DEPARTMENT OF FINANCIAL INSTITUTIONS

STATE OF INDIANA

CONSUMER CREDIT DIVISION

ADVISORY LETTER 2019-01

June 27, 2019

TO: Indiana state-chartered banks, Indiana state-chartered credit unions, and creditors who engage in consumer credit/leases under chapter 2, or consumer loans under chapter 3 of the IUCCC (collectively, "Creditors")

FROM: Lyndsay H. Miller, General Counsel & Acting Deputy Director of Consumer Credit

RE: New legislation updating permitted delinquency charges

This Advisory is being issued by the Consumer Credit Division of the Indiana Department of Financial Institutions. Certain legislative changes have prompted questions from Creditors regarding the new delinquency charges permitted to be contracted for after July 1, 2019. The following is an overview regarding the Department’s expectations concerning treatment of delinquency charges.

2019 legislative change and laws affected

Currently, and until June 30, 2019, Indiana Code § 24-4.5-2-203.5 and Indiana Code § 24-4.5-3-203.5 permit a $5 delinquency charge to be contracted for; this dollar amount is subject to change, and is currently indexed to permit a maximum delinquency charge of $19. These statutes also provide that, if the parties provide by contract for a delinquency charge that is subject to change, the seller shall disclose in the contract that the amount of the delinquency charge is subject to change under Indiana Code § 24-4.5-1-106, the referenced indexing statute.

HB 1136 makes changes to the authorized delinquency charges for consumer credit sales (IC 24-4.5-2) and consumer loans (IC 24-4.5-3), as of July 1, 2019. The new law replaces the authorized $5 delinquency charge that is currently indexed to $19, for consumer credit sales and consumer loans with a non-indexed "flat" delinquency charge permitted to be contracted for after July 1, 2019 of:

(A) $5, if installments or minimum payments are due every 14 days or less;

(B) $25, if installments or minimum payments are due every 15 days or more; or

(C) $25, in the case of a single installment due at least 30 days after the sale or loan is made.

These statutory changes have two significant results. First, the new maximum delinquency charge is no longer subject to indexing; the new, "flat rate" charge will therefore no longer be subject to adjustment based on the department’s obligation to evaluate changes every few years under Indiana Code 24-4.5-1-106.

Advisory Letter 2019-01 June 27, 2019 Page 2

Second, the maximum permitted delinquency charge will now be the flat fee that is reflected in the updated statute as of July 1. We recognize that the impending legislation left the indexing subsection (under the old statutes, sub. (6), under the new statutes, sub. (5)) of both of the relevant statutes intact that continue to reference a creditor’s obligation to provide in the contract for a delinquency charge that is subject to change to disclose and reference the dollar adjustment/indexing permitted by Indiana Code § 24-4.5-1-106.

After July 1, in most instances, Creditors will generally be limited to the maximum amount of the delinquency charge they contracted for with the consumer in a contract entered into before July 1 (with a maximum delinquency charge permitted of $19). Having reference to Indiana Code § 24-4.5-1-106 in an existing contract does not permit a Creditor to unilaterally increase a delinquency charge from $19 to $25, as the new delinquency charge "flat" rate is not a dollar adjustment that was increased through an indexed rate adjustment.

A lender is expected to continue to honor the contractual delinquency charge.

If a contract is an open end agreement that permits the lender to notify the customer of delinquency charge increases, or for Creditors that believe another contractual basis exists to increase the delinquency charge based on the new statutory maximums permitted after July 1, the terms should be carefully reviewed to confirm a legal basis exists for the lender to increase the delinquency charge. Creditors are encouraged to seek an opinion from legal counsel prior to increasing such charge.

Creditors with weekly or biweekly payments with active contracts in place before July 1 will continue to be able to collect a delinquency charge contracted for, provided it does not exceed $19, for the life of the agreement.

After July 1, new contracts entered into may contract for the new delinquency charges permitted by the statutes.

