Ability To Charge A Fee To Protect Against Repossession Losses - Q4 1999

By the Division of Banks

The prohibition of a creditor of an automobile retail installment sale agreement from paying a fee to a repossession service company and charging said fee to the debtor at the time of the contract is governed by Massachusetts General Laws chapter 255B.

The Division utilizes a two-step analysis in determining whether a proposed fee may be charged as part of a consumer credit transaction. The initial question concerns whether such a fee is authorized by statue, and subsequently, if it is authorized, how must it be disclosed to the borrower.

It is clear from the language of chapter 255B that a default or repossession is not specifically authorized under this statute. Section 14 of chapter 255B sets forth which charges are authorized on a retail installment contract and a default of repossession charge is not one of them. However, section 14 contains a cross-reference to items expressly provided for in chapter 140D.

It has been the consistent position of the Division that said chapter 140D is a consumer credit card disclosure statute and not an enabling statute. Chapter 140D does not authorize a creditor to assess certain charges to a consumer but rather establishes how any authorized charges must be properly disclosed. Therefore, since a default or repossession charge is not specifically authorized by chapter 255B, it can not be assessed as part of a finance charge on a motor vehicle retail installment contract based on it being defined as a finance charge under chapter 140D.