COVERING IMPORTANT INDUSTRY ISSUES
Beginning in January 2006, Jeff Ingram of
Galese and Ingram
will publish a newsletter on important issues affecting our industry.
Jeff has been the Council's attorney since we began in 2000 and his firm
has extensive experience with our industry which dates back to the
beginning of title loans. Jeff's firm is also the attorney for the
Alabama Independent Automobile Dealers Association. So in short, he knows
the law from all aspects of our industry. As a service to our members
Jeff is available for limited consultations at no fee (you must be a
current member to take advantage of this service). Jeff may be reached by
telephone at 205-870-0663 or email at
jeff@galese-ingram.com.
GALESE & INGRAM UPDATE -- THE ALABAMA
IMMIGRATION ACT -- October 6, 2011.
The new Alabama Immigration Act WILL effect
you! The new Alabama Immigration act is now in
place. The new act will impact title loan operators in that it is now
unlawful to enter into a contract with an "alien" who is not in this
country lawfully. Further, if you are a Designated Agent (DA) and
use the states electronic title system (ETAPS), there are new
requirements for you. Finally, the penalty for non-compliance is a
Class C felony. Listed below are two documents for your
review:
Immigration_Galese and Ingram Update.pdf -- A brief summary prepared
by the association attorney -- Galese & Ingram.
ImmRevenue.pdf -- A memorandum from the Department of
Revenue regarding Designated Agents.
Finally, you will want to visit the state's new ALVerify website at:
https://alverify.mvtrip.alabama.gov/. Here you can enter a
minimal amount of information to verify the status of your customer. You
will then need to print and retain the information received from the web
site for audit purposes and proof of compliance.
We are certain there will be more information as the new law
unfolds. We will forward that information to you as it is made
available to us.
GALESE & INGRAM UPDATE -- November 24,
2008. More On
Repossession
Guidelines. The Repossession Guidelines
posted below on November 17th generated more than a few questions,
so below is additional information you may want to know regarding
repossessions:
What Is Considered The Premises In The November 17th Discussion?
The statute is not clear on what is considered the premises. The
safe interpretation of the statute is that the premises means the
actual pawnshop facility. Unless the vehicle is damaged while on
"premises" other than the pawnshop facility, it probably does not
make any difference. At most it would seem to be a violation of the
statute causing no damage to anyone and that does not create any
causes of action.
State Banking Has Sometimes Taken The Position That A Vehicle
Must Be Sold Back To The Customer If They Wish To Reclaim A Title
After The 60th Day. How Does This Relate To #2 In The November
17th Discussion Below? Must The Customer's Vehicle Be Sold Back To
Them Under These Circumstances?
The statute provides that the vehicle is forfeited automatically on
the 60th day. This would mean that any transfer of the vehicle back
to the customer after the 60th day would therefore have to be a sale
of the vehicle back to the customer. Although no court has
addressed this issue, a pawnshop could likely waive the automatic
forfeiture meaning that there was no transfer of ownership from the
customer to the pawnshop and that the pawnshop could return the
vehicle to the customer without a sale occurring. If you are going
to allow a customer to regain possession of the vehicle by selling
it to them or by waiving the forfeiture, I would not make a customer
wait 21 days.
UPDATE --
February 25, 2013
A repo can occur at any time that the customer is in default. Normally,
this is when the customer misses a required payment. Your pawn ticket
can provide additional definitions of default. A common definition in
most retail installment contracts is that the credit deems itself to be
insecure. That definition can include other things such as lack of
insurance, changing residence, moving the car out of the area, etc.
If you repo before the end of the grace period, there are a couple of
things that can happen:
A) The statute allows you to charge a pawnshop charge in lieu of all
other charges. This is the normal practice for most pawnbrokers. If you
charge a pawnshop charge, you cannot charge any other fees including
repo fees;
B) The statute also seems to allow you to charge interest and other fees
in lieu of a pawn shop charge so long as the total amount charged does
not exceed 25% of the principal amount. Under this option, if the
interest rate is less than 25% per month, you probably have the right to
charge a repo fee so long as that fee plus interest does not exceed 25%
of the principal. I do not recommend this. I would stick with a simple
pawn shop charge.
Once the grace period ends without the vehicle being redeemed, the
vehicle belongs to the pawnshop. It can charge any amount to convey the
vehicle back to the customer or to some other person.
GALESE & INGRAM UPDATE -- November 17,
2008.
Repossession
Guidelines. This is to clarify several
questions regarding vehicle repossessions that occur in connection
with title pawn transactions.
1) A vehicle can be repossessed only after the customer is in
default. This normally does not occur until the customer is late on
a payment.
2) The Pawnshop act states that vehicles purchased by a pawn broker
must be held on the premises for 21 days. The Court of Civil Appeal
has concluded that this also applies to vehicles taken in on a pawn.