 

LEGISLATIVE CHANGES EFFECTIVE JULY 1, 2019

THAT YOU SHOULD KNOW

H.B. 1237 – DOCUMENT FEES

Retroactive to July 1, 2013, provides that it is an unfair practice for a dealer to charge a document preparation fee in excess of $ 200, which may be adjusted annually. The fee must be included in the advertised price of the vehicle and affirmatively disclosed in writing during negotiations and as a separate line item on a bill of sale of other purchase contract.

H.B. 1136 – DELINQUENCY CHARGES AND LATE FEES

The new law replaces the authorized $5 delinquency charge that is currently indexed to

$19, for consumer credit sales and consumer loans with a non-indexed "flat" delinquency charge permitted to be contracted for after July 1, 2019 of:

*$5, if installments or minimum payments are due every 14 days or less and the installment is not paid within 10 days after its scheduled due date;

*$25, if installments are due every 15 days or more and the installment is not paid within 10 days after its scheduled due date; or

*$25, on a single installment due at least 30 days after the sale or loan is made if the

installment is not paid within 10 days after its scheduled due date.

The bill also amends the IUCCC's late charge provisions to prohibit a creditor from collecting a late charge on any payment that is paid within 10 days after its scheduled due date and is otherwise a full payment of the payment due for the applicable installment period, if the only delinquency with respect to a consumer credit sale or a consumer loan is attributable to a delinquency charge for an earlier installment.

SALES TAX REGULATION CHANGES EFFECTIVE APRIL 2, 2019

The Indiana Department of Revenue has updated Information Bulletin # 28S to reflect the taxation of Document Fees effective April 2, 2019. Although no laws or Indiana Code Sections have been changed or updated, the Department of Revenue is making policy changes regarding documentation fees.

According to Information Bulletin 28S dated January 2019 and Effective April 2, 2019, fees for services performed after the transfer of a vehicle or trailer are not considered part of the sales price and, therefore, are not subject to sales tax. Transfer of a vehicle or trailer takes place upon physical delivery when the purchaser takes possession and control of the property, even though the title may not have yet been transferred. The dealer must maintain adequate records to show which services pertain to the fees charged and that the services were performed after the transfer of the vehicle or trailer to be exempted from sales tax. Fees charged for services performed prior to the customer taking physical possession of the vehicle or trailer are subject to sales tax. 

Historically, separately stated fees labeled as “documentation fees” were presumed to be at least partially excluded from gross retail income because all or part of the fee was considered to be compensation for preparing and submitting documents to the Indiana Bureau of Motor Vehicles on behalf of the purchaser to complete titling and in some cases registration of the vehicle.  Such services were considered to be a separately bargained for service that took place after the transfer of possession of the vehicle to the customer.  However, the General Assembly added IC 9-14.13-3 effective July 1, 2016, which established a separate “convenience fee” that allowed dealers to charge for performing the services that have historically been excluded from the retail unitary transaction and represented by the documentation fee. As such, fees that meet the definition of a separately stated “convenience fee” are not subject to sales tax. While dealers may still charge a separate documentation fee in addition to the convenience fee, the services attributable to documentation fees will be considered to be charges by the seller for services necessary to complete the sale per IC 6-2.5-1-5(a)(3) and will be subject to sales tax. 

To: Secretary of State Auto Dealer Services Division From: Indiana Bureau of Motor Vehicles Titles Department Date: Mar. 27, 2019 Re: Title Printing Issue

On March 6, 2019, there was a printing issue with Indiana Certificates of Title. On the back of titles printed on this date, the odometer digit boxes and the Seller and Purchaser Information boxes may have faded or missing lines in them.

The alignment of the reassignment boxes may be skewed as well.

If a customer presents a title with faded, missing, or skewed lines on the back of it and the issue date on the title is March 6, 2019, dealers may accept these titles and make reassignments as normal.

The BMV will also replace misprinted titles at no charge at the vehicle owner’s request.

For any questions, email the Titles Department at bmvtitlesandreg@bmv.in.gov.

