Thursday, September 29, 2022

June 2022 OBA Legal Briefs

  • Please help us to help you (Part 2)
  • Oklahoma Mini-TCPA
  • Tit. 47 O.S. § 1110 (Perfection of Security Interest)
  • Tit. 47 O.S. § 427A/§ 1105A (Electronic filing, etc., of Titles) – REVISED
  • Changes in UCCC amounts effective 7/1/22

Please help us to help you (Part 2)

by Andy Zavoina

Last month, Pauli asked you to include certain information in your signature block when emailing us a question. This month, we ask you to avoid sending unnecessarily encrypted emails. We often find they are used for basic questions without information requiring such safeguards. It takes more time to register with an email provider and establish an acceptable password than to answer some questions. In many of these situations it may be faster just to call us.

When you do call, you may have to leave a voice mail. Please provide a detailed description of your question so that the appropriate person can call or email you and have the necessary resources available. And please, take the time to state clearly your questions, and especially your name, bank name and location, and call-back number.

[Editor’s note: In early May, an email security change at OBA locked the OBA Compliance Team out of the OBA email system, and we had to set up a temporary email account very quickly for the team. We are very happy to report that we regained access to our compliance@oba.com mailbox after only a few days. If any of you changed our email address in your contacts lists, please change it back. We appreciate your patience while we worked with the temporary setup.]

Oklahoma Mini-TCPA

By Andy Zavoina

The federal Telephone Consumer Protection Act (TCPA) was passed in 1991 and is well seasoned and understood by some and misunderstood by others. (“Your car warranty is expiring. This is your final notice.” Yeah, you wish it was final.) The law restricts certain telemarketing phone calls, text messages, and facsimiles. I’m not sure who is still using a fax so for the purposes of this article I will refer to telephone calls and text messages. Include faxes if your bank is using that delivery channel.) It also places restrictions on the use of automatic dialing systems and artificial or prerecorded voice messages.

In 2021 states began showing more interest by adding to the consumer protections. In particular, Florida passed its Florida Telephone Solicitation Act (FTSA). This included new and broader restrictions on telemarketing operations. Oklahoma has largely copied the FTSA in passing its own Oklahoma Telephone Solicitation Act. The Oklahoma version is often referred to as the mini-TCPA. It was signed by Governor Stitt in May and will be effective about five months later, beginning November 1, 2022. It will be codified in the Oklahoma Statutes as Section 775C.3 of Title 15.

There are a few key provisions we will focus on this month. The intent is consumer protection for Oklahoma residents, so the mini-TCPA expands on telemarketing restrictions. As with most telemarketing laws, this requires telemarketers to have a prior express written consent before they  contact a consumer. This is a term that is defined and means there is a written agreement that:

  1. bears the signature of the called party,
  2. clearly authorizes the person making or allowing the placement of a commercial telephonic sales call by telephone call, text message, or voicemail transmission to deliver or cause to be delivered to the called party a commercial telephonic sales call using an automated system for the selection or dialing of telephone numbers, the playing of a recorded message when a connection is completed to a number called, or the transmission of a prerecorded voicemail,
  3. includes the telephone number to which the signatory authorizes a commercial telephonic sales call to be delivered, and
  4. includes a clear and conspicuous disclosure informing the called party that:

(1) by executing the agreement, the called party authorizes the person making or allowing the placement of a commercial telephonic sales call to deliver or cause to be delivered a commercial telephonic sales call to the called party using an automated system for the selection or dialing of telephone numbers or the playing of a recorded message when a connection is completed to a number called, and

(2) he or she is not required to sign the written agreement directly or indirectly or to agree to enter into such an agreement as a condition of purchasing any property, goods, or services; and

This signature may be electronic as well as traditional wet ink.

In addition, telemarketers should pay special attention to four provisions of the Oklahoma law in particular. Let’s look at those four provisions.

One – There is no clarification over what is defined by the term “auto-dialer.” This has caused great concern and fueled litigation. The recent Supreme Court case of Facebook v Duguid established a limited definition to only the equipment which produces numbers using a random or sequential number generator. Without clarity the mini-TCPA could be more broadly interpreted making it more onerous on banks with marketing programs using applicable technologies. This new law refers only to, “an automated system for the selection or dialing of phone numbers.” This definition could refer to virtually any device which is not dialed manually.

