ARIZONA STATE SENATE
Phoenix, Arizona
REVISED
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. Defines “secondary motor vehicle finance transaction” and includes it as a type of retail installment contract.
5. Exempts secondary motor vehicle finance transactions from motor vehicle time sales contract requirements.
6. Makes a technical change.
7. Contains a general effective date.
Amendments Adopted by Committee
1. Makes a technical change.
Senate Action
FIR 2/2/00 DPA 4-3-0-0
Prepared by Senate Staff
February 2, 2000