Legislative Changes Affecting Indiana Automobile Dealers July 1, 2018

 Written By:  Dalton Thieneman - Short Strategy Group

House Enrolled Act 1397: Financial Institutions and Consumer Credit                       Authored by: Rep. Woody Burton, Sponsored by: Sen. Chip Perfect

Amends parts of the Indiana Uniform Consumer Credit Code (“IUCCC”) concerning permitted additional charges. The IUCCC is administered by the Department of Financial Institutions (“Department”). The passage of this legislation is effective on July 1, 2018 and makes significant changes to the historical approach regarding these products and the approval given to Indiana Approved Guaranteed Asset/Auto Protection (“GAP”) and Debt Cancellation (“DC”) Administrators by the Department.  

Historically, the Department has reviewed and approved third-party administrators of such non-insurance products as GAP and DC. In approving the administrators, the Department has also historically approved the GAP agreements. These approvals were made by the Members of the Department under the authority granted them by Ind. Code §24-4.5-2/3-202. With the passage of HEA 1397, these charges will no longer be separately approved by the Members but rather permitted explicitly in statute.

A GAP Waiver sold after June 30, 2018, that does not meet all of the conditions outlined in the IUCCC may be treated by the creditor as a prepaid finance charge and included in the total finance charge, provided maximum credit service/finance charges permitted by Ind. Code §24-4.5 are not exceeded. If a GAP Waiver does not meet the required conditions and is not treated by the creditor as a finance charge, charges for such waivers will be treated during examinations as impermissible additional charges with full refunds due to consumers.

Impact to Indiana Automobile Dealers:

 

GAP Waivers Regarding Sellers

The following changes are effective July 1, 2018. 

Sellers, including auto dealers, will not need specific approval from the Department to sell GAP.

• However, sellers must comply with Ind. Code §24-4.5-2/3-202 as applicable.

• No confirmation is required whether a GAP Administrator has been approved; however, a seller must ensure GAP programs that are sold strictly comply with Ind. Code §24-4.5-2/3-202 as applicable. Selling a product that does not comply with the statute could result in full refunds to customers.

• Maximum customer cost of a non-refundable GAP Waiver is $400 as noted in the statute. This amount will no longer be tied to inflation and can only be adjusted through future legislative changes.

• Any GAP Waiver agreements entered into after June 30, 2018 will have no maximum consumer cost for refundable waivers. Any waiver sold after this date with a consumer cost in excess of $400 must be refundable using a method no less favorable to customer than pro-rata basis.

• Cancellation fees remain prohibited.

• For GAP programs with a customer cost greater than $400, a rule of 78ths refund method is not permissible for agreements entered into after June 30, 2018.

• Credit sellers who are registered under Chapter 2 of the IUCCC must continue to maintain an electronic database regarding sales and refunds of GAP Waivers.

• Sellers of refundable GAP Waivers remain responsible for issuing timely refunds to consumers in the event of cancellation or prepayment in full. The Department will continue to review refunds as part of its examination process.

   

Rental Purchase

The following changes are effective July 1, 2018.

• For a consumer related loan, a loan made by a lender that is not “regularly engaged”, the parties may contract for a loan finance charge, calculated according to the actuarial method, not to exceed 25% per year on the unpaid principal balance. This change results in consistent application regarding the finance charge permitted between consumer related loans and consumer related sales.

• A creditor shall credit payment to a consumer’s account as of the date of receipt, except when a delay in crediting does not result in a finance charge or other charge, including a delinquency charge. A delay in posting is not a violation so long as the payment is credited as of the date of receipt. If a creditor specifies in writing requirements for the consumer to follow in making payments but accepts a payment that does not conform to the requirements, the creditor shall credit the payment within five (5) days of receipt of the payment.

• The definition of “property” was amended by HEA 1397 to include property that a lessor holds complete and total ownership of, or ownership rights to. As a result, lessors who do not maintain inventory that could become subject to a rental purchase agreement must first obtain 100% ownership or ownership rights to the property from the retail merchant prior to entering into a rental purchase agreement with a consumer (“lessee”) for the property.

