Insights

Louisiana adjourned its 2010 legislative session with a flurry of legislation affecting the motor vehicle industry. Of particular note are a number of changes affecting the ability of sales finance companies to finance certain charges and the disclosures that dealers must provide on buyer’s orders.

La. House Bill No. 452, effective August 15, 2010, amends the Louisiana Motor Vehicle Sales Finance Act to provide for and regulate debt waivers and debt forgiveness agreements that are entered into in connection with motor vehicle consumer credit sales and motor vehicle consumer loans. Assuming creditors comply with federal Regulation Z, such agreements now are expressly authorized. The legislation does not require any changes to retail installment contracts. However, it does regulate the terms of debt waiver and debt forgiveness agreements. Most notably, the legislation requires that such agreements include a “free look” period of at least 30 days during which an agreement may be cancelled with a full refund. Thereafter, consumers have a right to cancel such agreements and obtain a refund of the premium at least as favorable as that calculated under the Rule of 78s. The legislation also requires that debt waivers and debt forgiveness agreements contain a number of specific disclosures, including disclosure informing a consumer of his rights to cancel the agreement and obtain a refund.

On an unrelated note, La. House Bill No. 452 repeals a statutory provision in the Louisiana Motor Vehicle Sales Finance Act that had required the Louisiana Motor Vehicle Commission to develop a voluntary uniform retail installment sales contract for use in Louisiana. Presumably, Louisiana has abandoned this effort to follow in the footsteps of Texas.

La. Senate Bill No. 198, which became effective immediately upon its passage on June 1, 2010, amended the Louisiana Motor Vehicle Sales Finance Act to permit the dealer to charge the consumer for the fees and expenses associated with utilizing Louisiana’s electronic lien and title services. Creditors will want to ensure that this fee is expressly authorized in the itemization of amount financed in their retail installment sales contract.

Also affecting the retail installment sales contract is La. House Bill No. 345. Effective January 1, 2011, La. House Bill No. 345 repeals a provision in the Additional Default Remedies Act that required the retail installment contract to state, in order for creditors to engage in the self-help repossession of a vehicle: “Louisiana law permits repossession of motor vehicles without judicial process.”

With respect to buyer’s orders, La. House Bill No. 1189, signed by the Governor on July 6, 2010, and effective August 15, 2010, expressly authorizes “as is” transactions, but requires that used motor vehicle dealers licensed by and subject to the jurisdiction of the Louisiana Used Motor Vehicle Commission include certain language in the bill of sale in order to waive warranties. Specifically, the legislation provides that if a sale of a used motor vehicle is “as is” and with a waiver of all warranties, the bill of sale must include a notice that clearly and unambiguously states that the terms of the sale are “as is” and with a waiver of all warranties, including any claim for redhibition or reduction of or return of the purchase price. The customer also must acknowledge the terms of the sale, presumably by separately signing the “as is” disclosure. However, an acknowledgment of the terms of the sale via acceptance of an electronic notice at any time prior to or as part of the transaction constitutes compliance with this requirement. The legislation also expressly provides that if a used motor vehicle dealer complies with these requirements, the purchaser is not entitled to a return of the purchase price, a reduction in the purchase price, or a repair of the vehicle without payment of the cost of the repair. The legislation does not expressly apply to those used motor vehicle dealers licensed by and subject to the jurisdiction of the Motor Vehicle Commission. Nevertheless, it does evidence a legislative intent that “as is” sales are permissible in connection with all used motor vehicle sales if these disclosure are made.

La. House Bill No. 1058, effective January 1, 2011, requires a new disclosure on the bill of sale, buyers order, or sales contract if the dealer charges a document preparation fee, credit investigation fee, or fee for complying with applicable law. Specifically, the legislation provides that the dealer must provide written disclosure to the consumer of the amount of the document fee collected as authorized by Louisiana Revised Statutes Section 6:969.18(A)(2) along with the following statements in conspicuous type: “This fee is authorized by R.S. 6:969.18(A)(2). It is not a mandatory state fee. The seller, who may also be an extender of credit, may charge the fee for credit investigation, compliance with federal and state law, preparation of the documents necessary to perfect or satisfy a lien upon the objects sold, and any other functions incidental to the titling of the retail sale.” The legislation states that the disclosure must be printed on the bill of sale, buyer’s order, or sales contract, which is signed by the buyer and retained by the buyer and the seller. Presumably, proper disclosure on any one of these instruments is sufficient. Accordingly, sales finance companies that do not include this disclosure on the retail installment contract will want to confirm that it is made on the buyer’s order or on a bill of sale.

Finally, La. House Bill No. 1489, effective August 15, 2010, requires that dealers selling new vehicles provide a mandatory recall notice to the buyer. The legislation requires that this disclosure appear in the buyer’s order and inform prospective buyers as follows:

“A new motor vehicle may have been subject to a National Highway Traffic Safety Administration required recall which would be repaired in accordance with manufacturer standards approved by the National Highway Traffic Safety Administration. If such a repair is a concern before you purchase, please ask for a copy of the recall notice, if applicable, to the vehicle being sold.”

The notice must be included on the buyer’s order in a box and in bold print, which is signed next to the box by the buyer and the seller or his representative. If the buyer requests the recall notice, the recall notice must be included in the sales transaction. If the selling dealer performed the repair, the documents supporting the repair must also be included in the sales transaction.

David S. Darland is a partner in the Washington, D.C., office of Hudson Cook, LLP. David can be reached at 202-327-9707 or by email at ddarland@hudco.com.