasonable expenses of repossession  and  sale  of  the  vehicle  actually
 52    incurred by the licensee, including reasonable court costs and attorney's fees
 53    if  the licensee has filed an action seeking possession of the collateral. For
 54    the purposes of calculating whether a borrower is entitled to a  surplus,  the
  1    maximum amount of post-default interest the licensee may include in its calcu-
  2    lation  is  the lesser of accrued interest through the date of repossession or
  3    forty-five (45) days of accrued post-default interest.
  4        (7)  No licensee shall allow any finance charge to accrue on a  short-term
  5    vehicle equity loan beyond one (1) year from the date such loan is executed.
  6        (8)  A  licensee  shall promptly make available to a borrower any personal
  7    property contained in a motor vehicle that is repossessed by the licensee upon
  8    default of the borrower. In the event a licensee uses a third party  reposses-
  9    sion  company  to effect repossession, the licensee shall instruct such repos-
 10    session company to make the borrower's personal property available to the bor-
 11    rower during normal business hours.
 12        (9)  In addition to other records required under section 28-46-304,  Idaho
 13    Code,  a  licensee  shall  maintain  records evidencing that the disposal of a
 14    repossessed motor vehicle was accomplished in a commercially  reasonable  man-
 15    ner.  Any business or personal affiliation between a licensee and a person who
 16    acts as an agent in disposing of a repossessed motor vehicle, or a person  who
 17    purchases  the  motor  vehicle,  shall be disclosed to the borrower in writing
 18    within fourteen (14) days of the sale of  such  vehicle.  The  licensee  shall
 19    retain  a copy of such written disclosure pursuant to the requirements of sec-
 20    tion 28-46-304, Idaho Code.
 21        (10) A licensee may conduct other business at a location where it  engages
 22    in the short-term vehicle equity loan business unless it carries on such other
 23    business for the purpose of evading or violating the provisions of this part.

Statement of Purpose / Fiscal Impact

                       STATEMENT OF PURPOSE
                             RS 14581

The purpose of this legislation is to define "short-term vehicle equity loan" and
to make such loans subject to the regulated loan provisions of the Idaho Credit
Code.  The legislation also clarifies licensing requirements and limits the
obligations of borrowers.  In addition, the legislation describes procedures for
making short-term vehicle equity loans, limits the kinds of fees that may be
charged, allows for consumer information pamphlets, time restrictions for release
of liens after payment is received by the lender, disclosure requirements by
lenders, and limitations on renewals of loans.  Finally, the legislation is
intended to restrict the number of short-term vehicle equity loans that can be
outstanding at any one time and to limit the remedies for a lender in the event
of default.

                          FISCAL IMPACT


Name:  Woody Richards,
       Consumer Lending Association 
Phone: 208 345-8371

STATEMENT OF PURPOSE/FISCAL NOTE                            S 1031