Limits loan assignee liability with regard to motor vehicle retail installment contracts

1 Co-sponsor

• Jeffrey D. Klein

Title of bill

An act to amend the personal property law, in relation to loan assignees

Purpose

This bill slightly increases liability on loan assignees in automobile financing transactions by providing that plaintiffs who prevail in cases against assignees in automobile transactions may be entitled to attorney's fees exclusive of caps on assignee liability, at the court's discretion.

Summary of provisions

Section 1: Amends Subdivision 9 of section 302 of the personal property law to specify that attorney's fees are exclusive of any cap on suits against loan assignees, and authorizes courts to award attorney's fees in these cases to prevailing plaintiffs.

Section 2: 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, assignees generally have their liability capped to the buyer's amount owing to the assignee.

Justification

In many cases, consumers are defrauded by auto dealerships who create fraudulent loan applications stating false income levels or employment histories. Consumers are then stuck with auto loans they could have never been expected to afford and must then sue auto dealerships to become financially whole. In some cases, dealerships close their doors and default on these obligations, and lenders associated with the dealerships turn a blind eye to this fraud and consumer abuse.

Banks and lenders in automobile transactions have heavy involvement in creating the terms under which these contracts are executed, and enable dealers to transact business by providing routes of financing. Even though they are technically assignees because the dealer executes the financing contract, the dealer very quickly sells the note to the assignee, and the banks and financing companies are de facto lenders in these transactions. Lender liability is limited under the assignee rule in the Motor Vehicle Retail Instalment Sales Act. Thus, consumers are left to recover from dealerships (who sometimes shut their doors or default), even when, in some cases, lenders are complicit with fraud. By making attorney's fees exclusive of the normal cap on assignee liability, consumers will be able to access legal counsel in more cases where auto dealers have engaged in fraud, and banks that purchase auto loans will be more careful about monitoring lending practices and the legitimacy of loan applications. Due to increased liability, lenders who are aware of and complicit with auto loan fraud will now have a strong disincentive to continue working with abusive and predatory dealerships.

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.