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  Galese & Ingram Legal Updates




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 GuidelinesThe 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 GuidelinesThis 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.

3) The vehicle cannot be sold until after the grace period ends.


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!


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.


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!


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.


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.


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