Assigned to FIR                                                                                                                  AS PASSED BY THE SENATE

 

 

 

ARIZONA STATE SENATE

Phoenix, Arizona

 

FINAL REVISED

FACT SHEET FOR S.B. 1244

 

secondary motor vehicle finance transactions

 

Purpose

 

Regulates secondary motor vehicle finance transactions.

 

Background

 

Secondary motor vehicle finance transactions, as defined in this bill, refer to short term (usually three to four months), fairly small (average of $800) loans that are secured with a motor vehicle.  Because such transactions may require consumers to conditionally sell their vehicle to the lender and then lease it back (the lease payment reflects the monthly finance charge), such transactions are sometimes known as “sale-leaseback” agreements.  Currently, these transactions are not regulated by state law, although businesses engaging in these transactions must comply with federal disclosure regulations regarding lease transactions.

 

To clarify how such a transaction works, the following example is offered.  A consumer in need of $600 who owns a car free and clear of any liens could obtain these funds from  a secondary motor vehicle finance company.  The lender and the consumer would execute a contract that could either require the consumer to sell the car and lease it back from the company or simply allow the company to take a secured interest in it.  Based on the monthly rates set forth in this bill, the maximum monthly amount the secondary finance company could charge for this amount of money would be $90 ($600 X 15% ).  Any amount paid over $90 would be applied to pay off the principal balance of $600 thereby reducing the following months' interest cost.  If the consumer failed to make the monthly payments, the lender could repossess the vehicle pursuant to the Uniform Commercial Code.

 

Provisions

 

1.      Sets the following monthly finance rates for secondary motor vehicle finance transaction:

 

·        17 percent for an original principal amount of $500 or less.

·        15 percent for an original principal amount between $501 and $2,500.

·        13 percent for an original principal amount between $2,501 and $5,000.

·        10 percent for an original principal amount above $5,000.

 

2.      Requires those who engage in secondary motor vehicle finance transactions to determine the annual secondary motor vehicle finance rate and all charges relating to the sale of the vehicle and to conspicuously disclose this rate in the contract.

 

3.      Requires secondary lenders to compute the annual rate by multiplying the monthly secondary rate by 12.

 

4.      Requires licensees to comply with and be subject to the secured transactions chapter of the Uniform Commercial Code in the event of a default.

 

5.      Clarifies that all sales of repossessed vehicles must be conducted in a commercially reasonable way.

 

6.      Makes a transaction (and its accompanying principal, finance charges or other fees) voidable if, barring accident or error, the licensee charges or receives excess finance charges or fees.

 

7.      Voids a transaction (and its accompanying principal, finance charges or other fees) if entered into by an unlicensed person.

 

8.      Defines “secondary motor vehicle finance transaction” and includes it as a type of retail installment contract.

 

9.      Exempts secondary motor vehicle finance transactions from motor vehicle time sales contract requirements.

 

10.  Makes a technical change.

 

11.  Contains a general effective date.

 

Amendments Adopted by Committee

 

1.  Makes a technical change.

 

Amendments Adopted by the House of Representatives

 

1.      Requires licensees to comply with and be subject to the secured transactions chapter of the Uniform Commercial Code in the event of a default.

 

2.      Clarifies that all sales of repossessed vehicles must be conducted in a commercially reasonable way.

 

3.      Makes a transaction (and its accompanying principal, finance charges or other fees) voidable if, barring accident or error, the licensee charges or receives excess finance charges or fees.

 

4.      Voids a transaction (and its accompanying principal, finance charges or other fees) if entered into by an unlicensed person.

 

5.      Makes conforming changes.

 

 

 

Senate Action                                                               House Action

 

FIR                  2/2/00              DPA    4-3-0-0                        COM               3/8/00              DP       6-2-0-1

3rd Read           2/23/00                        18-12-0           3rd Read           3/20/00                        38-21-1

Final Read        3/30/00                        18-12-0

 

Signed by the Governor 4/3/00

Chapter 121

 

 

Prepared by Senate Staff

April 26, 2000