Commercial Banking, Collections, and Bankruptcy

Your Guide to Buying on Time

Buying on time

Buying on credit has become so commonplace today that we often take it for granted without fully understanding the legal consequences. However, you should never accept the invitation to "buy now and pay later" without being fully informed of what is involved. For one thing, you will pay more money since interest and other costs are added to the cash price of the merchandise. Moreover, in most cases you will likely be asked to enter into a sales contract that contains a security agreement, which seeks to protect the seller by allowing the goods sold under the contract to serve as collateral for the extension of credit. Among other things, the security agreement within the contract will set forth when and how the seller or finance company can repossess the merchandise should you fail to make the required payments.

There are four simple steps you should follow to protect your interests before you buy on credit. First, shop and compare. The interest rates and terms of payment can vary depending on where you make your purchase. Second, always deal with an established and reputable company that will stand behind its merchandise. Third, read and understand all documents before you sign them. Fourth, if you have questions, call your family lawyer. In many cases, your questions can be answered without an office consultation.

Credit cards

The most common method for buying on credit is the credit card. Generally, when you use a credit card, you are taking advantage of an arrangement called "revolving credit," in which the issuer of the credit card effectively loans you the money for the purchase and charges you a stated interest rate for doing so. The applicable interest rate and the usual service charges are regulated by law. These regulations will vary depending upon the type of credit arrangement that they address; for example, the regulatory provisions for a loan that is to be repaid in a lump sum at the end of the billing period will be different from the regulatory provisions for an installment loan that is to be repaid in periodic installments over a specified amount of time.

In any case, the issuer of your credit card must inform you in writing of the various requirements of the credit arrangement.

If a person possesses your credit card without your permission and intends to use it or sell it, he or she has committed a criminal offense and could be charged with a class 4 felony potentially punishable by one to three years in prison. Moreover, if you lose your credit card or it is stolen, you are not responsible for any unauthorized purchases that occur after you notify the issuer that your card has been lost or stolen. And even further, your responsibility for unauthorized purchases made before you are able to give notice to the issuer of the loss, theft, or unauthorized use of your card is limited to a specified applicable amount (e.g., $25 for the unauthorized use of a card without a signature panel prior to notification).

If you receive a credit card that you have not requested, you are not liable for any purchases or amounts owed in connection with that credit card unless you have indicated your acceptance of the card by signing or using it or by permitting or authorizing another person to use it. The mere failure to destroy or return an unsolicited credit card is not an indication of the card's acceptance and thus you are not responsible for unauthorized purchases made with that card under these circumstances.

The promissory note and security agreement

A security agreement in the context of a credit sale transaction occurs when the seller retains a security interest in some or all of the goods you have purchased in order to secure repayment for those goods should you fail to pay the amount required by the sales contract. In an effort to provide you with some protection when entering into a security agreement, Illinois law requires a seller's security interest to remain unenforceable against you unless three conditions are met: value has been given to the collateral, you have rights in the collateral (i.e. it is in your possession), and you have signed a security agreement that provides a description of the collateral.

The seller may wish to receive payment for the merchandise immediately rather than waiting for you to make the installment payments. To obtain payment immediately, the seller can sell the security agreement to a bank or finance company and receive immediate payment from them. In such a case, you will then be advised in writing to make your payments to that bank or finance company rather than to the seller.

A promissory note is attached to or made a part of the security agreement. You will be required to sign both documents. The promissory note is a statement whereby you promise to make the required payments to the holder of the note. You, as the buyer, are responsible to make the payments, and the seller of the merchandise may sell the promissory note or security agreement to another lender.

Rights of seller upon default

If you sign a security agreement and fail to make the payments as set forth in the sales contract, the seller may sue you to judicially enforce his or her security interest. A formal court proceeding is not the only way sellers can enforce their security interest; there are a variety of nonjudicial methods of enforcement that sellers may use to avoid litigation in court. In most cases, the seller will simply attempt to repossess the goods sold, which can be accomplished without the need for a court proceeding so long as the seller's repossession attempts do not breach the peace. A seller is not required by law to notify you of his or her intent to repossess your goods, although some may choose to do so. However, if the parties agree in the initial security agreement that the seller will provide notification of the intent to repossess before repossession occurs, the seller must notify you in order to comply with the terms of the agreement.

