S.B. 490, as amended, would amend four sections of the Uniform Consumer Credit Code to address the issue of interest rates applicable to consumer transactions involving motor vehicles. The bill would:
add to the definition section of the Code, the terms "vehicle" and "motor vehicle";
amend the closed end consumer credit sales statute to remove sales involving motor vehicles from the negotiated interests allowed by that statute;
amend the open end consumer credit sales statute to remove sales involving motor vehicles from the negotiated interest rates allowed by that statute and to tie such motor vehicle sales to the licensure requirements and interest rates applicable to consumer loans; and
amend the consumer loan statute to incorporate consumer credit sales involving a motor vehicle into the requirements placed on those making consumer loans and charging consumer loan rates.
As amended, the bill would transfer sales transactions involving motor vehicles to the consumer loan section of the Code, thereby maintaining some interest rate controls, but allowing rates higher than would have been available to sellers under the sales section of the Code prior to the 1997 amendments. Motor vehicle sellers would have to be licensed by the Consumer Credit Commissioner to charge rates in excess of 18 percent.
The Senate Committee of the Whole added language that triggers licensure under the Code, i.e., charging interest rates in excess of 18 percent per year on the unpaid balance of the amount financed. Currently, a lender could charge 18 percent only on the first $1,000 of a loan and 14.45 percent on amounts over the $1,000 without being licensed. To charge higher rates or 18 percent on the total unpaid balance of a loan, the lender must be licensed.
S.B. 490 was introduced by the Committee on Financial Institutions and Insurance at the request of Senator Barone. The senator explained that the removal of interest rate caps by the 1997 Legislature had the "unintended consequence" of allowing much higher interest rates on motor vehicle transactions, especially involving used vehicles. The 1997 legislation allowed consumer credit sales rates to be negotiated between the seller and the buyer.
The Consumer Credit Commissioner supported the reimposition of interest rates on motor vehicle transactions and suggested the Committee amendments incorporated into the bill.
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/fulltext-bill.html.