Significant changes to Pennsylvania law governing retail installment sales will take effect before the end of this year as a result of Act No. 2013-98 (Act 98). The Act 98 changes to the state’s Motor Vehicle Sales Finance Act (MVSFA) will affect Pennsylvania motor vehicle dealers that offer financing through the use of installment sales contracts and sales finance companies that purchase such contracts.
Act 98 repealed the MVSFA and the state’s Goods and Services Installment Sales Act (GSISA) and reenacted and consolidated the two statutes with amendments in Title 12 of Pennsylvania’s Consolidated Statutes under a new Part V titled “Consumer Credit.” As reenacted in new Part V, the MVSFA becomes new Chapter 62, titled “Motor Vehicle Sales Finance,” and the GSISA becomes new Chapter 63, titled “Goods and Services Installment Sales.”
An interpretative letter discussing the MVSFA changes was recently issued by the Secretary of the Pennsylvania Department of Banking and Securities (Department) to MVSFA licensees. (The letter does not address the GSISA changes because the Department does not have jurisdiction over new Chapter 63.) Act 98 was signed on November 27, 2013, and provided that it “shall take effect in one year.” As this would have resulted in a Thanksgiving effective date, the Department, in accordance with Pennsylvania law, indicates in the letter that Act 98 will become effective on December 1, 2014.
The Secretary’s letter indicates how certain provisions in Chapter 62 differ from existing MVSFA provisions. Those differences, in addition to various other MVSFA changes not mentioned in the Secretary’s letter, should be reviewed carefully by Pennsylvania motor vehicle dealers that offer financing through the use of installment sales contract (contracts), as well as by sales finance companies that purchase such contracts. The Act 98 changes will require revisions to documentation, practices, policies, and procedures used in motor vehicle credit sales made in Pennsylvania, regardless of where the sales finance company is located. The Department maintains the position that banks and other depository institutions located in Pennsylvania or out of state must be licensed as sales finance companies to purchase contracts.
The letter includes the following highlights:
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Chapter 62 adds definitions for the following previously undefined terms: “recreational vehicle,” “service contract,” “unpaid purchase price balance,” and “warranty.”
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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.)
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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.
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The required bond for a sales finance company is increased from $5,000 to $10,000.
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A new prescribed notice is required in contracts that advise the buyer of potential rights under the Pennsylvania Unfair Trade Practices and Consumer Protection Law.
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A seller is prohibited from adding to the original contract any costs for necessary repairs arising after the contract was executed.
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A seller or holder can accelerate the balance owed on a contract if the buyer files for bankruptcy, defaults in the payment of a cross-collateralized obligation, or provides intentionally fraudulent and misleading information on a credit application.
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A prohibited waiver of a buyer’s rights in a contract includes any purported waiver effected by a contractual choice of the law of another jurisdiction.
On October 7, 2014, Ballard Spahr attorneys will hold a webinar, “What Credit Card Issuers and Buyers of Auto and Other Installment Sales Contracts Need To Know about PA Act 98,” from 12 p.m. to 1 p.m. ET. Webinar participants will include Carter D. Frantz, the Department’s Chief Counsel. A link to register is available here.
Auto finance is also a focus of the Consumer Financial Protection Bureau, which is expected to issue a proposed rule later this week to allow the CFPB to supervise auto finance companies that qualify as “larger participants” in the auto finance market. On September 30, 2014, Ballard Spahr attorneys will hold a webinar, “Auto Finance I: How the CFPB’s Larger Participant Rule for the Auto Finance Market Will Change the Game for Nonbank Auto Finance Companies,” from 12 p.m. to 1 p.m. ET. The registration form is available here.