• All lessors must maintain adequate books and records that demonstrate the lessor has acquired, prior to entering into a rental purchase agreement, complete and total ownership rights to the property subject to the rental purchase agreement. These changes add statutory clarification in line with the Consumer Credit Advisory Letter 2017-01 regarding RPAA Initial Payments.

• Clarifications were added to Ind. Code §24-7-3-3 subsection (2) regarding the total number, total amount, and timing of all rental payment necessary to acquire ownership of the property. Any initial payment, not including the optional liability waiver and other optional products and services offered contemporaneously, must be included in the total.

• Ind. Code §24-7-3-3 subsection (11) requires itemization of all charges and fees included in any initial rental payment.

• An initial payment is separate and distinct from a regular rental payment; the legislation makes appropriate clarifications regarding this. HEA 1397 added a new section (Ind. Code § 24-7-4-1.5) regarding up-front or initial payments made by the lessee, regardless of to whom those payments are made.

• Any upfront payment made at the time of (or before) a rental purchase agreement is entered into must be treated as an initial payment for the purposes of Ind. Code § 24-7.

• As an initial payment, such monies are subject to all disclosure requirements of Ind. Code § 24-7 A Clarification was added that initial payments may be in a sum larger than a regular rental payment due under the rental purchase agreement.

• Further clarifications were made that a lessor shall not require or permit a lessee to make any payment in addition to an initial rental payment and regular rental payments in order to acquire ownership of the property.

• A lessor shall not require or permit a lessee to make any payment to a third party as a condition to entering into a rental purchase agreement.

• If a lessee is liable to a lessor for the replacement cost of property subject to a rental purchase agreement, a lessor may not charge the lessee more than the fair market value for the property.

• Pursuant to Ind. Code §24-7-5-10(b), the fair market value shall be determined by the lessor in the same manner, and using the same method, that would apply if the lessee were exercising an early purchase option under the rental purchase agreement.

 

Non-Sufficient Funds Fee

The following change is effective July 1, 2018. 

• Retail creditors, non-mortgage lenders, licensed small loan lenders, rental purchase companies, and debt management companies may assess a non-sufficient funds fee not to exceed $25 and may be assessed by the Department for each returned payment of a dishonored check, electronic funds transfer, negotiable order of withdrawal, or share draft.

STATE OF INDIANA

DEPARTMENT OF FINANCIAL INSTITUTIONS

30 South Meridian Street, Suite 300

Indianapolis, Indiana 46204-2759

Telephone: (317) 232-3955

Facsimile: (317) 232-7655

Web Site: http://www.in.gov/dfi

CONSUMER CREDIT DIVISION

ADVISORY LETTER 2017 - 03

October 6, 2017

TO:

Indiana registered automobile dealers ("Registrants")

FROM:

Ryan E Black, Deputy Director, Consumer Credit Division

RE:

Lease-Here, Pay-Here business model for used motor vehicles

This Advisory Letter is being issued by the Consumer Credit Division of the Indiana Department of Financial

Institutions ("the Department"). Certain examination findings and trends have raised concerns that Registrants

subject to Indiana's Uniform Consumer Credit Code ("IUCCC") providing financing for the sale of motor vehicles

may be engaging in disguised credit sales, either knowingly or unknowingly, by utilizing a Lease-Here, Pay-Here

("LHPH") business model for used motor vehicles. All comments outlined in this Advisory Letter pertain only to

transactions for a personal, family, or household purpose.1

Background

A long-standing practice of many used automobile dealers, and some new automobile dealers includes engaging in

consumer credit sales2 that are retained in-house, commonly known as Buy-Here, Pay-Here ("BHPH")transactions.

In the typical BHPH transaction, a consumer enters into a retail installment contract with a Registrant whereby the

consumer is obligated to make more than four payments or to pay a finance charge in order to pay for the purchase

of the vehicle over time. Such transactions are subject to the IUCCC, specifically Ind. Code §24-4.5-2. Significant

provisions that a creditor must comply with include but are not limited to: maximum rate of finance charge (or

credit service charge)3; permitted additional charges4; delinquency charges5; rebate upon prepayment of a

precomputed transaction6; and restrictions on deficiency judgments in consumer credit sales7.

