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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
]]]] LEGISLATURE OF THE STATE OF IDAHO ]]]] Fifty-eighth Legislature First Regular Session - 2005 IN THE SENATE SENATE BILL NO. 1031 BY COMMERCE AND HUMAN RESOURCES COMMITTEE 1 AN ACT 2 RELATING TO SHORT-TERM VEHICLE EQUITY LOANS; AMENDING CHAPTER 46, TITLE 28, 3 IDAHO CODE, BY THE ADDITION OF A NEW PART 5, CHAPTER 46, TITLE 28, IDAHO 4 CODE, TO DEFINE A TERM, TO PROVIDE FOR REGULATION, TO REQUIRE LICENSURE, 5 TO SET FORTH LOAN PROCEDURES AND TO PROVIDE FOR LOAN BUSINESS PRACTICES. 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 2 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 3 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 4 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. 24 28-46-504. SHORT-TERM VEHICLE EQUITY LOAN BUSINESS PRACTICES. (1) A 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 5 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 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 NO IMPACT TO THE GENERAL FUND Contact Name: Woody Richards, Consumer Lending Association Phone: 208 345-8371 STATEMENT OF PURPOSE/FISCAL NOTE S 1031