Two – The mini-TCPA will limit the number of telephone calls and text messages which a telemarketer can send to any one consumer in a day. More specifically it limits contacting a consumer more than three times in a 24-hour period pertaining to the same subject matter or issue. This means the telemarketer must either track the calls and text messages to a given number based on the subject matter or have a system in place, be it software or some form of a database, that tracks and prevents any fourth or subsequent telephone or text message. If you ask me to define the “same subject matter or issue,” I cannot do that. It could be broadly or narrowly defined just as an auto-dialer may be. If a consumer was contacted once about opening a deposit account to take advantage of great rates and low fees, once about a new checking product, and then about a new savings account, could those three be bundled as one subject – deposit accounts? This may be up to legal interpretations and/or the courts.

Three – Although the “day” means a 24-hour period, the mini-TCPA passed for Oklahoma is a bit more limiting than many other states when it comes to time limits when the consumer may actually be contacted. The mini-TCPA limits contact to the 12-hour period from 8 a.m. until 8 p.m., local time. That is the consumer’s local time, not the bank’s. This has been a contentious issue in the past and will continue to be, because with mobile phones you have no idea where your consumers actually are. The area codes are not necessarily an indicator of your consumer’s local time, and this is especially true with military customers and those who travel and work or go to school in another time zone. Be sure to review item four (below) on this issue. Many other state laws and the federal TCPA allow contact from 8 a.m. until 9 p.m., so this new law is a bit more limiting.

Four – The new law does include a rebuttable presumption that your telephone calls and text messages to an Oklahoma area code are being made to an Oklahoma resident. So, for any of the state’s five area codes there is a defensible position as to when it is the customer’s local time. But unlike land lines that are geographically limited, your customer travels with their mobile phone and may permanently reside elsewhere. Be sure to cross reference addresses on file, because having sent bank statements to a consumer’s address in any other time zone may eliminate your rebuttable presumption.

Exemptions

The new mini-TCPA does provide exemptions that may apply to your bank. There are a number of exemptions, but I will draw your attention to number 20. It specifically exempts a “person soliciting business from prospective consumers who have an existing business relationship with or who have previously purchased from the business enterprise for which the solicitor is calling if the solicitor is operating under the same business enterprise.” This exemption alone may be enough to cause you to dismiss the mini-TCPA as a non-event but ensure you are familiar with it to avoid problems. And while this may be an exemption from the mini-TCPA, the bank may not enjoy the same exemptions from the federal TCPA.

Recommended actions

We recommend the bank evaluate all current telemarketing activities. There may be a concerted marketing effort in-house or outsourced for solicitations, or a branch may have taken upon itself an effort to contact new customers for sales in an effort to achieve periodic goal requirements. It happens and some employees will take the initiative. But a violation would be a violation regardless of the motivating factors. Know what is happening in and on behalf of your bank.

The bank should update policies and procedures addressing telemarketing activities even if called by another name, marketing, officer call programs, etc. that are impacted by the mini-TCPA.

Train staff so they all understand the basic requirements of the new mini-TCPA. Specifically focus on what activities are included and what they must do to comply both with the law itself and with the bank’s policies and procedures. This may include obtaining permission from customers as well as management to conduct any activities and following established procedures to comply with the new requirements.

Review and update any outsourcing agreements. Call centers that provide such marketing activities will be subject to the mini-TCPA whether they are a third party or part of the bank making “cold calls.” The bank may delegate authority to third parties, but it cannot delegate responsibilities. It is still the bank’s burden to ensure compliance and the bank has the ultimate responsibility. That said, any agreements may be reviewed to displace as much responsibility to a third party as possible for the actions of that third party.

Penalties

The mini-TCPA does contain a private right to action for consumers. The per call or text message penalties range from between the lesser of actual damages to $500 and to $1,500 for a willful violation. And with regulatory agencies using all possible penalties in enforcement actions, a problem or series of telemarketing problems could result in both state and federal TCPA actions. If the problem is large enough this could result in a class action suit.

There is time, but …

With several months between the date of this article and the November 1, 2022, effective date, there is time to accomplish these actions even with the summer months running interference. But banks are urged not to wait until the last minute and be forced to play catchup.

You will find HB3168 here,

Tit. 47 O.S. § 1110 (Perfection of Security Interest)

by Pauli Loeffler

Sec. 1110 was amended effective May 4, 2022, with regard to transfers of title when there is a lien entry filed by a commercial lender on a vehicle. The amendment provides:

A.

