Car Title Loans – Licensing Issues and Car Title Loan Repossessions
By: Jer Trihouse
Interested in car title loans, repos and licensing? The president of the American Recovery Assoc. and a few of our car title loan clients received the following letter from the NY state attorney general:
Dear Mr. Hall:
I am writing to you in your capacity as the President of the American Recovery Association, Inc. (“ARA”) to bring to your attention a very serious situation that may affect your members from New York State.
As you may be aware, payday loans are illegal in New York State because they violate New York civil and criminal usury laws. You will not find any “brick and mortar” payday loan companies in New York State. Payday loan companies, however, have established a presence on the internet and continue to make payday loans to New York residents, even though the loans are illegal, void and unenforceable. A particularly pernicious type of payday loan is called a “title loan.” Title loan lenders require that consumers pledge their motor vehicles as collateral for the loan. When the consumer allegedly defaults on the title loan, the lender uses New York businesses to enforce their illegal, void and unenforceable loans by repossessing the vehicle. That is where your members come in.
The Office of the Attorney General (“OAG”) is investigating a title loan company that used several New York towing and recovery businesses to repossess the vehicles of New York residents based on illegal title loans. The OAG is investigating the New York businesses as well because of their role in enforcing the illegal loans.
Under N.Y. Executive Law, § 63(12) and N.Y. General Business Law Article 22- A, the OAG is authorized to file special proceedings against businesses that engage in illegal or fraudulent business practices. The OAG believes that repossessing motor vehicles based on illegal, void and unenforceable loans constitutes illegal, fraudulent and deceptive business practices for which a court could order penalties of up to $5,000 for each deceptive act, as well as costs.
To prove its case, the OAG is not required to show that a business intended to violate the law, or that it intended to engage in fraudulent conduct or that it acted in bad faith in repossessing the vehicles. See People v. General Electric, 302 A.D.2d 314, 315 (1st Dep’t 2003) (“Although [the company] argues that it conducted its [business activities] in good faith, neither bad faith nor scienter is required under Executive Law § 63(12).” (internal citations omitted); see also State of New York v. Ford Motor Co., 136 A.D.2d 154, 158 (3d Dep’t 1988), aff’d 74 N.Y.2d 495 (1989) Lefkowitz v. E.F.G. Baby Products Co., Inc., 40 A.D.2d 364, 367 (3d Dep’t 1973) (“that [the business] acted in good faith, even if believable, is irrelevant”).
Your members should be aware that the following loans are illegal:
a. a personal loan to a New York resident of $25,000 or less from a lender that is not licensed by the New York State Department of Financial Services, and
b. the loan is for personal, family, household or investment purposes, and
c. the unlicensed lender charges an annual interest rate of more than 16%.
If the lender is a federally chartered bank, or a bank that is chartered by a state other than New York State, the loan may not violate New York law. This would rarely be the case with a title loan.
Your members should be aware that if they repossess the motor vehicles of New York residents based on an illegal title loans, they too may find themselves the subject of an investigation and an enforcement action by the OAG.
I welcome the opportunity to speak with you to discuss what role the ARA could play in assuring that its members do not enforce payday or title loans that violate New York civil and criminal usury laws.
Very truly yours,
James M. Morrissey
Assistant Attorney General