Defective post-repossession notices
Class action lawsuits against credit unions due to deficiencies in collection letters continue to be successfully brought forward by plaintiff attorneys. Specifically, Notice of Disposition (commonly referred to as notices of intent to sell collateral) and Notice of Deficiency sent after the collateral has been sold are the letters/notices targeted. The allegations in these lawsuits involve credit union failures to follow requirements of UCC Article 9 regarding information that needs to be provided in these letters.
These lawsuits have been going on for several years with credit unions being required to waive remaining deficiency balances, return payments toward deficiency balances, return 10% of the principal amount of the original debt, and pay statutory damages. Some class action lawsuits have resulted in settlements into the millions of dollars.
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The Notice of Disposition — required by UCC 9-613 / 9-614 — has been the primary cause of litigation issues. This notice references that the credit union has repossessed the property and notifies the member that the property will be sold. The Notice of Disposition must contain the eight minimum required items. The safe harbor language may provide you with liability protection.
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You should train employees, including collections staff, to complete the notices properly and thoroughly in a compliant fashion. Making changes to approved language can significantly impact your potential liability.
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To comply with Notice of Deficiency — UCC 9-616 subsection (a)(1)(B), a writing must provide the six items in exact, required order.
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There are many state variations of these sections of the UCC, so you may need advice on how to comply with any additional variations for other states where you have collection activity. Certain states require additional information be provided to debtors within specific time periods. A court may consider where the credit union’s main location is located; if they have a branch in the other state; where the loan was made; where the borrowers lived at the time of the loan; where the repossession occurred; where the borrower lived at time of repossession; where the collateral was sold.
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With continued litigation being brought against credit unions, you should periodically audit notices to ensure they are properly completed. Additionally, if you are relying on outside legal counsel for compliant letters, be sure that you have a written opinion from them. The written opinion should be clear that your Notices of Disposition are compliant with the requirements of UCC 9-613 and 9-614, and that your Notices of Deficiency are compliant with UCC 9-616; and any applicable State requirements for both.
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Collection letters risk overview*
On-demand webinar: Key litigation trends (9/15/2021)
RISK alert: Class action lawsuits again swirl around collection letter deficiencies* (9/1/2020)