In New York, the New York State Department of Financial Services regulates the licensing of motor vehicle sales finance companies. Among the regulations is one that sets the interest rates that can be charged on commercial loans in New York.
Borrowers of car loans may sue car finance companies for breach of contract. They would do this if the company fails to perform its contractual obligations as they are spelled out in the finance agreement. They might be able to sue for other auto loan violations as well.
For example, a company might calculate interest incorrectly or misapply payments. A borrower protects themselves by paying careful attention to their payment history and documenting it. A buyer wants to keep a copy of their auto loan purchase contract and then be able to show that they complied with all of its terms.
However, the lender may have failed to fulfill its duties, and this breach might cause financial harm to the buyer. It is important to keep copies of all communication with the dealer and the lender, including letters, emails, text messages, as well as records of transactions.
It is important to recognize that an auto lender has the right to take a car back, i.e., repossess it, if the buyer breaches the loan contract. The main way a buyer might do this is by failing to make loan payments when they are due.
Under a loan contract, the lender has a security interest in the vehicle until the loan is paid in full. A buyer can be in default as soon as they have missed submitting even one monthly payment on the due date. In New York, a dealership has the right to repossess the car immediately under these circumstances. The dealership does not even have to give the owner advance notice of the repossession.
Repossession companies, which do not have to be licensed in New York, can repossess a person’s car or make it unusable as long as they do not breach the peace in doing so. They cannot use force, threats or tricks, damage property or enter a person’s property without consent.
So they cannot enter a garage or property that is behind a locked gate. But a repo agent can enter a person’s driveway, property that is away from a home and public spaces.
An individual may verbally object to the repossession by saying, “I object.” The repo agent cannot proceed with a repo or a disabling once the car owner has stated this. If they do, they will have breached the peace, and the owner may report it to law enforcement. The repo agency would then need to go to court and obtain court approval to complete the repossession.
An owner is also prohibited from breaching the peace by doing such things as trying to physically stop the repo company from repossessing the car. An owner wants to remember that each repo attempt that is unsuccessful is charged to the owner. The lender passes the cost of a repo to the borrower, so the borrower has to pay for each failed attempt.
A better approach might be to contact the lender if a borrower thinks they will not be able to make a payment and negotiate a resolution. If an individual cannot afford a car purchase they have made, they may want to consider selling the car.
Most car loan purchase contracts require the borrower to have collision and/or comprehensive auto insurance on the vehicle. They also provide that if the borrower does not maintain the required insurance, the buyer is in default, and repossession is available as a remedy for the lender.
What Is the 10-Day Rule for Auto Financing in New York?
In New York, the phrase “10-day rule” may refer to New York’s Motor Vehicle Retail Leasing Act. This law gives an individual who leases a car a so-called “grace period” of 10 days before they can be charged a late fee for a late monthly payment.
Many people lease cars rather than buying them, and the New York Motor Vehicle Retail Leasing Act contains provisions that apply during the lease period, for example:
- An individual who is interested in leasing may get a sample of the car lease agreement before they enter into a lease.
- A prospective lessee may get a refund of any payment they make before signing their lease, if their application is not approved. If the payment is not refunded on time, the lessee has a right to receive two times the amount of the payment.
- A lessee may end their car lease after 50% of the lease term has passed if they have made all lease payments when due. The lessor may charge the lessee for the cost of selling the car.
- The lessee should pay only reasonable early termination fees.
- Any dispute over whether the wear and tear on the car is excessive must be resolved through arbitration and not an action in court.
In addition, the law provides that if the lessee has breached the lease by failing to pay the monthly lease payment when due, the lessor of the car must give the lessee notice of how much they need to pay to reinstate their lease and 25 days to pay the amount before they are legally allowed to repossess the car.
What Are Some Common Auto Financing Legal Disputes and Issues?
New York law does not give a buyer 3 days to cancel their purchase of a vehicle as it gives to some consumers in other transactions. However, the dealer is required to register the vehicle in the name of the buyer within 30 days of the purchase, even if the buyer has purchased the car with a loan.
If the buyer owes money on the vehicle, the original title is delivered to the lender who provided the financing for the purchase. If the buyer paid the full purchase price, then the buyer receives the title.
A car buyer wants to keep all of their payment receipts and other documents, e.g., an auto loan agreement, in a safe place that is not in the car. If the car is stolen, or if a dishonest dealer illegally repossesses the car, the buyer could lose all records of their ownership and/or loan payments.
A buyer wants to make all payments on time and maintain insurance on the car. If the dealer or lender tells a buyer that they can change the payment dates, or pay late, a buyer wants to get that in writing. They also want to keep a receipt for each payment.
Both sellers and holders of vehicle installment purchase contracts must have New York licenses for motor vehicle sales finance transactions. For a transaction to be considered “financed,” the buyer must agree only to make payments for a vehicle over time. The buyer does not have to pay interest or finance charges for their purchase of a vehicle to be considered “financed.”