Once the goods are repossessed, the seller may sell, lease, license, or otherwise dispose of any or all of the goods and credit the money received from the disposition to the amount you owe on the contract and to the reasonable expenses incurred as a result of the repossession and disposition of the goods. However, before the seller can dispose of your repossessed goods by any method, he or she must send you a notification of disposition describing the goods being subjected to disposition, the method of disposition the seller intends to use, the time and place of disposition if it is public, and the best way for you to learn the exact amount that must be paid any time before the disposition in order to get your goods back. If you receive notice and are able to pay the amount you owe in full before the disposition of your goods, they will be returned to you. If the amount of the cash proceeds from the disposition of the goods exceeds the amount you still you owe, the seller must give you the extra money back. However, if the disposition results in less than the balance you owe, you may have to pay the difference.

Defective goods

Ordinarily, if you find that merchandise you have purchased is defective, you may require the seller to replace the item or fix the defect. If you have received defective goods, you may withhold payment for those goods, but you must also notify the holder of the note that the goods are defective. Defects in merchandise you have purchased do not in and of themselves release you from your promise to make payments under the sales contract, but do give you a defense if the seller or the person to whom the security agreement has been assigned or sold tries to sue you for non-payment. If the seller assigns or sells the security agreement to a new lender, the seller still remains responsible for the necessary repairs or the replacement of the defective item under the general sales contract. If you discover a defect in a purchased item, you should protect yourself by immediately notifying the seller and the new lender, if there is one. It is always best to give this kind of notice in writing and to keep a copy for your records.

In Illinois, the laws governing the purchase of automobiles differ somewhat from those governing the purchase of other merchandise. Automobile dealers are usually responsible for defects and repairs as are described in the automobile warranty issued when the automobile is sold new.

"As is" merchandise

A seller who wishes to avoid warranties that would obligate him or her to make repairs to the merchandise sold if necessary may offer goods for sale "AS IS." Ordinarily, it is commonly understood that agreeing to accept an item "AS IS" implies that you are willing to assume the risk that you might receive defective merchandise and to forfeit any claim against the seller for such a defect. Thus, if the contract for the sale of any given good is stamped "AS IS" and you accept its terms, all warranties for the good are excluded from the purchase. However, you can refuse to buy any item that is designated "AS IS," and in most cases you should choose to do so, especially when it comes to expensive or large purchases, in order to protect your legal rights as best you can.

Limits on interest

There is a limit to the interest that a seller in Illinois may add to the price of goods purchased on the installment plan. Any charge in excess of the limit is illegal and is a basis for the cancellation of the contract if you desire to do so. The interest must be disclosed on the face of the contract. Do not sign any sales contract until you are certain that you can afford the interest and that the interest is in compliance with the law. If you have any doubts, do not sign the contract until you have consulted your lawyer. It is wise to treat a purchase on credit with the same caution and care you would exercise in obtaining a loan from a bank or other financial institution. Your lawyer can provide the advice you may need to avoid entering an unfavorable contract.

Remember, whenever you contemplate signing a binding contract, be sure you understand the terms of the agreement. An ounce of prevention is always worth a pound of cure.

Prepared by the Illinois State Bar Association's Commercial Banking, Collections, and Bankruptcy (2017)

LimeCoral, Ltd. v. CareerBuilder, LLC

Federal 7th Circuit Court
LimeCoral, Ltd. v. CareerBuilder, LLC
Civil Court
Contracts
Citation
Case Number: 
No. 17-1733
Decision Date: 
May 8, 2018
Federal District: 
N.D. Ill., E. Div.
Holding: 
Affirmed

Dist. Ct. did not err in granting defendant’s motion for summary judgment in breach of contract action alleging that defendant failed to pay plaintiff renewal fee for use of plaintiff’s designs on defendant’s website beyond one-year period set forth in original contract between parties. Original contract called for defendant to pay plaintiff set fee for generation of designs requested by defendant’s clients who posted job openings on defendant’s website and further required defendant to pay plaintiff set fee if clients wanted any change to designs after one-year use of original design. While plaintiff argued that once original written contract expired defendant orally agreed to pay it renewal fees for client use of designs after one-year period regardless of whether any changes to designs were requested, record supported defendant’s claim that plaintiff was not entitled to any fee beyond original one-year period unless client requested change to design. Moreover, Dist. Ct. was entitled to find that defendant had acquired implied, non-exclusive right to use plaintiff’s designs under terms of original written agreement, and that there was no subsequent oral agreement that imposed any conditions on said right or required defendant to pay plaintiff renewal fee for use of design beyond original one-year period where client made no request for revision of design.

House Bill 5201

Topic: 
Mechanics Lien Act

(Ford, D-Chicago; Castro, D-Chicago) amends the Counties Code to create a mechanics lien demand and referral pilot program. Provides that in counties with a code hearing unit, a recorder may adopt rules establishing a mechanics lien demand and referral process for residential property after a public hearing. Provides that if a recorder determines that a mechanics lien recorded in the grantor's index or the grantee's index is a defective lien, the recorder shall serve a Notice of Defective Lien by certified mail to the last known address of the owner.

