OLR Bill Analysis

HB 5130 (as amended by House “A” and “B”)*

AN ACT LIMITING USE OF CHECKS TO CREATE BINDING AGREEMENTS ON CONSUMERS.

SUMMARY:

This bill sets conditions certain consumer agreements must meet to be binding, valid, and enforceable. It also limits the circumstances under which retail buyers of motor vehicles may be considered in default and the grounds for repossession.

Concerning consumer agreements, the bill applies to agreements entered into starting on October 1, 2008 to purchase, lease, or rent goods or services when the consumer makes the agreement by endorsing a check from a seller. Specifically, the agreement is valid only if the consumer signed a separate written document that contains certain required provisions and notices and fully discloses the terms of the agreement, including the payment method. According to the bill, any check sent to a consumer by a marketer without such written contract is an unconditional gift to the consumer without any obligation by the consumer to the seller. The seller must provide the consumer with a copy of the contract for use as proof of the terms of the agreement. A violation of the bill is an unfair and deceptive trade practice under the Connecticut Unfair Trade Practices Act (see BACKGROUND).

Under current law, when a retail buyer is in default on a retail installment contract or installment loan contract, the contract holder can repossess the goods if allowed to do so by the contract. In the case of a motor vehicle, the bill specifies that a retail buyer's (1) filing a Chapter 7 or Chapter 11 bankruptcy petition or (2) status as a debtor in one of these bankruptcy proceedings, does not, by itself, constitute a default or grounds for repossessing a motor vehicle.

*House Amendment “A” adds the definition of “check” and “endorsing,” changes the definition of “consumer,” replaces the term “marketer” with “seller,” and eliminates a specific reference to a “plain language” requirement.

*House Amendment “B” adds the provision on retail buyers of motor vehicles in bankruptcy.

EFFECTIVE DATE: October 1, 2008

DEFINITIONS AND CONTRACT TERMS

Under the bill, (1) a check is a draft, other than a documentary draft, payable on demand and drawn on a bank, or a cashier's check or teller's check; (2) a consumer is an actual or prospective purchaser, lessee, or renter of goods or services; (3) endorsing means affixing a signature or the use of other words on the check by the consumer for the purpose of negotiating the check; and (4) a seller is any person who sells, leases, or rents, or offers to do any of these things, by use of a written notice.

The contract must include, at least:

Additionally, if the transaction involves a trial offer or introductory rate, the contract must include a clear and conspicuous written notice that the recipient may cancel when the offer or rate ends. The notice must include the procedure for cancelling. If the transaction involves an automatic renewal, the contract must contain a clear and conspicuous notice that the recipient may cancel and must include the procedure for doing so.

BACKGROUND

Connecticut Unfair Trade Practices Act (CUPTA)

The law prohibits businesses from engaging in unfair and deceptive acts or practices. CUTPA allows the Department of Consumer Protection commissioner to issue regulations defining what constitutes an unfair trade practice, investigate complaints, issue cease and desist orders, order restitution in cases involving less than $ 5,000, enter into consent agreements, ask the attorney general to seek injunctive relief, and accept voluntary statements of compliance. The act also allows individuals to sue. Courts may issue restraining orders; award actual and punitive damages, costs, and reasonable attorneys fees; and impose civil penalties of up to $ 5,000 for willful violations and $ 25,000 for violation of a restraining order.

COMMITTEE ACTION

Banks Committee

Joint Favorable

Judiciary Committee

Joint Favorable