Pa. Amendments to Installment Sales Statutes Require Attention

by Ballard Spahr LLP
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Changes to two Pennsylvania statutes governing installment sales will take effect on November 27, 2014, as a result of House Bill 1128, signed into law by Governor Corbett as Act No. 2013-98 (Act 98). Act 98 repeals the state’s Motor Vehicle Sales Finance Act (MVSFA) and Goods and Services Installment Sales Act (GSISA) and reenacts and consolidates the two statutes with amendments in Title 12 of Pennsylvania’s Consolidated Statutes under a new Part V titled “Consumer Credit.”

The changes made by Act 98 to the MVFSA and GSISA should be reviewed carefully by motor vehicle dealers and retail sellers of consumer goods and services located in Pennsylvania, or making sales online to Pennsylvania customers, that offer financing through the use of installment sale agreements, as well as by sales finance companies that purchase such agreements. The changes made by Act 98 will require revisions to documentation, practices, policies, and procedures used in closed-end sales of goods (including motor vehicles) and services made in Pennsylvania, regardless of where the sales finance company is located.

Certain of the GSISA changes will also be of interest to credit card issuers that attempt to comply with the GSISA in whole or in part. Such issuers will also be required to revise their documentation, practices, policies and procedures. (By its terms, the GSISA applies very broadly to credit card operations. Most Pennsylvania credit card issuers operate under the Pennsylvania Banking Code, however. Out-of-state credit card issuers can rely on federal banking laws to preempt GSISA fee and charge limits and, in the case of national banks and federal thrifts, can attempt to argue federal preemption of GSISA disclosure requirements as well.)

As reenacted in new Part V, the MVFSA becomes new Chapter 62, titled “Motor Vehicle Sales Finance,” and the GSISA becomes new Chapter 63, titled “Goods and Services Installment Sales.”

Chapter 62 includes the following substantive clarifications and amendments to the MVFSA:

  • Required disclosures are expanded to include a prescribed notice in an installment sale contract (contract) that advises the buyer of potential rights under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL), and a notation on instruments returned to a buyer when a contract is fully paid indicating that full payment has been made.
  • The definition of “heavy commercial motor vehicle” is amended to include vehicles with a manufacturer’s gross weight of 13,000 pounds or more (rather than 15,000 pounds or more as previously defined). The maximum interest rate that can be charged on installment sales of new heavy commercial motor vehicles is higher than the maximum rate permitted on sales of other new commercial motor vehicles, and a variable interest rate is permitted on installment sales of heavy commercial motor vehicles.
  • The incidental costs for which a buyer voluntarily contracts that can be paid on the buyer’s behalf and financed under a contract are expanded to include certain licensing costs.
  • A new provision is added that expressly prohibits a seller from adding to the original contract any costs for necessary repairs arising after the contract was executed.
  • The authority for a minimum finance charge on a contract is removed.
  • The circumstances are expanded that allow a seller or holder to accelerate the balance owed on a contract.
  • A venue provision is added that limits where an action on a contract can be brought to the county in which the buyer signed the contract, resided when the action was filed, or resided when the contract was entered into.
  • The required bond for a sales finance company is increased to $10,000 from $5,000.
  • The definition of “motor vehicle” is amended to specifically include a “manufactured home,” “mobility device,” (which refers to certain vehicles specially designed for disabled individuals) and “recreational vehicles.” (The MVFSA previously applied to a “mobile home” as defined under other Pennsylvania law. A “manufactured home” subject to Chapter 62 includes both a “mobile home” and a “manufactured home as it is defined under section 603(6) of the National Manufactured Housing Construction and Safety Standards Act of 1974.”)

Chapter 63 includes the following clarifications and substantive amendments to the GSISA:

  • The definition of “goods” is amended to specifically include gift cards, “electronic media items,” and “items purchased through the Internet,” and the definition of “services” is amended to specifically include service contracts and “services purchased through the Internet.”
  • The requirement that a closed-end agreement include certain headings based on whether the agreement is secured also applies to open-end agreements.
  • Required disclosures for closed-end agreements are expanded to include a new statement regarding the seller’s right to collect late fees and other charges.
  • Fee authority on closed-end agreements is increased to allow a $10 maximum late charge (but authority for a $1 minimum late charge is removed), a 1.5 percent monthly interest charge on a deferred or extended installment payment or portion thereof, and a $10 minimum charge for a deferral or extension.
  • The minimum monthly finance charge on open-end agreements is increased to $1.
  • Authority is added for a closed-end or open-end agreement to provide for the buyer’s reimbursement of certain costs of services provided by an entity that is not affiliated with the seller or holder (such as processing fees for credit applications and credit reports) if the buyer requests the service and certain other conditions are met, including that the costs for the service are reasonable, necessary, and actually incurred, and there is no markup of the charge by the seller or holder.
  • A requirement is added that a new agreement must be provided for an add-on sale rather than a memorandum.
  • The pre-acceleration default notice requirement for closed-end agreements also applies to open-end agreements, and the notice must provide additional information about the buyer’s right to cure.
  • The post-maturity interest rate on a closed-end agreement is limited to the rate under the original agreement.
  • A violation of Chapter 63 is expressly deemed a UTPCPL violation.

Chapters 62 and 63 also amend the MVFSA and GSISA to provide that a prohibited waiver of a buyer’s rights in a credit agreement includes “any purported waiver effected by a contractual choice of the law of another jurisdiction.”

In addition to making clarifications and substantive amendments to the MVFSA and GSISA, the new chapters substantially reorganize the provisions of the repealed statutes. They also modernize terminology, such as by replacing the GSISA terms “retail installment agreement,” “retail installment account,” and “time price differential or service charge” with the terms “closed-end credit agreement,” “open-end credit agreement,” and “finance charge,” respectively. Act 98 also makes changes to prescribed MVFSA and GSISA notices to reflect the new terminology and to improve consistency with federal law.

Chapter 61 in new Part V, titled “General Provisions,” contains provisions applicable to all installment sales, whether sales of motor vehicles or of other goods and services. These provisions include a new eight-point overall minimum type-size requirement for credit agreements and larger minimum type-size requirements for all headings, disclosures or notices, and acknowledgments.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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