Provides that if the owner or legal representative of the owner of the residential property confirms in writing that the lien is not involved in pending litigation, the owner may request that the recorder refer the defective mechanics lien to the county's code hearing department for adjudication or serve a Demand to Commence Suit forcing the lienholder to either file suit, respond to the Demand, or forfeit the lien. Provides how the recorder is to serve a Demand to Commence Suit or file a Notice of Referral with the code hearing unit.

Provides that if the mechanics lien is referred to the code hearing unit, the code hearing unit will set a hearing and notify the applicable parties. Provides if the recorder shows by clear and convincing evidence that the lien in question is a defective lien, the administrative law judge shall rule the lien is forfeited and that the lien no longer affects the chain of title of the property in any way.

Repeals the provisions on January 1, 2022. Further amends the Counties Code making conforming changes in county code hearing unit provisions. Amends the Mechanics Lien Act making conforming changes. Scheduled for hearing Tuesday in Senate Judiciary Committee. 

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Evans v. Portfolio Recovery Associates, LLC

Federal 7th Circuit Court
Evans v. Portfolio Recovery Associates, LLC
Civil Court
Fair Debt Collection Practices Act
Citation
Case Number: 
Nos. 17-1773 et al.
Decision Date: 
May 2, 2018
Federal District: 
N.D. Ill., E. Div.
Holding: 
Affirmed

Dist. Ct. did not err in granting plaintiffs’ motions for summary judgment in action under section 1692e(8) of Fair Debt Collection Practices Act, alleging that defendant-debt collection agency improperly reported plaintiffs’ debts to credit reporting agencies without noting that their debts were disputed, when plaintiffs had previously sent letters stating that “the amount reported is not accurate.” Defendant’s failure to accurately report fact that plaintiffs had disputed debt was sufficient to demonstrate appreciable risk of harm so as to support finding that plaintiffs had standing to bring instant matter. Moreover, plaintiffs’ declarations that debt was not accurate was sufficient to communicate to defendant that debt was in dispute. Fact that plaintiffs’ attorney used term “dispute” in other letters to defendant to contest amount of debt did not require different result. Ct. further found that instant misrepresentation to credit reporting agencies satisfied “material” element of section 1692e. Also, defendant was not entitled to assert bona fide error defense, since defendant merely claimed that it made error of law for purposes of section 1692e(8) in determining that plaintiffs’ letters did not communicate that they had disputed their debts.

Gleason v. Jansen

Federal 7th Circuit Court
Gleason v. Jansen
Civil Court
Bankruptcy
Citation
Case Number: 
No. 17-1658
Decision Date: 
April 25, 2018
Federal District: 
N.D. Ill., E. Div.
Holding: 
Affirmed

Bankruptcy Ct. did not err in denying creditor’s motion for relief of judgment under Rule 9024 that essentially sought to reopen creditor’s adversary proceeding seeking declaration that $400,000 debt was non-dischargeable under 11 USC section 523(a)(2)(A) where debt represented obligation involving fraud upon creditor. While creditor argued that “newly discovered” evidence established that debtor had perjured himself at trial to determine whether debt was dischargeable, Bankruptcy Court could properly find that said evidence was always available through PACER, and thus was not newly discovered evidence for purposes of supporting any revisit of Bankruptcy Ct. order finding that creditor had failed to establish that debtor had misused creditor’s money or had obtained it fraudulently. Also, creditor could not appeal Dist. Ct.’s order dismissing without prejudice creditor’s appeal on merits of Bankruptcy Ct. order finding that said debt was not dischargeable since, although said order was final and appealable despite “without prejudice” notation by Bankruptcy Ct., creditor had failed to file timely notice of notice of appeal from said order. Fact that Bankruptcy Ct. had erroneously dismissed without prejudice creditor’s appeal of merits of section 523(a)(2)(A) issue due to misunderstanding that the creditor’s appeal of denial of his Rule 9024 motion had raised same issues, or that Dist. Ct. had lulled creditor into erroneously believing that he could raise merits of section 523(a)(2)(A) issue in appeal of denial of creditor’s Rule 9024 motion did not require different result.

Dieffenbach v. Barnes & Noble, Inc.