During recent routine examinations of Registrants, the Department has observed an increased prevalence of a

business model where the transactions are structured as leases. In these transactions, a consumer does not obtain

ownership of the motor vehicle at consummation. Rather, the seller/creditor retains ownership of the vehicle until

such time that the consumer exercises either an early purchase option or end of term purchase option, if provided

for in the contract.

1The IUCCC does not apply to transactions for a purpose other than a personal, family, or household purpose; extensions of

credit primarily for a business, a commercial, or an agricultural purpose are exempt. See Ind. Code §24-4.5-1 -202(b).

2Ind. Code §24-4.5-1-301.5(8)

3 Ind. Code §24-4.5-2-201

4 Ind. Code §24-4.5-2-202

5 Ind. Code §24-4.5-2-203.5

6 Ind. Code §24-4.5-2-210

7Ind. Code §24-4.5-5-103

BMV 1-1-17 Changes SOS Dealer Division*

Operating Prior to Registration Time Increased

On 1-1-17 the length of time one can drive a newly purchased vehicle on Indiana roadways without registering the vehicle is increased from 30 to 45 days. Details are below.

For not more than 45 days after the date on which the person acquires the vehicle, a person who purchases a vehicle may display on the newly acquired vehicle a valid and unexpired license plate transferred from another vehicle that the person disposes of by sale or other means. While operating the newly acquired vehicle, the person must have in their possession a manufacturer’s certificate of origin, certificate of title, or a bill of sale.For not more than 45 days after the date on which the person acquires the vehicle from a licensed dealer, the person may display on the newly acquired vehicle a valid and unexpired temporary license plate that was issued by the licensed dealer. The law differs when a vehicle is purchased from a private citizen instead of a dealership.

• A person who purchases a vehicle from a non-dealer may operate the vehicle for not more than 72 hours after the date of acquisition, but only for the sole purpose of transporting the vehicle by the most direct route from the place of acquisition to:

• A place of storage, including the person’s residence or place of business;

• An inspection station for purposes of emissions testing; or a BMV license branch or full or partial service provider to register the vehicle.While operating the vehicle, the person must have in their possession a certificate of title indicating that the person owns the vehicle.

Administrative Penalty for Registrations

As of 1-1-17 the Delinquent Fee will now be called Administrative Penalty. This applies to registering vehicles, off-road vehicles (ORV) and snowmobiles. The amount of the Administrative Penalty is changing. Indiana residents will be assessed an administrative penalty when registering a vehicle, ORV, or snowmobile more than 45 days after the date of purchase/acquisition. Non-residents of Indiana will be assessed an Administrative Penalty when registering a vehicle, ORV or snowmobile more than 60 days after becoming an Indiana resident. Administrative Penalty rules related to titles were effective on 7-1-16.

*(Note: All above information is provided for overview purposes only and is not a substitute for Indiana Motor Vehicle Laws. For details refer to Indiana Code-Title 9.)

INDIANA LEGISLATIVE UPDATE

EFFECTIVE JULY 1, 2016

DAYS FOR DELIVERY OF TITLE INCREASES TO 31 AND TEMPORARY PLATES INCREASE TO 45 DAYS

The Indiana Independent Automobile Dealers Association (IIADA) understood our member’s inability to provide customers with their title in 21 days and are pleased to announce that the law has changed!

The types and geographic locations of lenders, the geography of our customer base, mail delivery, and title processing have changed.  These changes are the reason we educated and worked with our Legislature to make delivery of title time requirements more reflective of business conditions.

CUSTOMER FINANCING has become specialized with sub-prime financing making up the majority of the financing market. These companies along with credit unions, state and nationally chartered banks have given us the ability to meet the needs of our individual customers.  However, the physical location of lenders can be most anywhere making it increasing difficult to get titles.  This is in contrast to times when the majority of lending was underwritten by a local bank or credit union, who held the title in their safe, all located down the street from the dealership.

