The Texas Office of Consumer Credit Commissioner (“OCCC”) regulates consumer credit transactions in Texas, including new and used auto dealers that offer financing, or installment payment plans. OCCC recently published its 2017 Fiscal Year Administrative Action Report, detailing common motor vehicle sales violations, and providing a look inside the agency’s priorities. Unsurprisingly, unlicensed activity and unauthorized fees are at the top of the list.
Texas law requires that a “holder” of a motor vehicle retail installment contract be licensed by the OCCC. A “holder” operates as a retail seller, or holds and collects on a contract in which a buyer elects to make one or more installment payments. In other words, a “holder” is a dealer that offers in-house financing.
For the 2017 Fiscal Year, OCCC initiated 25 enforcement actions against entities that held motor vehicle retail installment contracts without a license. Penalties for unlicensed activity are steep. Of the 25 enforcement actions, the OCCC issued 15 orders for injunctive relief, eight administrative penalty orders, and even two license revocation orders. Dealers should be sure to check with an attorney if they have any type of in-house payment arrangements.
Unauthorized Documentary Fees
Properly licensed dealers must also comply with various OCCC requirements. Among them are the types of appropriate fees that can be included in an installment contract. Documentary fees are the fees charged for handling documents. Documentary fees are permissible. However, they must “not exceed a reasonable amount agreed to by the retail seller and retail buyer for the documentary services . . . .”
Dealers are required to provide OCCC with notice of the maximum documentary fee they intend to charge any buyer. And, prior to September 1, 2017, a retail seller was also required to provide notice to the OCCC prior to increasing the maximum amount of the documentary fee the seller intended to charge for any amount above $50. In other words, if a dealer wanted to increase its maximum documentary fee from $100 to $150 for any transaction, it was required to provide notice to OCCC. And, if it failed to do so, it was subject to an administrative penalty, as well as a refund for any fee amount above $50 total, even if the increase was reasonable.
After September 1, 2017, dealers are still required to provide OCCC with notice of the maximum documentary fee they intend to charge any buyer, but new legislation requires dealers to provide OCCC with additional notice only if the documentary fee will be $150 more than the maximum. So, in our previous example, the dealer would not have been required to notify OCCC. Notably, the dealer is also now required to provide OCCC with a cost analysis if its increase meets the threshold. So, if a dealer intends to increase its maximum documentary fee by more than $150, it must not only notify OCCC, but provide it with an analysis to justify the increase. Penalties for failing to provide notice and a cost analysis include an injunctive order requiring the dealer to refund any amount over the $150 increase, administrative penalties, and even the potential for license revocation.
During the 2017 Fiscal Year, the OCCC initiated 96 enforcement actions related to unauthorized documentary fees. Dealers should note that violations and penalties can be issued—regardless of whether the documentary fee is reasonable—if the retail seller fails to give OCCC appropriate notice and a cost analysis.
Excessive Itemized Charges
Texas law allows only four types of itemized charges to be included in a vehicle retail installment contract. Those charges are:
• Fees for registration, certificate of title, and license;
• Eligible inspection fees; and
• Charges for insurance, service contracts, warranties, automobile club memberships, trade-in credit agreements, or a debt cancellation agreement.
In the 2017 Fiscal Year, two dealers were charged with excessive itemized charges by OCCC. And, in both cases, the OCCC issued an injunctive order requiring the dealers to refund the excessive charges. Dealers should consult an attorney if they have questions about which type of fees are appropriate, and which are not.
OCCC regulation reaches beyond the categories above, but certainly unauthorized documentary fees, unlicensed activity, and excessive itemized charges were a priority for 2017. It is reasonable to think that OCCC may focus on the same issues in 2018. If you are a dealer facing administrative action from the OCCC, or have questions regarding your regulatory requirements, please call Cobb & Counsel.