I think that conclusion is wrong and would be reversed by the
Supreme Court if given a chance. However, the Court of Civil appeals
did hold that a pawnbroker could not be sued for failing to hold a
vehicle for 21 days. It is my opinion that the vehicle can be sold
immediately after the grace period ends without regard to when the
pawnbroker obtained possession of the vehicle.
GALESE & INGRAM ALERT -- May 1,
2008 -- Bankruptcy and Information
Disclsure. I
just received a lawsuit from a TPCA member. It originated when they
filed a claim in bankruptcy. They attached to it a copy of the pawn
ticket. The ticket includes, as it is required to under state law,
the date of birth of the customer. Under federal procedural rules,
parties are not to file in court certain personal information for
individuals. Specifically, you are not to include the first five
digits of a social security number, month and day of the month of
the date of birth, the name of a minor or anything other than the
last four digits of a social security number. It is not really a
significant claim but it will likely cost some money to defend or
resolve. TPCA members should be aware of their duties in this
regard. - Jeff Ingram,
Galese &
Ingram
AUGUST 2007 NEWSLETTER
- Military Lending.
August 28, 2007
Almost a year ago we posted information regarding the military
lending bill. There have been many questions since this bill
became law. In particular, how to be sure the proper procedure
is followed when dealing with military personnel. The updated
information below is from Jeff Ingram and is his recommended
procedure. The law goes into effect on October 1, 2007.
That means if you make a title pawn on or after September 2, 2007 to
a military person, you are in violation of this law!
GALESE & INGRAM --
AUGUST 2007
Congress has passed legislation
that makes it illegal to enter into a title-pawn or deferred
deposit transaction with certain members of the armed
forces. To help protect yourself, you should consider
inserting language into your pawn tickets/contracts or a
free-standing document in which your customer represents
that they are not such a member. This does not necessarily
protect you if your customer lies about their status but it
could help. It could also potentially help you in
prosecuting criminal charges against a customer who lies to
you about their status.
Suggested language is: "THE BORROWER CERTIFIES
THEY ARE NOT: 1) A MEMBER OF THE ARMED FORCES WHO IS ON
ACTIVE DUTY CALL OR ORDER THAT DOES NOT SPECIFY A PERIOD OF
THIRTY DAYS OR LESS; 2) ON ACTIVE GUARD OR RESERVE DUTY; OR,
3) THE SPOUSE, CHILD OR AN INDIVIDUAL FOR WHOM SUCH A MEMBER
HAS PROVIDED MORE THAN ONE-HALF OF YOUR SUPPORT FOR THE LAST
180 DAYS. (Customer Initials)." This or similar language
should be agreed to by your customer at the time a pawn or
deferred deposit is initiated and on each renewal.
This language can be added to your existing pawn
ticket/contract or in a separate document. If in the
pawn ticket/contract, the language should be at the bottom
of the other terms and conditions in your agreement and
should be in ALL-CAPS as indicated here. If in a
separate document, ALL-CAPS is less important.
SEPTEMBER 2006 NEWSLETTER
- Military Lending. October
10, 2006 As of today
the US Congress has passed and sent to the President the
“John Warner National Defense Authorization Act” We fully expect this
bill to become the law of the land. It will stop all lending to military
members.
GALESE & INGRAM -- SEPTEMBER 2006
The “John Warner National Defense
Authorization Act” (“the Act”) will have a significant impact on the
title pawn and deferred presentment industry. It explicitly prohibits
any extension of “consumer credit” to a covered member of the armed
forces or their dependants where “the creditor uses...the title to a
vehicle as security for the obligation.” It also prohibits an
extension of consumer credit where “the creditor uses a check or other
method or access to a deposit, savings or other financial account
maintained by the borrower .
. .
as security for the obligation.” A
service member is a covered member if they are on active duty under
order of more than thirty days. This includes active National Guard or
Reserve duty. The term “dependant” is defined as a member’s spouse,
child, or anyone for whom the member has provided one-half of their
support for the past 180 days. The term “child” includes children
under 18 and children under age 23 who are enrolled in an educational
institution. Stepchildren are included in the definition of child.
The Act will take effect on October 1, 2007
unless the Secretary of Defense chooses an earlier effective date. A
knowing violation of any provision of the Act is a misdemeanor with
potential fine and imprisonment of up to one year. It is possible that a
violation of the Act could also create a cause of action by the customer
against the pawn shop.
The practical result of this legislation is
that it will be a federal crime to enter into a title pawn or deferred
presentment transaction with any active member of the armed forces or
reserves or the spouse or child (under age 23 if in school) of any such
member. Although the Act is not specific, it is likely that a renewal of
such an agreement would also be prohibited after the Act’s effective
date.
The Act does not specify whether the lender
has an obligation to inquire about a customer’s military status.
Criminal liability only attaches for a knowing violation of the statute,
so ignorance could provide some defense. However, the Act provides that
any contract or extension of credit in violation of the Act is “void
from the inception.” Therefore, even if the lender could avoid criminal
liability through ignorance, the contract will be unenforceable.
The Act could also have an impact on
existing agreements. The Act provides that arbitration agreements are
unenforceable against anyone who was a member of the armed forces or a
dependant at the time the agreement was made. The Act does not specify
whether this provision only applies to new arbitration agreements or to
already existing agreements.
MARCH 2006 NEWSLETTER -
Repossessions.
This is perhaps the riskiest part of our business. If you don't do it
right, you could lose in a very big way!
GALESE & INGRAM
-- MARCH
2006
Title pawn operators are unfortunately often
faced with the issue of repossessing a customer’s vehicle. The question
often arises as to when a repossession can occur. The short answer is that
a pledged motor vehicle can be repossessed after a customer defaults.
The obvious question is when does a default
occur. A default occurs whenever the pledgor breaches its agreement with
you. Normally, this is by failing to make a payment when due. Because of
this, you generally can repossess a vehicle when the debtor fails to
satisfy or renew the pawn within thirty days. Unless your agreement with
your customer states otherwise, you are not legally required to wait till
the end of the grace period to execute a repossession. If you do repossess
the vehicle before the grace period ends, you must then maintain
possession of the vehicle until the end of the grace period.
Alabama Code
§
5-1 9A-5 (c) provides that automobiles,
trucks and similar vehicles must be maintained on your premises for
twenty-one days. The preceding sentence in that section states that other
goods “purchased” by a pawnbroker must be maintained on premises for
fifteen days. In the way that this section is written, the twenty-one day
requirement seems to apply only if the vehicle is “purchased” by you. It
does not seem to apply to pawn transactions where there is a default.
There are a couple of important side notes
in dealing with repossessions. If the vehicle is located outside of
Alabama, you must consult the law of the state where the vehicle is
located before repossessing the vehicle. Different states have different
laws. What is legal here may not be legal there. Also, if you repossess
the vehicle after your customer files a bankruptcy petition, you normally
will have to allow the customer to retake possession of the vehicle,
repossessing a customer’s vehicle is the most legally risky action in your
business. Be careful and be sure that your repossession agents know and
follow the law.
JANUARY 2006 NEWSLETTER -
Annual Percentage Rate (APR).
Truth In Lending compliance requirements are very specific about the APR
(Annual Percentage Rate) you disclose. Non-compliance can be quite
expensive in a court of law. Some members have had very unpleasant
experiences with this issue as a result of lawsuits. In Alabama,
compliance can be ambiguous. Read Jeff's article below.
GALESE & INGRAM
-- JANUARY
2006
Pawn transactions in Alabama are governed by
Alabama’s Pawnshop Act and the Federal Truth in Lending Act among other
statutes. Pawnshop operators must be sure to comply with both statutes.
The Pawnshop Act requires that a pawn ticket disclose, among other items,
the monthly rate. The federal Truth in Lending Act requires lenders to
disclose the annual percentage rate. It would seem to be a simple matter
to correctly disclose both rates. Appearances can be deceiving.
The Federal Trade Commission has issued
detailed regulations for calculating the annual percentage rate in a
transaction. For monthly transactions, the annual percentage rate is
twelve times the monthly rate. It would seem therefore that the annual
percentage rate for a pawn transaction is twelve times the monthly rate,
i.e. a 25% monthly rate would be a 300% annual percentage rate. The
Alabama Bureau of Loans says this is the correct method to determine the
annual percentage rate.
The question though is whether or not a pawn
transaction is a monthly transaction. If it is, the maturity date will be
the same day of the month as the transaction date. For example, a pawn
made on February 2, 2006, would be due on March 2, 2006. There is support
for this in the Pawnshop Statute because several provision speak in terms
of a “monthly” transaction. However, the Act is clear that a maturity
date cannot be less than thirty days after the transaction date. This
means, for example, that a pawn entered into on February 2, 2006, cannot
be due before March 4, 2006. Such a transaction is arguably not a monthly
transaction. If the transaction is considered to be a thirty day
transaction, the annual percentage rate is calculated by multiplying the
thirty day rate by thirty and then dividing by 365. A 25% thirty day rate
would be a 304.17% annual percentage rate. There are federal cases from
other states adopting this position.
What do you do? Disclose a 300% annual
percentage rate and you have satisfied the Bureau of Loans but have opened
yourself to suits from customers for a violation of the Truth in Lending
Act. Disclose a 304.17% annual percentage rate to avoid customer lawsuits
and the Bureau of Loans may cite you for a violation for not following its
interpretation. An annual percentage rate of 304.17% seems to be
easier to defend. Unfortunately, at this point, you have little choice
but to pick your poison.
