Motor Vehicle Advisory Bulletin: Trade-In Credit Agreements

OCCCAdvisoryBulletinB17‐2(Sept.7,2017) Page1of3

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Thisbulletinanswersfrequentlyaskedquestionsabouttrade‐increditagreementsformotor

vehicleretailinstallmentcontractsunderChapter348oftheTexasFinanceCode.

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1.Whatisatrade‐increditagreement?

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Atrade‐increditagreementisanagreementbetweenabuyerandsellerofamotorvehicle,

enteredatthetimeofpurchase.Ifthecarisdamagedinacollisionbutnottotaled,thenthe

agreementprovidesabenefitwhenthebuyertradesinthevehicletopurchaseanother.

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Trade‐increditagreementsformotorvehicleretailinstallmentcontractsareauthorizedunder

Sections348.001(11)and348.125oftheTexasFinanceCode,addedbyHB2339(2017).Section

348.001(11)definesatrade‐increditagreementas:“acontractualarrangementunderwhicha

retailselleragreestoprovideaspecifiedamountasamotorvehicletrade‐increditforthe

diminishedvalueofthemotorvehiclethatisthesubjectoftheretailinstallmentcontractin

connectionwithwhichthetrade‐increditagreementisofferedifthemotorvehicleisdamaged

butnotrenderedatotallossasaresultofacollisionaccident,withthecredittobeapplied

towardthepurchaseorleaseofadifferentmotorvehiclefromtheretailselleroranaffiliateof

theretailseller.”

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Atrade‐increditagreementisaseparateagreementfromtheretailinstallmentcontract,andis

notconsideredaninsuranceproduct.

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2.Whatarethegeneralrequirementsforatrade‐increditagreement?

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Thegeneralrequirementsfortrade‐increditagreementsarelocatedinTexasFinanceCode,

Sections348.001(11)and348.125(addedbyHB2339(2017)),aswellastheOCCC’srulesat

TexasAdministrativeCode,Title7,Sections84.204,84.707,84.708,and84.808(recently

amendedeffectiveSeptember7,2017).

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Trade‐incredit

agreementsaresubjecttothefollowingrequirements:

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 Disclosurerequirements:Thesellermustprovidethebuyerwithwrittennoticeofthe

followingatthetimetheretailinstallmentcontractisexecuted:

o astatementthatthebuyerisnotrequiredtopurchasetheagreementasacondition

forapprovaloftheretailinstallmentcontract,

o astatementthat

thebuyerisentitledtocanceltheagreementbeforethe31stday

aftertheretailinstallmentcontractandreceiveafullrefund,

MotorVehicle AdvisoryBulletin:

Trade‐InCreditAgreements

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OCCCAdvisoryBulletinB17‐2(Sept.7,2017) Page2of3

o astatementthatthebuyermayterminatetheagreementatanytimeonorafterthe

31stdayaftertheretailinstallmentcontractandreceiveaproratarefund,minus

anyapplicablecancellationfeewhichmaynotexceed

$50,and

o astatementthatthebuyerhasbeenprovidedaclearandconcisedisclosureofthe

amountofthecreditavailableduringthetermofthetrade‐increditagreement.

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 Refundingrequirements:Ifthebuyerterminatesthetrade‐increditagreementbefore

the31stdayaftertheretailinstallmentcontract,thenthesellermustprovidethebuyer

afullrefundofthechargefortheagreement.Ifthebuyerterminatesafterthe31stday,

thesellermustprovideaproratarefund,minusanycancellationfeethatmaynot

exceed$50.

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 Contractualliabilityreimbursementpolicy:Toensurefaithfulperformanceofthe

seller’sobligationsunderatrade‐increditagreement,thesellermustbeinsuredunder

acontractualliabilityreimbursementpolicyapprovedbytheTexasDepartmentof

Insurance.

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 Limitationonamountcharged:Theamountchargedforatrade‐increditagreement

maynotexceed5%ofthecashpriceofthemotorvehicle,includinganyattached

accessories,andexcludingthepriceofservicesrelatedtothesale,thepriceofservice

contracts,taxes,andfeesforlicense,title,andregistration.

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 Requireddocumentation:Thetrade‐increditagreementmustrequirethebuyerto

provideproofofinsurancesettlementdocumentsinordertoobtainthecredit,andmay

notrequirethebuyertoprovideanyotherdocumentation.

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 Providingbenefitunderagreement:Ifaretailsellerentersatrade‐increditagreement

witharetailbuyer,theretailsellermustcomplywiththetermsofthetrade‐incredit

agreementinconnectionwiththepurchaseorleaseofasubsequentmotorvehicle.A

retailsellermustprovideany

creditrequiredunderatrade‐increditagreementatthe

timeofthepurchaseorleaseofasubsequentmotorvehicle.

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 Reasonablebenefit:Thebenefittobeprovidedunderatrade‐increditagreementmust

bearareasonablerelationshiptotheamountchargedfortheagreementandthe

amount,term,andconditionsoftheretailinstallmentcontract.

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 Recordkeeping:UndertheOCCC’srecordkeepingrules,sellersmustmaintainacopyof

theagreement,evidenceofthecontractualliabilitypolicy,documentationofany

refund,evidenceoftheamountofanycreditapplied,anydocumentationusedto

processaclaim,andaregisterthatreflectsagreementsthatweresatisfiedordenied.

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OCCCAdvisoryBulletinB17‐2(Sept.7,2017) Page3of3

3.Howshouldasellerdisclosethechargeforthetrade‐increditagreementontheretail

installmentcontract?

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Therearetworetailinstallmenttransactionsrelevanttothetrade‐increditagreement:thefirst

transactioninwhichthebuyerpurchasestheagreement,andthesecondtransactioninwhich

thebuyertradesinthevehicleandreceivesabenefitundertheagreement.

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Inthefirsttransaction,theinitialchargefor

thetrade‐increditagreementshouldbelistedin

theretailinstallmentcontract’sitemizationofamountfinanced,intheitemizedchargesnot

includedinthecashprice.

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Forexample,ifasellerisusingtheOCCC’smodelplainlanguageretailinstallmentcontract

locatedatTexasAdministrativeCode,Title7,Section84.809,thenthesellermaylisttheinitial

chargefortheagreementonline4.O.,“Othercharges,”ofthemodelitemizationofamount

financed,asachargeto“Seller”for“trade‐increditagreement.”

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4.Inatransactionwherethebuyerreceivesabenefitunderatrade‐increditagreement,how

shouldasellerdisclosethebenefitontheretailinstallmentcontract?

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Inthesecondtransaction,thesellershoulddisclosethebenefitundertheagreementinthe

retailinstallmentcontract’sitemizationofamountfinanced,onthe“other”lineofthe

downpaymentsection,withadescriptionsuchas“trade‐increditagreementbenefit.”The

benefitshouldcounttowardthedownpayment,effectivelyloweringthetotalamountfinanced

owedbythebuyerinthesecondtransaction.

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Asellershouldnotincludethebenefitonthe“Grosstrade‐in”lineoftheitemizationofamount

financed,orinthe“DealershipAllowanceforTrade‐In”sectionofthedisclosureofequityform.

Thebenefitunderatrade‐increditagreementisseparatefromthevalueofthetrade‐invehicle

itself.

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