In a January 4 posting, Colorado’s outgoing Attorney General, Cynthia Coffman, issued an administrator’s opinion as to whether Section 5-2-214 of the Uniform Consumer Credit Code prohibits supervised lenders from utilizing post-dated checks, debit authorizations, and other forms of up-front payment authorization, as security for payment of “alternate charge” consumer installment loans. Alternate charge consumer loans under the UCCC allow supervised lenders to charge, among other things, acquisition charges and monthly installment handling charges, when the amount financed is not more than one thousand dollars. The AG expressed that holding a post-dated check –even if that check corresponds to a future regularly-scheduled installment payment — would be strictly prohibited. The AG opined, on the other hand, that the use of up-front payment authorizations — if limited to regularly scheduled payments and revocable by the consumer — would be permissible.
In analyzing the issue, the AG considered whether post-dated checks and up-front payment authorizations would constitute prohibited “collateral” – a term undefined by the UCCC – under C.R.S. § 5-2-214(7). The AG supplemented the UCCC with definitions of “collateral” and “security interest” as drawn from the Uniform Commercial Code. Doing so, the AG concluded that post-dated checks would constitute collateral under all circumstances while up-front payment authorizations would not constitute collateral under certain circumstances. The AG further bolstered her analysis by considering various courts’ interpretation of the federal Truth in Lending Act’s disclosure requirements, as pertaining to post-dated checks and certain debit authorizations.
Supervised lenders should take heed of the administrator’s opinion, and how it may impact the making and administration of alternate charge consumer installment loans under the watchful eye of Colorado’s new Attorney General, Phil Weiser. In particular, those supervised lenders who routinely utilize debit authorizations should be mindful that their written loan agreements expressly state that the consumer may revoke a debit authorization at any time, and should instruct their officers not to utilize debit authorizations to make a debit from the consumer’s bank account should the consumer fail to make a regularly-scheduled installment payment.