LENDING & COLLECTIONS
Collections Under the Soldiers & Sailors Civil Relief Act of 1940
Since September 11, 2001, over 55 thousand troops in the military reserves and national guards have been called up. Once creditors, including credit unions, become aware that their borrowers have been called up to active duty, great care should be taken not to violate the Soldiers & Sailors Act.
The intention of the Soldiers & Sailors Act is to postpone or suspend certain civil obligations in order to enable service members to devote full attention to military duty. The protection begins on the date of entering active duty and generally terminates within thirty to ninety days after the date of discharge from active duty. The ability of the service member to either defend or to pursue legal action must be materially affected by his or her military service which is usually presumed due to geographic prejudice, meaning the service member is moved to a different location and/or economic prejudice, meaning that the military member cannot meet financial obligation due to the military service. The presumption is with the service member, not the lender.
All legal proceedings, including divorces, are stayed during the military service. Similarly, collection efforts against one who is serving in active military duty for debts incurred before military call up must be suspended. The maximum rate of interest on this indebtedness should be changed to six (6%) percent upon the request of the borrower. Again, this only effects pre-active service debt, meaning that any debt incurred after the beginning of the active military service does not fall within the protections of this act. Enforcement of rent obligations (including evictions), installment contracts, mortgages, liens, assignments and leases are all stayed during the military service. There are severe penalties for non-compliance.
Any judgment may be set aside when obtained against a service member while the defendant is in the active military service, provided that the motion to set aside the judgment is filed ninety (90) days after the service member leaves the military service and a meritorious or legal defense to the action is shown. The statute of limitation is tolled for the bringing of any action or proceeding by or against a person who is in active military service for the length of that service.
Once miliary service has concluded, the lender may resume the contract rate of interest. However, notice of the increased interest rate must be provided after the active service is over.
Spanish Language Loan Transactions
When the negotiation of retail installment sales, automobiles sales financing or car loans is done "primarily" in the Spanish language, the credit union must provide a Spanish language translation of the contract before the signing of the English version. For a credit union, a Spanish copy of the disclosures required by Regulation Z is sufficient. Notice must be "conspicuously displayed" in Spanish advising customers/members of the requirement that a Spanish language translation be provided.
The requirement of providing a Spanish language written translation of the contract does not apply if the party "negotiates the terms of the contract, lease or other obligation through his or her own interpreter." This interpreter must not be a minor, must be able to speak fluently and read with full understanding of the English and Spanish languages, and not be employed the credit union. Of course, the difficultly is knowing when a member or borrower uses his or her own interpreter, whether that interpreter meets all of the requirements. The remedy for failure to comply with the requirements of this law is rescission, meaning the undoing of the deal.
As far as contracts purchased by the credit union, the dealer is supposed to notify the credit union when the contract has been "negotiated in Spanish." Obviously there is no other way to know, since the signed contract is the English version. If there is a rescission right and the contract has been assigned (for example, to a credit union), the consumer must rescind with "the person with whom he made the contract [dealer] and shall give notice of the rescission to the assignee [credit union]. Notwithstanding that the contract was assigned without recourse, the contract shall be deemed rescinded and assigner [dealer] shall promptly repurchase the contract from the assignee [credit union]."
Twenty-year old case law indicates that if the borrower is entitled to a Spanish language copy of the original contract, he/she is also entitled to a Spanish translation of the deficiency notice. A case held that if the deficiency notice was not given in Spanish, then no deficiency judgment is allowed, even if there is no evidence with respect to rescission or attempted rescission by the consumer.
When there are multiple signers of a contract, the creditor shall deliver to each person who does not receive any money, property or services which are subject to the contract, a notice in English and Spanish before that person becomes obligated under the consumer credit contract. However, the cosigner Spanish/English notice requirements do not apply to joint applicants for open-ended credit, such as credit cards. The distinction between joint applicants (co-borrowers) and cosigners is critical and is not always easy to make. Some credit unions try to avoid cosigners at all costs, accepting only joint applicants. However, a seeming joint applicant may fall within the definition of a cosigner if he/she does not receive the benefits of the loan. Remember there may be a membership issue when a co-borrower must be a member of the credit union but not a cosigner.
Unwanted, Unsolicited Telephone Solicitations
No later than January 1, 2003, the California Attorney General is required to maintain a "do not call" list containing the telephone numbers and zip codes of residential or wireless telephone subscribers who do not wish to receive unsolicited and unwanted telephone calls from telephone solicitors. Once the Attorney General makes the "do not call" list available, it prohibits a telephone solicitor from calling any of the telephone numbers listed to offer or solicit credit, to seek certain marketing information or to seek to sell or promote any investment, insurance or financial services. Violations of this new prohibition of calling any telephone numbers on the "do not call" list amounts to a crime under existing law governing advertising. Fees paid in connection with the "do not call" list by subscribers and solicitors will be deposited in Special Telephone Solicitors Fund created by the law.
