A few tips on how auto finance companies can protect themselves by updating their Notice of Intent to Dispose of Motor Vehicle forms to prevent insufficiency attacks from plaintiffs' attorneys.
Notice of Intent to Dispose of Motor Vehicle
California law requires certain disclosures be given to motor vehicle consumers whose vehicles have been repossessed for non-payment or violation of the terms of the Retail Installment Sale Contract (aka Conditional Sales Contract) in a Notice of Intent to Dispose of Motor Vehicle ("NOI"). California has two different statutes setting forth the disclosures that must be given to consumers whose vehicle has been repossessed by a creditor, the Rees-Levering Act, California Civil Code Section 2981 et seq. and California Uniform Commercial Code Sections 9601, 9613, 9614. The statutes provide somewhat inconsistent disclosure requirements. Class action litigation over the sufficiency of NOI's has been ongoing in California for many years now by a number of Plaintiffs' attorneys who have developed expertise and success in litigating these types of matters. Numerous cases have been filed and continue to be filed yearly because of the large attorney fee awards. In almost all instances, plaintiffs have been successful in obtaining class certification, winning on the merits of the claims, and obtaining large attorney fee awards. Some of these awards have put small finance companies out of business. Although the auto finance industry continues to update their NOI's in response to the plaintiffs' attorneys' legal theories, no NOI is immune from attack. The Plaintiffs' attorneys continue to find novel technical theories of liability. Moreover, California courts will find disclosure obligations not explicitly set forth in the California Civil Code and California Uniform Commercial Code. Juarez v. Arcadia Financial. Ltd. (2007) 152 Cal.App.4th 889 is an example of such a case. The Court held that "under Rees-Levering, an NOI must inform the consumer of any amounts the consumer will have to pay to the creditor and/or to a third party to reinstate a contract. The NOI must also inform the consumer if, when, and by how much those amounts may increase as a result of additional payments coming due, or as a result of late fees or other fees and charges. In other words, creditors must provide consumers with sufficient information to allow consumers to fulfill all of the conditions the consumer must meet before a creditor will reinstate the contract." The Court acknowledged that "there may be instances in which the creditor does not possess information about the amount a consumer must pay to a third party in order to satisfy a condition precedent to reinstatement. However, the fact that there may be some instances in which the creditor does not know the amount the defaulting buyer must pay to another party does not mean that creditors need not provide information about the amounts owed to the creditor or to third parties when the creditor does (or reasonably should) know those amounts. The creditor must provide the consumer with all of the relevant information it possesses and/or information it has the ability to discern, concerning precisely what the buyer must do to reinstate his or her contract." The plaintiffs' attorneys' have used the Juarez case as ammunition to continue to attack the sufficiency of NOI's. There seems to be no end in sight to these types of cases.
Notice of Intent to Dispose of Motor Vehicle Tips
However, there are a few changes the auto finance industry may take with respect to their NOI to protect them from attack, although, there is no guarantee that plaintiffs' attorneys will not seek to challenge the changes and the court will adopt plaintiff's legal theories. Creditors should make three sets of disclosures separately in order to take advantage of the UCC's safe harbor provision contained in Section 9614(3). For the safe harbor provision to apply, this UCC language has to be separate from and prior to any other disclosures in the NOI. The recommended disclosure language, when completed properly, is deemed sufficient to satisfy the UCC even if the NOI contains additional information after the safe harbor provision. (See California Uniform Commercial Code Section 9614(4)). The UCC language should be placed at the beginning of the NOI. The Rees-Levering Act required language may follow after the UCC language. Creditors may also wish to add a "catch-all safe harbor provision". The "catch-all safe harbor provision" should be placed at the end of the NOI. NOTICE: Should your company decide to add a "catch-all safe harbor provision" to its NOI, make sure to update your business policy and inform all employees to comply with the company's business decision and policy to waive any amounts not reflected in an NOI. Failure to do so may subject your company to legal challenge from plaintiffs' attorneys.
"Catch-All Safe Harbor Provision" sample:
The information and all amounts reflected in this Notice are what we possess at the Date of Mailing. Any fees or charges not provided for in this Notice that come due during the applicable reinstatement or redemption period or any extension of those periods will be waived and will have no effect on your right to redeem the Vehicle (if applicable) or reinstate the contract (if applicable).
This resource and publication should not be construed as legal advice or recommendations about possible legal rights on any specific facts or circumstance. The contents are intended for convenience and general information purposes only and not for legal advice or a substitute for the advice of an attorney. You should not act upon the information without seeking the professional services of an attorney. The information is not guaranteed to be accurate, complete or up-to-date. Your use of the information is at your own risk. (C) Copyright 2015 Allen R. Avanessian, Esq. | Avanessian Law
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