Authorizes the superintendent of financial services to oversee and regulate car dealer transactions with consumers

Summary of provisions

Section 1: Amends Section 301 of the financial services law to add a new subsection (d) which permits the superintendent of the Department of Financial Services to oversee and regulate the financing of new and used motor vehicles.

Section 2: Amends Section 302 of the personal property law to add new subdivisions 5-a and 5-b. 5-a will require a disclosure on motor vehicle retail installment contracts to consumers that conditional deliveries are not allowed. 5-b will require that all motor vehicle retail installment contracts itemize the following: the price paid for the vehicle, the price of each option, add-on and additional charge relating to the sale of the motor vehicle, all fees imposed by a lender upon the dealer or buyer which are related to the financing of the motor vehicle, and the total price of the motor vehicle including all charges.

Section 3: Amends the vehicle and traffic law to add two new sections 417-c and 417-d which provide that dealers must review and confirm with all credit applicants the accuracy of the information contained on any loan application forms, and both the dealer and applicant must attest to the truth of the information to the best of their knowledge. Failure of the dealer to comply with these provisions shall entitle the buyer to void the sale of the vehicle within thirty days and receive a full refund for the vehicle and financing charges, and the fair market private sale value of any vehicle traded in. Prevailing plaintiffs under this section will be entitled to court costs and reasonable attorney's fees. This section also explicitly prohibits conditional deliveries. All sale terms must be in writing and clearly disclosed to the consumer. Every dealer shall provide a copy of the written disclosures and maintain them for a period of not less than seven years.

Section 4: This act shall take effect on the first of January next succeeding the date on which it shall have become a law.

Existing law

Under current law, conditional deliveries are not explicitly prohibited. Disclosure requirements during the financing and sale of vehicles, as well as remedies for consumers, are not as

robust. The Department of Financial Services does not currently have jurisdiction over the financing of motor vehicles.

Justification

Abuses in the auto loan financing industry are harming many of New York's most vulnerable consumers. Most consumers do not have the industry-specific knowledge to properly negotiate with auto dealers on even footing, and the auto loan financing process is opaque. Requirements for disclosures and maintenance of important loan documents must be improved.

Additionally, consumers are often not aware that with subprime auto loans, the cost of financing can be more than double the actual value of the purchased vehicle, due to high APRs and expensive add-ons like warranties and service contracts. To make matters worse, dealerships sometimes provide fraudulent loan applications to lenders without informing consumers that the application was ever filed. Lenders sometimes turn a blind eye to this activity, even when consumers inform lenders of it. False applications result in the approval of loans which consumers cannot afford.

Another confusing issue for purchasers buying vehicles are conditional deliveries, sometimes used to scam consumers into taking bad deals on autos. Spot delivery scams are a problem that could be addressed through conditional delivery bans and transparency measures that inform consumers of the ban. Conditional delivery scams are also known as "spot delivery" scams or "yo-yo financing" scams. These scams involve putting a buyer into a vehicle and having the buyer take it home; the dealership then calls the buyer later to tell them the favorable terms on which they purchased the vehicle are invalid. The buyer, enjoying their new vehicle and fearing they have no other options, often agrees to the less favorable terms simply for the sake of keeping the vehicle. The less favorable terms are more profitable for the dealer.

This legislation would help consumers better understand the auto financing process with more transparent documentation, and would prevent confusing and deceptive tactics like spot delivery scams.

Legislative history

This is a new bill.

Fiscal implications

None.

Local fiscal implications

None.

Effective date

This act shall take effect on the first of January next succeeding the date on which it shall have become a law.