INTERNET PRESENCE is now as important as physical location to most dealers.  Today’s customers are shopping your inventory online from other states and countries.  Buying habits have changed from the times when the majority of vehicle sales came from a customer driving by the dealership to see your inventory or seeing an ad in the local paper.  The logistics of delivering a title to a customer many states away increases the time needed to get the title to the customer.

CONSUMER PROTECTION remains in place.  The safeguards that protect a consumer purchasing a vehicle in Indiana include:

       *Indirect Retail Lenders – Lenders are continuously monitoring their dealers to make sure they are compliant and solvent.Floor Plan Inspections – Dealers who borrow money to finance their inventory are subject to regular inspection by their floor plan lenders. 

• Dealer Inspections – Dealers are subject to inspections by the Dealer Services Division under the Indiana Secretary of State Office. 

   

• Consumer Complaints – A bad “online review” can do a lot of damage to a dealer and his reputation. Indiana’s Attorney General investigates customer complaints against Indiana dealers.

   

•  Dealer Bonds – Dealers must maintain a $ 25,000 to ensure clear title.

   

  WORKING TOGETHER we were able to get this legislation written and passed.  Fritz Kreutzinger, IIADA Legislative Chairman, laid much of the ground work for this legislation through the Motor Vehicle Advisory Board meetings with the Indiana Secretary of State. THANK YOU to the legislators who listened and heard our concerns.

   

  IIADA IS WORKING FOR YOU!

   

  FOR MEMBERSHIP IN THE INDEPENDENT AUTO DEALERS ASSOCIATION PLEASE CALL:  800.310.3112 OR SEE APPLICATION ON WEBSITE.

Good News for Small Business - Tax Udate

by: Jane Saxon, CPA with Somerset CPAs and Advisors

 

The IRS raised the "safe harbor" threshold from $500 to $2,500 for expensing certain capital items that would have previously required capitalization and depreciation.  Although the $2,500 threshold takes effect for the 2016 tax year, the IRS has indicated they will provide audit protection by not challenging the use of the $2,500 threshold in tax years prior to 2016.  This can be interpreted to mean businesses may use $2,500 in the preparation of their 2015 tax returns.   

This is great news for small business owners.  As a result of this change, a small business may now immediately deduct expenditures up to $2,500 that previously would have been spread over a several year period.  Common examples of such capital expenditures are notebooks, tablets, desktop computers, office equipment, office furniture, shop equipment and small tools. 

One thing to be aware of with this change is that although the IRS is not requiring capitalization of assets under $2,500; these assets are still considered personal property by the local taxing authorities and will still be subject to tangible personal property tax.   Business owners will need to develop a method of maintaining a listing of these assets for PPT reporting.

 

Somerset’s Dealership Team stays abreast of all changes impacting business owners. We believe a CPA should be proactive, not reactive.  Contact a member of Somerset's Dealership Team today to discuss how we can partner with you!

 Reach us by email at info@somersetcpas.com, or give us a call at 317-472-2183.

Legislation

Motor Driven Cycles (MDC), Motor Scooters, Mopeds and Motorcycles

As of January 1, 2015, new laws went into effect regarding the licensing and registration of Motor Driven Cycles (MDC), previously referred to as motor scooter, mopeds and motorized bicycles. Licensing and registration requirements for MDCs can be found at the Bureau of Motor Vehicles website: www.in.gov/bmv/3220.htm.

Dealers of Motorcycles or MDCs who sell at least twelve (12) units per year are required to obtain a dealer license from the Indiana Secretary of State Dealer Services Division. Information regarding dealer licensing can be found at:  www.in.gov/sos/dealer.

MDC dealers who sell units under 50cc can elect to become a licensed dealer.

Licensed motorcycle dealers can purchase interim motorcycle plates and request MDC-A or MDC-B decals from the Dealer Services Division, which will allow their properly licensed customers to operate their MDC prior to  registering it with the Bureau of Motor Vehicles.  To request MDC-A or MDC-B decals, please contact the Auto Dealer Services Division at 317-234-7190 or Dealers@sos.in.gov.