Most auto financing lawsuits center around the terms of car purchase loan agreements and whether buyers have performed as required by their loan contract.
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What Is Auto Financing Fraud and What Are the Penalties?
One fraudulent loan practice that car lenders may attempt is yo-yo financing. This occurs when a car dealer offers a buyer an installment purchase contract to finance the buyer’s purchase of a vehicle.
At the same time, they have the buyer sign a conditional delivery agreement. The conditional delivery agreement may provide that the sale is contingent on the dealership obtaining a final financing approval.
If the dealership fails to find financing on the terms stated in the contract, they may then demand that the buyer return the vehicle or agree to new financing terms, e.g., a loan with a higher interest rate, that are less advantageous to the car buyer.
This is the move that gives the scam its name, “yo-yo financing,” because the buyer must return to the dealership when they believed that the transaction was final and everything was good.
Dealerships use conditional delivery agreements to pressure buyers to accept unfavorable loan terms or risk losing the car they thought they had purchased.
Fortunately, New York law protects car buyers with a law that addresses yo-yo financing. It provides that once both parties, seller and buyer, enter into an installment loan contract for the purchase of a vehicle, any conditional sales agreement that may have been involved in the transaction is void. This means that dealerships cannot legally enforce conditional sales agreements once the installment loan purchase contract is signed by both the buyer and seller.
Some recommendations for buyers to consider to protect themselves from predatory lending practices are the following:
- Get a Loan Before Shopping for a Vehicle: As with home-buying, an individual in the market for a new car should get preapproved for an auto loan before they go shopping for a vehicle. This gives the buyer a loan against which they can assess other loan offers.
- Avoid Conditional Delivery Agreements: If the dealership asks a buyer to sign a conditional delivery agreement, the buyer should ask why. They should refuse to sign it if the dealership cannot explain why it is necessary.
- Review Documents Before Signing: A buyer should read and understand all documents before signing them. It could be worthwhile for a buyer to have a New York lawyer review and explain the contracts before signing. It would be money well spent if it avoids an expensive dispute later on.
- Get Copies of All Documents: A buyer should get copies of all documents they sign before leaving a dealership after purchasing a vehicle. They also want to make sure that all fields on the document are completely filled out.
- Confirm that Loan Terms Are Final: Before leaving the lot after buying a car, a buyer should get written verification that the loan terms are approved and final. Insist on getting a writing that confirms this.
- Resist Dealership Tactics: If a dealership attempts to rescind the sale of a vehicle or renegotiate terms after a buyer has signed an installment contract for the purchase of a vehicle, a buyer should refuse. Again, they might seek a consultation with a New York lawyer if they encounter this problem.
If a buyer suspects that they have been victimized in a yo-yo financing scam, or any other type of fraud, they want to get legal advice immediately. A New York attorney with experience in consumer protection and auto loan fraud can guide a buyer through the dispute and help them make sure their rights are respected.
What Happens if Auto Loan Financing Falls Through?
It is important for a car buyer in New York to remember that once they sign an installment contract to purchase a vehicle, it is the final agreement with the dealership. Agreements that are conditional cannot be enforced and are not legal. The best defense against loan financing that is not approved is to get pre-approval of a car loan from a reputable lender before shopping for a car.
How Do I File an Auto Financing Lawsuit?
An auto financing lawsuit may be filed in a small claims court in New York. Small claims courts in some counties hear lawsuits in which money damages of up to $5,000 are sought. Other divisions of district courts handle claims of up to $15,000.
Each county outside New York City has a civil court that handles cases seeking damages of up to $25,000. County courts also handle appeals from the City Courts and Town and Village Courts.
The court structure in New York is complicated, and a person would want to consult a New York lawyer about the court in which they should file their lawsuit.
What Is the Statute of Limitations on an Auto Financing Lawsuit?
The statute of limitations depends on the type of claim a person has. In New York, for breach of contract, the statute of limitations is 6 years. For negligence and other civil wrongs, the statute depends on the type of tort claimed. For fraud, the statute of limitations is 6 years.
An individual who believes they have been wronged in an auto financing transaction should not wait but should have a legal consultation to discuss their concerns as soon as possible.
Do I Need a Lawyer if I’ll Be Filing an Auto Financing Lawsuit?
If you are in a dispute with an auto dealership or a car loan lender, you want to talk to a New York auto loan lawyer. LegalMatch.com can connect you quickly to an experienced lawyer who knows all the laws that regulate auto dealers and auto loan purchasing contracts.
If auto purchase contracts and lending agreements are proving difficult for you to understand, it would be worth your while to consult a lawyer before signing any contracts. They can help make sure you understand what these contracts require of you and whether any deal to buy a car is right for you.
