Debt Buying For Auto Groups
As a debt buyer looks to start purchasing debt there are several factors to consider. Will the buying entity purchase and outsource? Will the buying entity purchase and collect themselves? Where is the debt? Where are the debtor? What asset class will be purchased? Debt portfolios often contain multiple asset classes.
One asset class to be noted is auto. Auto can trigger licensing outside of a standard debt collection license. For example, there is not a collection agency licensing requirement in the state of Pennsylvania. There are licenses to consider however if defaulted auto debt is purchased/collected. There are clear distention's within the varying state statutes that must be reviewed and understood.
Pennsylvania
PA Consumer Discount Company Act, Penn. Stat. 7 P.S. § 6201, et seq.
No person shall engage or continue to engage in this Commonwealth, either as principal, employee, agent or broker, in the business of negotiating or making loans or advances of money on credit, in the amount or value of twenty-five thousand dollars ($25,000) or less, and charge, collect, contract for or receive interest, discount, bonus, fees, fines, commissions, charges, or other considerations which aggregate in excess of the interest that the lender would otherwise be permitted by law to charge if not licensed under this act. (6%) Penn. Stat. 7 P.S. § 6203 A.
Pennsylvania Motor Vehicle Sales Finance Act 12 PA Cons Stat § 6202
“Holder.” An installment seller or a sales finance company with the rights of the installment seller under the installment sale contract.
"Sales Finance Company"
(i) A person in the business of acquiring, investing in or lending money or credit on the security of an installment sale contract or any interest in the contract, whether by discount, purchase or assignment of the contract, or otherwise.
12 Pa. Stat. § 6211 provides, (a) License required.–The following persons may engage or continue to engage in this Commonwealth as a principal, employee, agent or broker only as authorized in this chapter and under a license issued by the department:
(1) An installment seller.
(2) A sales finance company.
(3) A collector-repossessor.
"Collector-repossessor."
(1) A person who, as an independent contractor and not as a regular employee of an installment seller or a sales finance company, collects payments on installment sale contracts or repossesses motor vehicles that are the subject of installment sale contracts.
(2) The term excludes the following:
(i) A duly constituted public official or an attorney at law acting in an official capacity.
(ii) A licensed seller or licensed sales finance company making collections or repossessions on installment sale contracts, if the seller or sales finance company:
(A) was previously a holder; or
(B) was not a holder but occasionally makes collections or repossessions for other licensed sellers or licensed sales finance companies.
"Holder." An installment seller or a sales finance company with the rights of the installment
seller under the installment sale contract.
A buyer needs to understand what they are buying. Is the debt from a buy here pay here establishment? Are the contracts funded by a bank or credit union?
New Hampshire
In New Hampshire, the key words to center in on are "or in the business of purchasing retail installment contracts from one or more retail sellers."
New Hampshire Motor Vehicle Retail Installment Sales Act, N.H. Rev. Stat. § 361-A:1
The “holder” of a retail installment contract means the retail seller of the motor vehicle under or subject to the contract or, if the contract is purchased by a sales finance company or other assignee, the sales finance company or other assignee.
“Sales finance company” means a person engaged, in whole or in part, directly or indirectly, in the business of providing motor vehicle financing in this state to one or more retail buyers, or in the business of purchasing retail installment contracts from one or more retail sellers.
No person shall engage in the business of a sales finance company or retail seller in this state without a license therefor as provided in this chapter. NH Rev Stat § 361-A:2
New York
New York doesn't carve out a Motor Vehicle Sales Finance license. They require licensing under the New York Sales Finance Company License. New York's key words are "purchasing or otherwise acquiring retail installment contracts."
New York Sales Finance Company License Section 492(1) of NY Banking Law
“Sales finance company” means a person engaged, in whole or in part, directly or indirectly, in the business of purchasing or otherwise acquiring retail installment contracts, obligations or credit agreements made by and between other parties, or any interest therein. The term includes a retail seller of motor vehicles engaged, in whole or in part, in the business of holding retail installment contracts acquired from retail buyers, which have aggregate unpaid time balances of twenty-five thousand dollars or more at any one time, exclusive of contracts repurchased.
No person, except a lender licensed pursuant to article nine (licensed lender below) of this chapter, shall engage in the business of a sales finance company in this state without a license therefor obtained from the superintendent
Pennsylvania, New Hampshire and New York are great examples of statutory specific language that could trigger the need to license for the activity of purchasing debt. Each state statute has its own defining language as to whether a license is needed. To ensure proper licensing, a legal assessment should be sought. As part of the legal assessment state statutes should be reviewed with an agencies exact business model in mind. Unfortunately, there are very few simple yes or no answers when it comes to licensing as a debt buyer.
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