Topic: Automobile Lending
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Our loan department is considering lending to minors if they have a parent or guardian as a co-borrower. Can we limit this lending to loans with a security interest in an automobile? If title to the vehicle is in the minor’s name, what issues could we run into if we try to collect on the note or repossess the vehicle?
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Limiting Minor Borrowers to Auto Loans In Illinois, the general rule is that minors cannot enter into legally binding contracts, since an agreement with a minor is voidable by the minor until they reach the age of majority (which is eighteen in Illinois). There are some exceptions to this general rule, as in cases of…
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Our loan department is considering extending auto loans to minors with an adult co-borrower. Can we require the co-borrower to be the minor’s parent or guardian? What would happen if the adult co-borrower dies, leaving only the minor on the loan? Can we pull credit reports for or report negative credit information on a minor?
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Requiring a Parent or Guardian to be a Co-Borrower Yes, we believe you may require the co-borrower for a loan to a minor to be the minor’s parent or guardian, as a minor cannot enter into a legally binding contract in Illinois. In Illinois, the general rule is that an agreement with a minor is…
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The Illinois Collateral Protection Act provides that we may require a final balloon payment to collect the costs of force-placed collateral protection insurance within thirty days after the last scheduled payment required by the credit agreement. If we choose to do this for an automobile loan for which we have issued a coupon book, do we need to send the borrower an updated coupon book?
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No, we do not believe you need to send an updated coupon book after force-placing collateral protection insurance for an automobile loan that will be repaid as a balloon payment at the end of the loan term. The Collateral Protection Act provides that pursuant to the terms of a credit agreement, creditors may require borrowers…
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We understand that loans made by banks generally are exempt from the Predatory Loan Prevention Act (PLPA). However, we are also aware that the PLPA may apply to loans made by a covered lender and purchased by a bank, such as an indirect automobile loan originated by a dealer and sold to a bank. For this reason, should we be requiring dealers to provide us with a signed disclosure of the PLPA’s 36% rate cap for each auto loan that we purchase?
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Yes, we recommend requiring automobile dealers to provide the 36% PLPA rate cap disclosure for each covered loan made to a consumer borrower that your bank purchases. You are correct that banks are generally exempt from the PLPA, and that loans made by a covered lender and purchased by a bank, such as an indirect…
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Is there a requirement under state law to refund any surplus after the sale of a repossessed vehicle? If so, does this requirement extend to a vehicle surrendered in a bankruptcy proceeding?
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Yes, Article 9 of the Illinois Uniform Commercial Code (UCC) generally requires secured parties to pay a debtor for any surplus resulting from the sale of a vehicle that has been repossessed, and we believe this provision also is applicable to a vehicle surrendered in a bankruptcy proceeding. Whether a vehicle is repossessed by judicial…
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What is the legal age a person must be to cosign for a loan? We have a 16-year-old who would like to cosign a vehicle loan with their grandparent, but we are not sure if the agreement would be legally binding.
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Generally, a person must be eighteen in Illinois to sign a contract. If a minor cosigns a vehicle loan with their grandparent, the loan agreement would not be enforceable against the minor cosigner until they reach the age of eighteen and ratify the agreement. In Illinois, the general rule is that minors cannot enter into…
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A borrower with a residential mortgage died, and their spouse (who signed the mortgage but is not on the note) is living in the property. The deceased borrower also had a car loan solely in their name. The mortgage and the car loan have not been paid for several months, and the spouse has not responded to our communications. What steps can we take moving forward?
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Since the spouse has not responded to your communications, and presumably has not indicated an interest in assuming either loan, we generally recommend following the same procedures you would follow when a living borrower has defaulted on a residential mortgage loan or a car loan — with the caveats addressed below. We also recommend conferring…
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For indirect automobile loans, are we required to keep copies of the credit score disclosure or risk-based pricing notice to prove the customer received a copy? Regulation V indicates that if we arrange to have an auto dealer or other party provide the credit score disclosure or risk-based pricing notice as required, we must maintain reasonable policies and procedures to verify they provided these notices to the customers in the required time period. How can we document compliance with this requirement, and do you have an example of such a policy or procedure?
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We do not believe that Regulation V explicitly requires banks to keep copies of credit score disclosures or risk-based pricing notices for automobile loans to prove that customers received a copy. Regulation V requires creditors only to maintain “reasonable policies and procedures to verify that the auto dealer or other party provides such notice to…
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We are aware that vehicle repossessions had previously been suspended under COVID-related Illinois executive orders. Have banks been allowed to resume vehicle repossessions as of October 29, 2020?
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Yes, banks have been allowed to resume vehicle repossessions since August 23, 2020. On July 24, 2020 the Illinois governor issued Executive Order 2020-48, which rescinded the suspension on vehicle repossessions after August 22, 2020. Subsequent executive orders have not extended the suspension of vehicle repossessions in Illinois. For resources related to our guidance, please…