Federal 7th Circuit Court
Dieffenbach v. Barnes & Noble, Inc.
Civil Court
Class Action
Citation
Case Number: 
No. 17-2408
Decision Date: 
April 11, 2018
Federal District: 
N.D. Ill., E. Div.
Holding: 
Vacated and remanded

Dist. Ct. erred in dismissing plaintiffs’ class action alleging that they incurred damages arising out of defendant-book store’s failure to detect third-parties who compromised defendant’s data base that contained plaintiffs’ personal information that caused plaintiffs to temporarily lose use of their funds while waiting for banks to reverse unauthorized charges, as well as force plaintiffs to spend their own time to re-establish accounts with merchants and to spend money on credit-monitoring services. While Dist. Ct. based dismissal on finding that complaint failed to adequately plead damages, plaintiffs’ allegations regarding loss of use of funds, lost time, inability to make purchases using compromised accounts and expenditure of funds to purchase credit-monitoring services were compensable damages under either California or Illinois law. Ct., though, questioned whether plaintiffs could obtain any remedy under either California or Illinois statutes, where neither statute expressly made merchants liable for failure to crime proof their point of sale systems.

Community Bank of Trenton v. Schnuck Markets, Inc.

Federal 7th Circuit Court
Community Bank of Trenton v. Schnuck Markets, Inc.
Civil Court
Banking
Citation
Case Number: 
No. 17-2146
Decision Date: 
April 11, 2018
Federal District: 
S.D. Ill.
Holding: 
Affirmed

Dist. Ct. did not err in dismissing action by plaintiffs-credit card-holders’ banks against defendant-retail merchant who suffered data breach, where plaintiffs that made good on customer claims for fraudulent use of their credit cards stemming from said breach sought damages above and beyond remedies provided to plaintiffs by network of contracts that linked defendant, card-processors, plaintiffs and card brands that enabled electronic card payments. While plaintiffs alleged that they were entitled to assert common law negligence claims, as well as Illinois consumer protection statutes to recover losses not covered by instant contract network, Ct. of Appeals found that plaintiffs were limited to recoveries set forth in instant network of contracts. Fact that plaintiffs had no direct contractual relationship with defendant did not require different result, where plaintiffs and defendant were part of same network of contracts that tied all participants in same card payment system, and where plaintiffs’ participation in network meant that they would incur some risk of not being fully reimbursed for costs associated with another party’s mistake. Also, Ct. found that: (1) Illinois Supreme Ct. would not either impose common law data security duty that plaintiffs would require in instant lawsuit or apply any exception to economic loss rule that would otherwise bar instant recovery; and (2) plaintiffs could not recover under either unjust enrichment, implied contract or third-party beneficiary theories.

Linderman v. U.S. Bank National Association

Federal 7th Circuit Court
Linderman v. U.S. Bank National Association
Civil Court
Real Estate Settlement Procedures Act
Citation
Case Number: 
No. 17-1770
Decision Date: 
April 10, 2018
Federal District: 
S.D. Ind., Indianapolis Div.
Holding: 
Affirmed

Dist. Ct. did not err in dismissing instant action under Real Estate Settlement Procedures Act (Act) arising out of defendant-bank’s alleged failure to send plaintiff timely response to her inquiry regarding the status of her home loan with defendant. Dist. Ct. could properly find that plaintiff could not establish any damages arising out of any non-receipt of information regarding status of her loan, where: (1) plaintiff claimed difficulties that she experienced while attempting to repair her home occurred prior to date she made request for status of her loan; (2) plaintiff’s financial inability to make said repairs were not related to non-receipt of status report, since Act does not require that defendant pay money in response to written request for status; and (3) plaintiff failed to demonstrate how earlier receipt of status report would have helped her.

Senate Bill 3120

Topic: 
Probate claims

(Nybo, R-Lombard) amends the Probate Act of 1975 in connection with the classification of claims against the estate of the decedent. Provides that a claim for reasonable and necessary medical, hospital, and nursing home expenses for the care of the decedent during the year immediately preceding death is classified equally with claims for money due employees of the decedent for services rendered of not more than $800 for each claimant for services rendered within four months before the decedent's death. Removes expenses of attending the decedent's last illness from the class. Scheduled for hearing Tuesday in Senate Judiciary Committee. 
 

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House Bill 5487

Topic: 
Post-judgment interest

(Currie, D-Chicago) amends the Code of Civil Procedure to provide that for judgments of $50,000 or less that do not include any compensation for bodily injury or death, judgments recovered in any court shall draw interest at a rate of 2% (currently 9% or 6% if the judgment debtor is a governmental entity) per annum. Scheduled for a hearing in House Judiciary Committee next Tuesday and for a subject-matter hearing tomorrow in House Judiciary Committee. 

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