By Michael Gordan, defi SOLUTIONS VP, Compliance
In the criminal law realm, passing a retroactively effective bill is almost certain to incur constitutional challenges. But where civil law is concerned, there is more latitude for this sort of thing. Nevertheless, the practice is still highly unusual and has a tendency to raise eyebrows and sow confusion, as seen in the case of New Hampshire’s HB 1243.
HB 1243 was signed into law by New Hampshire Governor Chris Sununu on August 2, 2024, with an effective date of July 1 – one month prior. The new law, which repealed and reenacted RSA 361-A, imposes changes in auto finance – great and small – in three primary areas: licensure, account servicing, and collections efforts. We address some of those areas in this article, but with caution, as always. This blog does not convey legal advice and while we do certainly advise seeking your own legal counsel, the law is surprising enough that New Hampshire’s Banking Department has put up a website with FAQs that can be found here.
What Has Changed
The HB1243 governs retail installment sales of motor vehicles and makes a number of changes to current New Hampshire law.
Operational Impacts for Account Servicing
The following provisions of the law appear to be the most significant for defi and clients. Some simply restate existing practice and some are entirely new:
- Finance charges: Must be calculated on the principal balance and a daily simple interest rate; successive periodic payments must be substantially equal.
- Balloon payments: Permitted for contracts for new vehicles. The law includes a number of provisions related to balloon loans. The contract must allow for return of the vehicle in satisfaction of the balloon payment. A disposition fee of not greater than $250 (adjusted annually) may be assessed. Excess mileage and wear and tear fees are permitted but controlled by contract.
- Refinancing the balloon payment: Balloon contracts must include a provision that permits the borrower to refinance the balloon payment at an APR no greater than that of their contract. Creditors must assess the application for refinancing under similar criteria they applied to the original contract. Applications for balloon contracts must include conspicuous (i.e., at least 10-point font) notice of this right.
- Monthly statements: Are required, and must include the date of the loan, the principal amount of the loan, the total interest charged for the loan, the name and address of the borrower and of defi, a description of the schedule of payments.
- Requests for information: Within 5 days of the request, must provide borrower dates and amounts of payments and/or total unpaid amount.
- Payments: Should be treated as effective upon receipt.
- Ancillary products: Within 21 days of cancellation of ancillary product, any unearned premium refund received must be credited to the final maturing installments of the contract, unless applied to premium for a similar product. Appropriate notice must be given to the issuer of the ancillary product.
- Completion of Contract: Within 21 days from the receipt of final payment, and within 10 days of written request if that’s sooner, must release the lien and provide the title to the owner.
Operational Impacts for Account Collections
Repossession: Prior to repossession, and not less than 10 days after payment is past due, a notice of default must be sent to the borrower that includes certain mandated verbiage. Once repossession takes place (use of a starter interrupter is considered repossession), no fees other than those associated with the costs of repossessing, maintaining and disposing of the vehicle may be charged to the borrower. Prior to disposition, a notice must be sent to the borrower with certain required information. The deficiency balance letter must be sent within 21 days of the disposition of the collateral.
Licensing Impacts
- These impacts will be very dependent on the business. The definition of “sales finance company” has expanded and now includes anyone acting as a “lender, holder, assignee, or servicer” of a retail installment contract, or one whose business is to purchase such contracts from retail sellers.
- Banks and CUs, for example, are included in this definition, but are explicitly exempted from the licensing requirements of the bill.
Expectations
This is a lot of change. Is New Hampshire offering any flexibility? Short answer, “some.”
An “Announcement” from the New Hampshire Banking Department acknowledges that “businesses need time to educate themselves about the changes” and that becoming immediately compliant “may be challenging.” It has therefore promised to engage in “outreach and education” until January 1, 2025.
All lenders active in New Hampshire need to review the law to determine its effect – if any – on their operations. defi SOLUTIONS is currently engaged in that process, assessing the impact of the law on its SERVICING application and reviewing its operations and making changes to procedures and documentation in its defi MANAGED SERVICING outsourced servicing operation to swiftly come into compliance with New Hampshire law.
This blog is not meant to be a comprehensive listing of compliance challenges the industry faces, nor a source of legal advice. Instead, we address trends in vehicle loan and lease compliance and illuminate some of the issues on the minds – or in our view, should be on the minds – of industry players.