8. When there is an active lien from a commercial lender in place on a vehicle, motor license agents shall be prohibited from transferring the certificate of title on that vehicle until the lien is satisfied, except when the title is transferred:

a) to a person whose name is included on the loan for which the lien is placed pursuant to an agreement by the lender and any party to the title,

b) to a trust created by a person whose name is included on the loan for which the lien is placed, or

c)from a person who has died, upon the submission of a death certificate.

The provisions of this paragraph shall not be construed to release any lien or debt based solely upon a transfer of certificate of title.

The only way to perfect a security interest in a vehicle is by lien entry. As long as the lien remains on the title, the bank can repo the collateral, get a repo title, and sell the collateral. The original borrowers or their estates if the borrower is deceased will remain liable on the note regardless of whether they retain title or not.

Under the amendment if a co-borrower is NOT on the title to the vehicle, the title may only be transferred to the co-borrower if s/he provides proof of status as a co-borrower. Likewise, if the borrower is a natural person, title may be transferred to his or her trust subject to the lien. Note that a garnishment or levy will reach the settlor’s trust,

8.c. covers the situation where the borrower is deceased. The rationale for 8.c. is intended to cover the situation when the sole owner/borrower dies, and there is no other borrower, and no one is making loan payments, so the loan is in default. The problem facing the bank in repossessing and selling the vehicle is determining who must receive notice of the sale. If there is a probate, the bank can deal with the person appointed to represent the estate, but when there is no probate, things get messy.

If the owner provided a Transfer on Death Application (Tit. 47, Sec. 1107.5), title can be transferred to the named person, but such transfer is not allowed as long as the lien remains unsatisfied. Basically, 8.c. would allow the transfer provided payment of the loan has either been made, or the bank is willing to allow the individual named as Transfer on Death beneficiary to assume the loan. Note that if the TOD beneficiary neither pays off the loan nor assumes the loan, the bank can still repossess the vehicle, however, the TOD beneficiary will have no personal liability.

If the deceased owner/borrower had a will, then the title can be transferred using the OTC’s Affidavit of Small Estate. Again, as long as the lien remains on the title, there isn’t a problem, and the loan will have to be paid or provided for, e.g., the heir will assume the note or refi the loan. If there is no will, then the affidavit can’t be used. If the owner died intestate (no will), and there is no probate, then the bank has to determine who the deceased owner’s known heirs are and mail them notice of sake as well as provide publication notice to the unknown heirs. This is time and labor intensive which makes it more expensive to repo the vehicle and sell it. It remains to be seen whether 8.c. allows OTC to transfer title subject to the lien in such case. I believe that in order for this to be permitted, the OTC will need to promulgate new rules and forms.

Tit. 47 O.S. § 427A/§ 1105A (Electronic filing)

by Pauli Loeffler

I covered this in the October 2021 OBA Legal Briefs, but as we draw closer to its effective date on July 1, 2022, we need to review its provisions. This statute covers Electronic Filing, Storage and Delivery of Motor Vehicle Certificates of Title – Procedures. It provides for certificates of title and liens filed after June 30, 2022. Two provisions banks need to know are:

A. On or before July 1, 2022, the Oklahoma Tax Commission shall implement a program which will permit the electronic filing, storage and delivery of motor vehicle certificates of title and allow a lienholder to perfect, assign and release a lien on a motor vehicle in lieu of submission and maintenance of paper documents as otherwise provided in the provisions of Section 1101 et seq. of Title 47 of the Oklahoma Statutes…

B. The program authorized under subsection A of this section shall include, but not be limited to, procedures: 1. For the delivery of a certificate of title, on a paper document or in an electronic format, to the secured party having the primary perfected security interest in a vehicle in lieu of delivery to the record owner, notwithstanding the provisions of Section 1101 et seq. of Title 47 of the Oklahoma Statutes.  Provided, when electronic transmission of liens and lien satisfactions is used, a certificate of title need not be issued or printed until the last lien is satisfied and a clear certificate of title is issued to the owner of the vehicle at their request…

First, the Oklahoma Tax Commission will continue to offer both electronic and paper process on and after July 1, just as they do now. Second, instead of the vehicle’s owner receiving the title, the primary lien holder will receive the title. Since the OTC allows multiple lien entries on the title, lenders with inferior liens presumably have to request a copy of the title for their records, Finally, when all liens are released, it seems the owner will have to request a copy of the title.

