Indirect Auto and Boat Lenders beware

Indirect Auto and Boat Lenders beware!

Connecticut has its own rules!

The standard rules and assumptions do not apply here.

by Jay Winston, Winston and Winston P.C.

The Connecticut Retail Installment Sales Financing Act (RISFA), C.G.S.A. 36a 770 thru 36a-788, regulates indirect auto and boat loans up to $50,000.00. The statute requires strict compliance. Violation of this statute exposes a creditor to liability under RISPA, as well as the Connecticut Unfair Trade Practices Act (CUPTA), the Connecticut Creditor's Collection Practices Act and possibly Article 9 of the Uniform Commercial Code. If a creditor violates RISFA, the debtor is able to recover a statutory penalty of actual damages, plus no less than 25% of all payments made by the debtor. This article will be limited to legal issues involving automobiles.

All Indirect auto lenders are strongly recommended to read RISFA as its provisions are different from your expectations when dealing with a loan in default. First, in most states a creditor uses the auction price of the auto to determine the deficiency balance. Such an act would violate RISFA.

To properly calculate the deficiency balance, a creditor must use the fair market value of the collateral. RISFA states that the prima facie evidence of the fair market value of an automobile is the sum of the average trade in value and average retail value of the vehicle divided by two. These values shall be determined from the values stated in the National Automobile Dealers Association Used Car Guide, EASTERN EDITION- as of the date of repossession.

Using another source such as the NADA Southern edition, or even the Black Book would lead to a violation of the statute, unless the creditor decides to offer direct in-court testimony. Thus, if your automobile is not listed in this NADA-Eastern Edition, a creditor will have to provide a witness to testify in court to establish the fair market value through an alternative source. If a creditor uses the auction price to determine the deficiency, the creditor's notice of deficiency is misleading and violates RISFA, CUPTA and the Connecticut's Creditor's Collection Practices Act.

If a creditor chooses to not repossess the vehicle, and instead obtain a money judgment, the creditor has made an election of remedies. The creditor can no longer repossess the vehicle, nor use a property execution to seize the vehicle after obtaining judgment. In addition, the creditor has an obligation to remove its lien on the vehicle upon obtain judgment. In short, the choice converts your interest in the vehicle from secured to unsecured.

Connecticut has strict requirements with respect to notices and their timing. For example, fifteen days may mean not less than 15 days, but instead 17 days. Do not count the first and last day when attempting to comply with the statutory requirements. It is even possible that a court could rule that weekends or holidays do not count during the redemption period. Creditors should also beware that Connecticut Judges take a strict position on complying with discovery requests and evaluating evidence. A creditor needs to maintain complete records.

For example, sending a pre-repossession notice to the debtor relieves the creditor or certain duties. However, if you can not provide documentary evidence that the notice was mailed by registered or certified mail, the judge may hold that the notice was not properly sent and therefore, a creditor's action must be judged under the section controlling repossession without notice. Testimony from a witness is generally inadequate because the witness is rarely the person who mailed the notice. Thus, it is strongly recommended that a creditor always comply with the section controlling repossession without notice, or risk violating that section as well as other sections of RISFA.

Any violation of RISFA prohibits a creditor from collecting the deficiency or asserting the deficiency balance as an offset defense. See Condor Capital Corp v. Michaud, 2000 WL 1161093 (Conn. Super. 2000) and Tavarez v. Credit Acceptance Corp, 2000 WL 1058184 (Conn. Super. 2000). Thus, a creditor must set up strict procedures as to both actual compliance and documentary retention to limit exposure to liability.

Finally, many financial institutions engaged in both indirect lending and leasing. To be safe, a creditor might assume that leases are covered by RISFA. However, the statute specifically fails to mention leasing in any manner. For example, the statute is silent with respect to the calculation of the residual value. The statute is designed to regulate retail installment contracts and installment loans contracts, both consumer and commercial, but not leases. One court has addressed this issue and held that leases are not subject to RISFA. BMW Financial Services v. Samele, 1997 WL 94093 (Conn. Super. 1997).

In summary, a creditor should review its procedures when pursuing delinquent loans in Connecticut to ensure compliance with RISFA.

	Avoid Five Common Misconceptions about RISFA:
1	It is permissible to use the auction price of the auto in determining the deficiency balance - NO. You must use the fair market value of the collateral to calculate the deficiency balance: 36a-785(f) & (g)
2	To Calculate the Fair Market Value of the auto, you can use any industry standard book. - NO The average trade in value and average retail value shall be determined by the values stated in the National Automobile Dealers Association Used Car Guide, EASTERN EDITION- as of the DATE OF REPOSSESSION: 36a-785(g) Boats have similar rules - see statute.
3	If you sue on the loan note and do not repossess the car, the car can be seized after judgment with a property execution. - NO By choosing to obtain a money judgment, you waive your right to your security interest. Upon obtaining a money judgment, a secured creditor is required to remove the lien on the collateral. 36a-785(h)
4	Even if you commit a minor violation of the statute, you are still able to recover the deficiency balance . - NO If you violate any section of RISFA, you are barred from collecting the deficiency or asserting it as an offset defense. Condor Capital Corp v. Michaud 2000 WL 1161093 (Conn. Super. 2000) Tavarez v. Credit Acceptance Corp 2000 WL 1058184 (Conn. Super. 2000)
5	This statute also applies to lease agreements - Case law says NO - Leases don't Apply BMW Financial Services v. Samele 1997 WL 94093 (Conn. Super. 1997)