The "do not call" list will be updated quarterly by the California Attorney General. Collection calls will still be allowed but they must be bonafide, meaning not merely a disguise for a solicitation call. The burden will be on any caller to someone on the "do not call" list to prove the call is an actual response to an inquiry or a bonafide collection call. The presumption is that a call to any telephone number on the "do not call" list is in fact a violation of the law. Those consumers who ask to be placed on the "do not call" list must give a reason, but that reason will remain private. This is just another example of increasing privacy legislation on the state level.
Repossession
Existing law provides that a licensed repossession agency must serve upon the debtor a notice of seizure as soon as possible after the recovery of the collateral. Now, this notice shall also contain a disclosure of the charges owed to the repossession agency for storage of the collateral and personal effects from the date of repossession until release of the property for storage. This bill would prohibit a city, county or a state agency from requiring that a legal owner, that is a financial institution, including a credit union, or other person holding a security interest in the vehicle who is not the registered or owner, request a post-storage hearing as a requirement of the release of the vehicle to the legal owner or legal owner's agent. The law revises the documents that a legal owner, such as a credit union, is required to present to the impounding agency for release of the vehicle and would prohibit the agency from requiring documents other than those specified. The law provides that the impounding agency is not liable to the registered owner for improper release of the vehicle to the legal owner so long as the release complies with the law.
Credit Card Disclosure
Beginning July 1, 2001, a credit card issuer must provide new disclosures to its cardholders in each billing statement, regarding the length of time it will take at various payment rates to pay off the balance due on an open-end credit card account. On the front of the first page of the billing statement, in no less than 8-point capitalized type must be the following statement "Minimum Payment Warning: Making only the minimum payment will increase the interest you pay and the time it takes to repay your balance." Also required on the first page of each billing statements is either one or the other of a written three line statement giving an example of how long it would take to pay off either a $1,000 balance or a $250 balance. Please let me know if you cannot obtain that exact language from your credit card vendor and I will provide it to you.
The first page of each billing statement must also provide individualized information indicating an estimate of the number of years and months and the approximate total cost to payoff the entire balance due on an open-end credit card account, if the cardholder would pay only the minimum amount due. Additionally, the cardholder shall be provided with referrals or, in the alternative, with the 800 telephone number of the National Foundation of Credit Card Counseling, through which the cardholder can be referred to credit counseling services in or closest to his/her county of residence.
Each billing statement shall also including the following statement: "For an estimate of the time it would take to repay your balance, making only minimum payments, and the total amount of those payments call this toll free number: [insert toll free telephone number]." The toll free telephone number shall be available between the hours of 8:00 a.m. and 9:00 p.m. Pacific Standard Time, seven (7) days a week and shall provide consumers with an opportunity to speak with a person rather than a recording from which information described upon may be obtained.
The State Department of Financial Institutions must establish a detailed table illustrating the approximate number of months that it would take and the approximate total cost to repay an outstanding balance, if the consumer pays only the required minimum monthly payments and if no other additional charges or fees are incurred on the account.
Student Credit Cards
A student credit card is defined as a credit card that is provided to a student at a public or private college or university in California, based solely on that student's enrollment at that school or is provided to a student who would not otherwise qualify for the credit card on the basis of his or her income. A student credit card does not include credit issued to a student who has a co-signer or co-cardholder who would otherwise qualify for a credit card. Under this new law, the governing body of the accredited private or public university or college, such as the trustees or board of governors, must adopt policies to regulate the marketing practices used on campus by credit card companies. This means that universities must now explain to its students the problems of incurring credit card debt.
Consumer Loan Secured by Real Property
This new law would prohibit various acts in making consumer loans secured by specified real property defined as "covered loans." The act prohibits failing to consider the financial ability of a borrower to repay to loan, financing specified types of credit insurance into a consumer loan transaction, recommending or encouraging a consumer to default on an existing consumer loan in order to solicit or make a covered loan that refinances the consumer loan, and making a covered loan without providing the consumer specified disclosure. Any violation will be subject to civil penalties.
Consumer Credit Reporting and Checking Account Experience Disclosures
Under a law effective July 1, 2001, a consumer credit reporting agency must disclose the recipients of any consumer credit report regarding a consumer as well as information contained within a consumer credit report. This law also provides that anyone who regularly engages in the practice of assembling, evaluation, or discriminating information on the checking account experiences of the consumer customer is also covered by this law.
Effective January 1, 2003, the regulation of the person(s) who regularly engages in the practice of assembling, evaluating or determinating information on checking account experience of a consumer is deleted from the law. At that time, January 1, 2003, a consumer credit reporting agency is then required upon a request of a consumer to provide the addresses, and if provided by the sources and recipient of the consumer's credit information, the telephone numbers identified for customer service for the sources and recipients of the consumer credit report.
