Requirements for Repossession Notices in Massachusetts for Auto Loans
On March 12, 2020, the United States District Court for the District of Massachusetts in Piazza v. Santander Consumer USA Inc., found that the borrowers’ allegations of a violation of the Motor Vehicle Retail Installment Sales Act (“RISA”) against Santander Consumer USA Inc.’s (“Santander”) could withstand a Motion to Dismiss. What exactly is required under RISA to give notice to consumers whose motor vehicles have been repossessed?
Factual Background
Between July 2017 and July 2018, the borrowers entered into two loan agreements with Santander for the purchase of two motor vehicles. Between December 2018 and January 2019 Santander repossessed both vehicles due to defaults. After the repossessions, Santander sent each of the borrower a notice advising them of their intent to resell their vehicles. These notices stated the following:
We will sell the Vehicle at a private sale sometime after [date] . . . . The money that we get from the sale (after paying our costs) will reduce the amount you owe. If the net proceeds at the sale, after expenses, does not equal your unpaid balance, and if the total unpaid balance exceeds $2,000, you may owe us the difference, subject to applicable law (including Mass. Gen. Laws. ch. 255B § 20B).
Plaintiffs allege in Count I of their complaint that these pre-sale notices violated Article 9 of the Uniform Commercial Code (“UCC”), as adopted by the Massachusetts legislature, by incorrectly describing their potential liability for a deficiency. Shortly thereafter, Santander filed a motion to dismiss Count I.
The Law
Two Massachusetts statutes are relevant to the sale of a repossessed motor vehicle. The Uniform Commercial Code (“UCC”) and RISA. The UCC governs defaults in secured transactions. Williams v. Am. Honda Fin. Corp., 98 N.E.3d 169, 179 (Mass. 2018). Pursuant to the UCC, after a repossession but before the sale of a motor vehicle, a lender must provide written notice containing a “description of any liability for a deficiency of the person to which the notification is sent.” Mass. Gen. Laws ch. 106, § 9-614(1)(B). The UCC calculates a deficiency using the proceeds of a “commercially reasonable” sale. Id. at § 9-615. The UCC also provides lenders with a form notice. This notice is referred to as a “safe harbor” notice. The safe harbor notice includes the following language:
The money that we get from the sale (after paying our costs) will reduce the amount you owe. If we get less money than you owe, you (will or will not, as applicable) still us the difference. If we get more money than you owe, you will get the extra money, unless must pay it to someone else.
Mass. Gen. Laws ch. 106, § 9-614(3) (emphasis added in bold).
However, the UCC calculates the deficiency using the proceeds of a commercially reasonable sale. RISA calculates the deficiency using the fair market value of the vehicle. Please see the relevant language below:
If the unpaid balance of the consumer credit transaction at the time of default was two thousand dollars or more the creditor shall be entitled to recover from the debtor the deficiency, if any, resulting from deducting the fair market value of the collateral from the unpaid balance due and shall also be entitled to any reasonable repossession and storage costs, provided he has complied with all the provisions of the section.
Mass. Gen. Laws ch. 255B, § 20B(e)(1) (emphasis added). This conflict between the UCC and RISA is resolved by a related subsection in RISA which states that its provisions displace the UCC to the extent that the UCC imposes different obligations related to repossessions of motor vehicles.
The defining case in Massachusetts on this this issue is, Williams v. American Honda Finance Corp., 98 N.E.3d 169 (Mass. 2018); see also Williams v. American Honda Finance Corp., 907 F.3d 83 (1st Cir. 2018) (analyzing facts in light of the SJC’s responses to certified questions). Here, the Supreme Judicial Court (“SJC”) concluded that “the notice that is required by the [UCC] is never sufficient where the deficiency is not calculated based on the fair market value of the collateral and the notice fails to accurately describe how the deficiency is calculated.” Williams, 98 N.E.3d at 179. While the parties agreed that the words “fair market value” were not required in the pre-sale notice, they disagreed as to the exact requirements.
“In Williams, the SJC set out a clear standard for a sufficient description of the deficiency calculation in pre-sale notices to debtors. Specifically, the SJC stated that notices ‘must describe the deficiency as the difference between the fair market value of the collateral and the debtor’s outstanding balance because this is what is required by [RISA].’ Williams, 98 N.E.3d at 179. The SJC determined that using the UCC’s safe harbor language, without describing the deficiency with reference to the fair market value of the vehicle, ‘is inconsistent with Massachusetts law.’ …
The Court’s Ruling
The District Court found that while the pre-sale notice was not required to include the words “fair market value”, it was required to “describe” the method of calculation in a way that “signals to the debtor that the fair market value will be used to determine the deficiency.” As a result, the District Court found that the borrowers claims could withstand the Motion to Dismiss. The key takeaway from this case is to follow the language of RISA as promulgated by the SJC in Williams.