Prior to July 1, 2022, the effective date of this legislation, there were only nine nontitle-holding states: Kentucky, Maryland, Michigan, Minnesota, Missouri, Montana, New York, Oklahoma, Wisconsin. In these states, the title is issued to the registered owner/operator of the vehicle, regardless of whether there is as a lien holder. In the other 41 states, titles are issued to the lien holder of the vehicle, who will hold the title until the loan is paid off. Oklahoma joins these title-holding states on July 1, 2022.

Changes in UCCC amounts effective 7/1/22

by Pauli D. Loeffler

Sec. 1-106 of the Oklahoma Uniform Consumer Credit Code  in Title 14A (the “U3C”) makes certain dollar limits subject to change when there are changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers, compiled by the Bureau of Labor Statistics, U.S. Department of Labor.  You can download and print the notification from the Oklahoma Department of Consumer Credit by clicking here.   It is also accessible on the OBA’s Legal Links page under Resources once you create an account through the My OBA Member Portal. You can access the Oklahoma Consumer Credit Code as the changes in dollar amounts for prior years on that page as well.

Increased Late Fee

The maximum late fee that may be assessed on a consumer loan is the greater of (a) five percent of the unpaid amount of the installment or (b) the dollar amount provided by rule of the Administrator for this section pursuant to § 1-106. As of July 1, 2020, the amount provided under (b) will increase by $2.00 to $29.00

Late fees for consumer loans must be disclosed under both the UC3 and Reg Z, and the consumer must agree to the fee in writing. Any time a loan is originated, deferred, or renewed; the bank has the opportunity to obtain the borrower’s written consent to the increased late fee set by the Administrator of the Oklahoma Department of Consumer Credit.  However, if a loan is already outstanding and is not being modified or renewed, a bank has no way to unilaterally increase the late fee amount if it states a specific amount in the loan agreement.

On the other hand, the bank may take advantage of an increase in the dollar amount for late fees if the late-fee disclosure is worded properly, such as:

“If any installment is not paid in full within ten (10) days after its scheduled due date, a late fee in an amount which is the greater of five percent (5%) of the unpaid amount of the payment or the maximum dollar amount established by rule of the Consumer Credit Administrator from time to time may be imposed.”

§ 3-508A

This section of the “U3C” sets the maximum annual percentage rate for certain loans. It provides three tiers with different rates based on unpaid principal balances that may be “blended.” It also has an alternative maximum rate that may be used rather than blending the rates. The amounts under each tier are NOT subject to annual adjustment by the Administrator of the Oklahoma Department of Consumer Credit under §1-106. However, a new subsection (4) was added allowing the lender to charge a closing fee which IS subject to adjustment under § 1-106. The closing fee of $28.85 was effective for loans made on and after November 1, 2021. This amount has increased as follows:

(4)  In addition to the loan finance charge permitted in this section and other charges permitted in this act, a supervised lender may assess a lender closing fee not to exceed One Hundred Sixty-seven Dollars and thirty-three ($167.33) upon consummation of the loan.

Note that the closing fee, while not a finance charge under the OK U3C, and therefore not considered for purposes of Oklahoma usury IS a finance charge under Reg Z. Most banks use Reg Z disclosures. This means that it is possible that the fee under Reg Z disclosures will cause the APR to exceed the usury rate under § 3-508A. If that happens, document the file to show that the fee is excluded under the U3C in order to show that the loan does not in fact violate Oklahoma’s usury provisions. Please note that the bank is NOT required to charge a closing fee at all, and I know that at least one bank has stated it has decided to charge an amount less than the amount permitted under the statute.

You can access the § 3-508A Matrix here. (https://www.oba.com/wp-content/uploads/2021/11/Okla-3-508A-Max-APR-Chart-effective-11-1-2021.pdf)

§ 3-508B Loans

Some banks make small consumer loans based on a special finance-charge method that combines an initial “acquisition charge” with monthly “installment account handling charges,” rather than using the provisions of § 3-508A with regard to maximum annual percentage rate.

The permitted principal amounts for § 3-508B is adjusting from $1,6200.00 to $1,740.00 for loans consummated on and after July 1, 2022.

