United States: Enforcement Of Controversial Connecticut Law Targeting Motor Vehicle Sales Finance Companies On Hold For Now

Last Updated: October 17 2018
Article by Melanie Brody

To the relief of motor vehicle sales finance companies active in Connecticut, Connecticut Banking Commissioner Jorge L. Perez recently issued a temporary "no action" memo1 stating that the Connecticut Department of Banking (the "Department") will not enforce a controversial new law2 requiring sales finance companies to acquire and maintain ethnicity, race and sex information on applicants for motor vehicle retail installment sales contracts. Because the new Connecticut law potentially conflicts with the federal Equal Credit Opportunity Act ("ECOA"),3 the commissioner's no action memo alleviates industry concerns about having to choose between violating ECOA, which could subject them to remedies including actual and punitive damages,4 or the Connecticut requirement, which could subject them to fines, imprisonment or both.5 A summary of the potential conflict and the no action memo follows.

ECOA prohibits creditors from discriminating on certain prohibited bases, including ethnicity, race and sex (among others), and, subject to a few limited exceptions, from inquiring about those characteristics of an applicant or any other person in connection with a credit transaction.6

Prior to October 1, 2018, Section 36a-547 of Connecticut's sales finance company act required sales finance companies to collect certain information about applicants for retail installment sales contracts for the sale of a motor vehicle. The required information included the name, address, income and credit score of the applicant and any co-applicants and, "if known, the ethnicity, race and sex of such individuals."7 Because most automobile dealers are not sales finance companies covered by the Connecticut act, they do not gather ethnicity, race and sex information, and that information therefore is not "known" to sales finance companies when they purchase retail installment sales contracts from dealers. Thus, as a practical matter, most sales finance companies have not previously faced compliance concerns in connection with the Connecticut requirement.

This changed when Connecticut enacted HB 5490, which amended Section 36a-547 to require sales finance companies to actively collect consumer ethnicity, race and sex data as a matter of course, regardless of whether this information was already "known." As a result, sales finance companies can no longer rely on the "if known" language in superseded Section 36a-547 to avoid gathering ethnicity, race and sex information on retail installment sales contracts purchased from dealers.

Recognizing that revised Section 36a-547 appears to conflict with ECOA, the American Financial Services Association ("AFSA"), the primary trade association for the consumer credit industry, dispatched a letter to Commissioner Perez requesting that he issue a no action letter or similar relief for sales finance companies operating in Connecticut.

Commissioner Perez granted this request, issuing the no action memo on September 28, 2018. The memo states that it is "unclear" whether the ECOA prohibition on inquiring about certain applicant information conflicts with HB 5490's requirement to affirmatively collect that information. It also states that the Department has made a formal request to the Bureau of Consumer Financial Protection ("BCFP") for guidance as to whether HB 5490 conflicts with ECOA. According to the memo, until the Department receives guidance from the BCFP, the Department will not enforce the new requirement.

Beyond the legal conflict, HB 5490 raises practical challenges. Sales finance companies generally operate as indirect lenders. As such, they have no borrower contact when a sales contract is entered. How, then, are they to ensure that the required information is collected from the consumer? Normally, only car dealers are in a position to collect such information, as they are the entities that interact directly with consumers. However, Connecticut defines "sales finance companies" to exclude most car dealers; thus, the Connecticut law provides dealers little incentive to gather the new information.

As AFSA's letter argues, HB 5490 also risks damaging credit markets. If sales finance companies are afraid to comply with Connecticut law for fear of violating ECOA, they may curtail their business in the state, and auto finance opportunities for consumers could dry up. Similarly, if new Section 36a-547 renders sales finance companies unable to make the representations and warranties required to securitize their contracts, they likely will curtail their business in the state, again reducing automobile financing opportunities for Connecticut consumers. As a result, legislation likely intended to protect consumers could end up jeopardizing their access to credit and, thus, their ability to purchase a vehicle.

As it stands, the quandary created by HB 5490 is on hold until the Department receives guidance from the BCFP. According to the no action memo, during this delay, the Department also will "undertake a review of the appropriate manner and form for which [the required information] shall be acquired, maintained, and reported to [the] Department."

*This update was co-authored by Daniel Pearson. An associate in Mayer Brown's Washington DC office, Daniel is not admitted in the District of Columbia and is practicing under the supervision of firm principals. 

Footnotes

1 The no action memo is available here.

2 Section 97 of Public Act 18-173 ("HB 5490"), revising Connecticut General Statutes § 36a-547 (herein, "Section 36a-547").

3 15 U.S.C. § 1691, et seq. The Equal Credit Opportunity Act is implemented by Regulation B (12 C.F.R. Part 1002). The statute and regulation are referred to herein collectively as "ECOA."

4 15 U.S.C. § 1692e.

5 Conn. Gen. Stat. § 36a-546.

6 12 C.F.R. §§ 1002.4 and 1002.5.

7 Conn. Gen. Stat. § 36a-547 (emphasis added).

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2018. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions