More on Late Fees and Truth and Lending and ADT in CA and Elsewhere /
See Below for Response for Web Designer for Alarm Industry
April 2, 2013
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The March 20, 2013 article addressed the question of late fees, specifically in California. I responded that the Standard Form Contracts did not provide for late fees and also opined that late fees would not be prohibited. A comment from Alan Pepper, noted alarm industry attorney, caused us to review the issue again. California is not unique regarding truth and lending laws; all states have them as well as the federal law. Essentially truth and lending laws require that there be full disclosure of all costs associated with the consumer contract. Generally the state law refers to a Retail Installment Contract, defines its criteria and then imposes its disclosure requirements. Alarm contracts, at least the Standard Forms I offer, are not retail installment contracts because the transaction - the sale - does not generally have the characteristics of a retain installment sale. For instance, the alarm deal rarely states a sale and installation price and then offers to permit an extended payment schedule with an interest factor tagged on. More typical, a contract deposit with balance due on installation. If it's a large job payments may be staggered, but no interest is tacked on the payments and no discount is offered for a single payment. That's not to suggest that the alarm company can't fashion its payment schedule any way it wants, but the contracts are not designed to provide for these payments with interest charges. If they are, then you better comply with the truth and lending laws.
I appreciate Alan's participation in this forum, his devotion to the industry and his wise counsel.
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Comment
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Ken,
Your advise regarding CA Late Fees may be inaccurate. Alarm contracts in CA that have more than 4 installment payments have been construed as retail installment contracts under the Unruh Act which appears in the CA Civil Code. ADT lost on this issue brought by the Contra Costa DA and ADT and many other alarm companies comply with the Act which is similar to Reg Z - federal truth in lending. Following is a section of the Unruh Act that deals with the application of delinquency charges. CA does have usury limits too.
ADT lost that battle in CA in the lower court, appealed, and prior to the ruling settle for near ,$1 million and agreed to comply. The CA rule and federal rule are similar. It appears that if you have a contract with more than 4 installment payments it can trigger truth in lending. Many years ago, Brinks was the first to use contracts that complied. They used a complete truth in lending form.
Civil Code 1803.6. (a) A contract may provide that for each installment in default the buyer shall pay a delinquency charge not in excess of one of the following amounts:
(1) For a period in default of not less than 10 days, an amount not in excess of
ten dollars ($10).
(2) For a period in default of not less than 15 days, an amount not in excess of
fifteen dollars ($15).
(b) Only one delinquency charge may be collected on any installment regardless of the period during which it remains in default. Payments timely received by the seller under a written extension or deferral agreement shall not be subject to any delinquency charge. The contract may also provide for payment of any actual and reasonable costs of collection occasioned by removal of the goods from the state without written permission of the holder, or by the failure of the buyer to notify the holder of any change of residence, or by the failure of the buyer to communicate with the holder for a period of 45 days after any default in making payments due under the contract.
Alan L. Pepper. Esq
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Response - by Jeff Slavin, Esq
Alarm Litigation Practice Group
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While Mr. Pepper is correct that that Alarm Contracts in California with more than four installment payments have been construed as retail installment contracts, the Standard Residential Form Contracts offered by Kirschenbaum & Kirschenbaum (the “Kirschenbaum Contract”) are designed so that they are not retail installment contracts. The Kirschenbaum Contracts are customized state by state and one of the laws we check is the retail installment contract law in the state. Since states define retail installment contracts differently the residential contracts need to be designed so that compliance with retail installment sale contracts do not apply. This is important for the alarm industry because alarm sales are not typically retail installment sales and there is no reason to comply with the sometimes arduous regulations that apply to retail installment sales.
The difference lies in the definition of installment. Commonly, installment payments refer to a series of payments a buyer makes instead of a lump sum to compensate the seller. If a California alarm contract calls for subscribers to pay for goods or services in installment payments, said contact will most likely be considered an installment contract and come under the purview of California’s Unruh Act. If a subscriber’s method of payment isn’t of the installment variety, the Unruh Act will most likely not apply.
Under the Unruh Act, a “retail installment contract” means any contract for a retail installment sale between a buyer and seller, which provides for (a) repayment in installments, and in which the buyer agrees to pay a finance charge or in which the buyer does not agree to pay a finance charge but the goods or services are available at a lesser prices if paid for by either cash or credit card, or in which the buyer would have received any additional goods or services or any higher quality goods or services at no added cost over the total amount payable in installments if the sale had been for cash, or (b) which provides for payment in more than four installments.
A retail installment sale means the sale of goods or the furnishing of services by a retail seller to a retail buyer for a deferred payment price payable in installments.
The Kirschenbaum Contract TM does not offer a sale of goods or the furnishing of services for a deferred payment price payable in installments. It offers the sale of goods – alarm equipment – for an upfront price stated on the first page. It further offers instillation services for an upfront price and continuing services – monitoring/alarm verification/guard response – at a specified monthly rate. What it does not do is set a specific price for these services which is then deferred into monthly installments. Therefore, even though the Kirschenbaum Contract effectively requires more than four payments, the payments are due to continuing services and should not be considered a retail installment contract.
That being said, the purpose of the Unruh Act is to protect the consumer, and often will be liberally construed to that end. Music Acceptance Corp. v. Lofing, 32 Cal. App. 4th 610 (Cal.App.3.Dist. 1995).
Courts have held certain contracts to not be retail installment contracts for the specific reason that the consumer was free to terminate the contract without a penalty. See Mackey v. Bristol West Ins. Services of Cal., Inc., 105 Cal. App. 4th 1247 (purchase of monthly insurance policy was not credit sale within meaning of California's consumer credit statute since purchase plan provided one month of coverage for each monthly premium paid, without any obligation to pay or purchase beyond that month). Courts, however, have not gone as far as to hold the inverse: that a contract with monthly payments that does not offer free termination is definitely a credit sale and subject to the Unruh Act.
If one’s contract is considered a retail installment contract, and governed by Unruh, certain requirements must be met, including limits on late fees – or delinquency charges – and like in the case of ADT v. Contra Costa County, CA disclosure requirements.
Mr. Pepper mentions the ADT case in which ADT agreed to pay almost $1 million to settle a civil lawsuit brought by the district attorney of California’s Contra Costa County. In ADT, Contra Costa alleged ADT was running afoul of the Unruh Act by using contracts with their residential customers in which it reserved the right to hike monthly fees after the first year. According to the state, ADT’s practices violated California law requiring residential consumers get written disclosure of all costs upfront.
The Kirschenbaum contracts TM look nothing like the ADT contract,
With that in mind, ADT nonetheless fell into trouble because they reserved the right to increase monthly charges without disclosing the amount it would increase to customers. This activity is prohibited by the Unruh Act. The Kirschenbaum Contract TM does not run into this problem because the right to increase is written in a manner that specifies the increase limits.
California imposes another net to catch contracts and force Unruh upon them. Section 1689.8 of the California Civil Code states, “[that] every home solicitation contract or offer for home improvement goods or services which provides for a lien on real property is subject to the Unruh Act.” It goes onto label a burglar alarm as a home improvement good or services. Again, however, the Kirschenbaum Contract falls without the grasp of this California law because it does not provide for a lien on real property but provides for a lien on personalty.
The Kirschenbaum Contract is designed to limit its exposure to the Unruh Act and thus avoid disclosure requirements and limitations on delinquency fees. Without Unruh regulation delinquency fees in California must merely be reasonably related to the actual damages suffered by lack of payment, but in most cases, no more than 18% per annum. California recognizes certain costs as actual damages, including collection and accounting expenses suffered by a creditor when a customer does not timely pay its invoices. Garrett v. Coast and Southern Fed. Savings and Loan, 108 Cal. Rptr. 845 (1973).
Nonetheless, contracts that do fall under Unruh are subject to section 1803.6 of the California Civil Code, which provides that, for each installment in default, the buyer is liable for a delinquency charge limited to $10, if the period of default is not less than 10 days, and $15, if the period of default is not less than 15 days. Only one delinquency charge may be collected on any one installment.
The California usury laws do not apply to the Kirschenbaum Contract whether or not it would be considered a retail installment contract, as it would not be considered a loan.
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Response for web designer for alarm industry
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Web design and marketing for the Alarm industry – Art Romero has created some of the most recognized marketing campaigns and products in the alarm industry. Visit www.imaginist.com/security.html or call 831-443-4448; art@imaginist.com
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TO SUBMIT QUESTIONS OR COMMENTS REPLY TO THIS EMAIL OR EMAIL Ken@Kirschenbaumesq.com. Most comments and questions get circulated.
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