Sec. 3-508B provides an alternative method of imposing a finance charge to that provided for Sec. 3-508A loans. Late or deferral fees and convenience fees as well as convenience fees for electronic payments under § 3-508C are permitted, but other fees cannot be imposed. No insurance charges, application fees, documentation fees, processing fees, returned check fees, credit bureau fees, nor any other kind of fee is allowed. No credit insurance even if it is voluntary can be sold in connection with in § 3-508B loans. If a lender wants or needs to sell credit insurance or to impose other normal loan charges in connection with a loan, it will have to use § 3-508A instead.  Existing loans made under § 3-508B cannot be refinanced as or consolidated with or into § 3-508A loans, nor vice versa.

As indicated above, § 3-508B can be utilized only for loans not exceeding $1,740.00. Further, substantially equal monthly payments are required. The first scheduled payment cannot be due less than one (1) calendar month after the loan is made, and subsequent installments due at not less than 30-day intervals thereafter. The minimum term for loans is 60 days. The maximum number of installments allowed is 18 months calculated based on the loan amount as 1 month for each $10.00 for loan amounts between $173.94 and $580.00 and $20 for loan amounts between $580.01 – $1,740.00.

Lenders making § 3-508B loans should be careful and promptly change to the new dollar amount brackets, as well as the new permissible fees within each bracket for loans originated on and after July 1st. Because of peculiarities in how the bracket amounts are adjusted, using a chart with the old rates after June 30 may result in excess charges for certain small loans and violations of the U3C provisions.

Since §3-508B is “math intensive,” and the statute whether online or in a print version does NOT show updated acquisition fees and handling fees, you will find a modified version of the statute with the 2022 amounts toward the bottom of the Legal Links page here. Again, you will need to register an account with the OBA in order to access it.

The acquisition charge authorized under this statute is deemed to be earned at the time a loan is made and shall not be subject to refund, if the loan is prepaid in full, refinanced or consolidated within the first sixty (60) days, the acquisition charge will NOT be deemed fully earned and must be refunded pro rata at the rate of one-sixtieth (1/60) of the acquisition charge for each day from the date of the prepayment, refinancing or consolidation to the sixtieth day of the loan. The Department of Consumer Credit has published a Daily Acquisition Fee Refund Chart for prior years with links on this page, (https://www.ok.gov/okdocc/Licenses_We_Regulate/Supervised_Lender/index.html)  but had not done so at the time this article was written. Note if a loan is prepaid, the installment account handling charge shall also be subject to refund. A Monthly Refund Chart for handling charges for prior years can be accessed on the page indicated above, as well as § 3-508B Loan Rate (APR) Table. I expect the charts and table for 2022 to be added shortly.

NOTE: Sec. 3-508B was amended this last legislative session with changes that are effective November 1, 2022. I will cover the changes in a future Legal Briefs article prior to the effective date.

§ 3-511 Loans

I frequently get calls when lenders receive a warning from their loan origination systems that a loan may exceed the maximum interest rate. Nearly always, the banker says the interest rate does not exceed the alternative non-blended 25% rate allowed under § 3-508A according to their calculations. Usually, the cause for the red flag on the system is § 3-511. This is another section for which loan amounts may adjust annually. Here is the section with the amounts as effective for loans made on and after July 1, 2022, in bold type.

Supervised loans, not made pursuant to a revolving loan account, in which the principal loan amount is $5,800.00 or less and the rate of the loan finance charge calculated according to the actuarial method exceeds eighteen percent (18%) on the unpaid balances of the principal, shall be scheduled to be payable in substantially equal installments at equal periodic intervals except to the extent that the schedule of payments is adjusted to the seasonal or irregular income of the debtor; and

(a) over a period of not more than forty-nine (49) months if the principal is more than $1,740.00, or

(b) over a period of not more than thirty-seven (37) months if the principal is $1740.00 or less.

The reason the warning has popped up is due to the italicized language: The small dollar loan’s APR exceeds 18%, and it is either single pay or interest-only with a balloon.

Dealer Paper “No Deficiency” Amount

If dealer paper is consumer-purpose and is secured by goods having an original cash price less than a certain dollar amount, and those goods are later repossessed or surrendered, the creditor cannot obtain a deficiency judgment if the collateral sells for less than the balance outstanding. This is covered in Section 5-103(2) of the U3C. This dollar amount was previously $5,400.00 and increases to $5,800.00 on July 1.