You asked if other states have laws concerned with balloon payments made under an installment contract to purchase a motor vehicle.

SUMMARY

We identified laws in seven other states concerned with balloon payments in installment contracts to purchase motor vehicles. Maine, New Hampshire, and Nevada all have laws that require these contracts to allow a consumer to choose, instead of making the balloon payment, to return the vehicle and allow the contracts to require consumers to pay fees for disposition, excess mileage, wear and tear, and damage. In these aspects, the installment contracts are similar to motor vehicle lease contracts. Illinois and Texas also require contracts that include a balloon payment to allow buyers to refinance the balloon payment or return the vehicle. California simply gives consumers the right to refinance a balloon payment. Iowa, on the other hand, gives consumers the right to refinance a balloon payment in a retail installment contract unless the contract is for the purchase of a motor vehicle.

Copies of the laws are enclosed.

CALIFORNIA

In California, a “balloon payment” is one that is more than twice the amount of a regular scheduled payment. In a contract that requires one, the law requires the contract to give the consumer the right to obtain a new payment schedule if the consumer defaults on the balloon payment (Cal. Civil Code § 1807. 3). The law prohibits payments in the new schedule from being substantially greater than the previous payments.

IOWA

In Iowa, a consumer has the right in most types of retail installment contracts to refinance the amount of any scheduled payment that is more than twice as large as the average of earlier scheduled payments. The law was changed in 2001 to eliminate this right in consumer loans secured by a motor vehicle (Iowa Code § 537. 3308).

ILLINOIS

Illinois specifically allows retail installment contracts to include “balloon-note financing,” which it defines in a way that allows a consumer, at the end of the regular payments, to (1) make the balloon payment, (2) refinance it, (3) or surrender the vehicle (815 ILCS § 375/6).

MAINE

Maine allows the final payment in a retail installment contract to be more than the other scheduled payments if (1) the term is at least four years and (2) the consumer has the right to refinance it on the terms the creditor is offering at that time. The legislature amended the law in 2003 to allow motor vehicle contracts to include final balloon payments even if the term of the contract is less than four years if (1) the other requirements the law are met and (2) the contract allows the consumer to give the motor vehicle to the creditor in lieu of making the final payment without further liability, except that the creditor may charge (a) a reasonable disposition fee, (b) a reasonable amount for excess mileage, (c) a amount for excess wear and tear, and (d) reasonable amounts for damage to the vehicle (Me. Rev. Code § 3-308).

NEW HAMPSHIRE

In New Hampshire, a “balloon payment” is one that is more than twice the amount of a regular scheduled payment. The law requires contracts that include a balloon payment to require the creditor to accept the return of the vehicle in satisfaction of the balloon payment without penalty. The law allows the creditor to charge a disposition fee of up to $ 250, an excess mileage fee, and an excess wear and tear fee. The law requires the banking commissioner to adopt regulations setting disclosure standards about balloon payments (N. H. Rev. Stat. § 361-A: 8-a).

NEVADA

In Nevada, a “balloon payment” is a final payment that is substantially larger than the earlier payments. It requires contracts that include a balloon payment to allow the buyer to (1) make the balloon payment, (2) refinance it, or (3) return the car. If contract must state that if the contract is returned, the buyer must pay 8 cents per mile for excess mileage and for excess wear and tear for such things as damaged glass or mismatched tires. The law establishes a procedure for buyers to contest the creditor’s determination of excess wear and tear charges (Nev. Rev. Stat. § 97. 125).

TEXAS

Texas law gives buyers, in most retail installment contracts that include a balloon payment, the right to refinance when the payment is due, without an acquisition cost, in installments that are not more in size or frequency than the average in the original contract, and at the same interest rate. There is an exception for a motor vehicle retail installment contract that allows the buyer to choose to (a) return the vehicle with no further liability for the balloon payment, (b) make the balloon payment, or (c) refinance the balloon payment for at least 24 equal installments, or on other mutually agreed-upon terms, at an interest rate equal to the legal maximum or a rate that in 5% more per year than the original contract (Texas Finance Code § 348. 001).

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