Topic: Automobile Lending
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An auto loan borrower left his vehicle at a repair shop and failed to pay for the repairs. The repair shop has since moved the vehicle to a storage facility. The repair and storage fees are around $30,000, which exceeds the vehicle’s value. Are the liens for the repair and storage services junior to our lien? We have the vehicle title, which shows our lien, and we have not received any communications from the storage facility.
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The repair shop may be able to assert a common law artisan’s lien for its repair work, which would have priority over your bank’s earlier perfected security interest in the vehicle, but not for the storage fees. Illinois courts have held that a common law lien for repair services has priority over a secured lender’s…
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A new Illinois law requires used vehicle contracts to provide a 15 day/500 mile limited powertrain warranty of merchantability. Does that apply to used powersports or motorcycles?
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The new powertrain warranty requirements apply to used motorcycles, as well as used powersport vehicles that have a certificate of title, such an all-terrain vehicles (ATVs). We confirmed with the Illinois Attorney General’s office that the powertrain warranty requirements apply to any used “vehicle,” as defined in the Illinois Vehicle Code. A vehicle is any…
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Our core processor notified us that it is updating its standard right to cure notice form fields to include all collateral that secures a loan. Does Illinois require a right to cure notice on delinquent loans? Should we be using this form, along with its upcoming updates?
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No, we do not believe that your bank should rely on a core processor’s standard right to cure form to comply with Illinois law. Presumably, your core processor’s standard right to cure form is used nationwide, without customization for Illinois. But Illinois does not have a single, standard “right to cure” notice requirement for all…
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One of our auto loan customers is an active duty military servicemember. He would like to trade in his existing car and finance the purchase of a new car. The trade-in value of the current car will not cover the balance on his existing loan (he has “negative equity”), so the proceeds of the new loan will cover the purchase price of the new car, plus a small amount to pay off the remainder of the existing loan balance. Because a portion of the proceeds will be used to pay off an existing car loan, does the Military Lending Act apply to the new loan?
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We believe that this loan could be treated as an auto purchase loan, which would be exempt from the Military Lending Act (MLA)’s consumer protections. But there is some ambiguity on this point. We contacted the Department of Defense (DOD) to pose this question and were informed that the DOD is aware of this ambiguity…
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Under a change to the Consumer Fraud and Deceptive Business Practices Act that takes effect July 1, 2017, all sales agreements for used cars are voidable unless they include the following language: “Illinois law requires that this vehicle will be free of a defect in a power train component for 15 days or 500 miles after delivery, whichever is earlier, except with regard to particular defects disclosed on the first page of this agreement. ‘Power train component’ means the engine block, head, all internal engine parts, oil pan and gaskets, water pump, intake manifold, transmission, and all internal transmission parts, torque converter, drive shaft, universal joints, rear axle and all rear axle internal parts, and rear wheel bearings. You (the consumer) will have to pay up to $100 for each of the first 2 repairs if the warranty is violated.” This slipped through the cracks at our bank, and we will not have contracts with this updated language for two weeks. How should we address this in our sales agreements until the new contracts arrive?
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While we cannot provide legal advice, we think that adding a simple addendum to your current contract which includes this new language should suffice. For resources related to our guidance, please see: Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2L: An agreement for the sale of a used motor vehicle subject to this…
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We made a loan to an active duty military member to purchase a car. He entered active duty before we made the loan, and he left active duty about nine months ago. We used the Department of Defense’s database to confirm that he no longer has active duty status. Under the Servicemembers Civil Relief Act (SCRA), can we repossess his vehicle, or do we have to wait a year from the end of his active duty status?
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You do not need to wait a year after the borrower’s active duty military status ends to repossess his car. Although the SCRA extends certain protections to service members after the termination of their active duty status — such as protections against a mortgage foreclosure or a storage lien enforcement — this extension does not…
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We came across two vehicle titles previously held as collateral for a paid-off loan. The address and phone numbers we have on file for the borrowers are no longer accurate. Because the titles are not the physical property — only proof of ownership — do they escheat to the state? If not, how long are we required to hold onto these titles?
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Under the Illinois Vehicle Code, when a lender receives a payoff of a vehicle loan, the lender must deliver a release and the certificate of title to the owner within 21 days (or 10 business days if the payoff was made with cash or a certified or cashier’s check). The statute prescribes a $150 fine…
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Under Illinois law, can we set a minimum late fee amount on consumer loans, such as vehicle loans and unsecured loans?
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Yes, it is permissible to establish a minimum late fee on consumer loans, including vehicle loans and unsecured loans, provided that the customer contracted to pay the fee in your loan agreement. Under Illinois law, there are very few limitations on interest rates and fees charged by banks, whether on commercial or consumer loans. The…
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We have a customer who wants an auto loan. The customer has good credit, but is subject to a federal tax lien. If we make the loan (secured by the car), what is our priority in relation to the tax lien?
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The federal tax lien would have priority over your secured interest in the car. A security interest takes priority over a previously recorded tax lien only if the secured party does not have “actual notice or knowledge” of the tax lien at the time the security interest is created, which is not the case here.…
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For an auto loan, we charge a document preparation fee and a lien recording fee. Both fees are added to the loan amount requested and then withheld from the amount given to the borrower. Are either of these fees considered a finance charge or a prepaid finance charge? Should we include the fees in the amount financed?
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We believe that a document preparation fee would be considered a finance charge, as it would not be charged in a comparable cash transaction and is not otherwise exempted from the definition of a finance charge (because the loan is not secured by residential real estate). In addition, the document preparation fee is a prepaid…