New Hampshire Significantly Amends Motor Vehicle Retail Installment and Sales Finance Company Act

On August 2, 2024, New Hampshire enacted legislation that significantly revises its Motor Vehicle Retail Installment Sales Act (the “Act”), effective July 1, 2024.

Unfortunately, that effective date is not a typographical error. The New Hampshire Banking Department apparently tried, during the legislative process, to extend the effective date until January 1, 2025, but that extension did not make it into the enacted bill. While the bill was enacted with an effective date of July 1, 2024, the Department attempts at least to provide assurances that the bill became effective upon signing, and not retroactively. Still, the effective date of the amendments is just one of the topics requiring clarification.

The legislation (House Bill 1243) makes many substantive changes to the Act, particularly to the contractual requirements (including notice that complaints may be filed with the Department), notices of assignment upon transfers, and the scope of its licensing obligation. While the Act, prior to the amendments, required motor vehicle retail installment sellers and sales finance companies in the state to obtain a license, House Bill 1243 amended the definition of “sales finance company” to include any person acting as a lender, holder, assignee, or servicer to consumers under retail installment contracts. Adding to the perplexity of how a person can act as a “holder” or “assignee” to a consumer buying a motor vehicle, the amendments define a “lender” for this purpose to include not just a person that provides the financing for the vehicle, but any legal successor to the rights of the lender. The amendments even supplemented the definition of “person” to specify that trusts are included, as are any two individuals or entities with a joint or common interest. An express exemption from licensing applies under the amendments only to state or federally chartered banks, savings banks, trust companies, credit unions, cooperative banks, or industrial banks, and to bankruptcy trustees servicing existing contracts. While there is an exemption for pledgees of retail installment sales contracts to secure a bona fide loan, there is no express exemption for special purpose entities used in securitization or other similar financing transactions. As of September 12, 2024, however, the Department’s website states that securitization trusts established for the purpose of pooling retail installment contracts and reconstituting them into securities are not required to obtain a sales finance company license in the state. While the Department stated further that the licensing requirement will typically be fulfilled by the servicer or other entity responsible for servicing the contracts in the securitization trust, it did not expressly address the licensing obligations applicable in other types of financing transactions or to other types of special purpose entities. We expect that a similar licensing exemption would apply to those transactions and entities, because the servicer would need to be licensed or an exempt entity.

House Bill 1243 also amends the geographical scope of the licensing obligation. While the Act, prior to the amendments, applied the licensing obligation to persons engaging in applicable business in the state, the obligation now applies to any nonexempt person that, in its own name or on behalf of other persons, engages in the applicable business in the state “or with persons located in this state.” Neither the Act nor the amendments expressly address what constitutes engaging in business in the state for this purpose. Without further clarification from the Department, the “transacting business” standard for foreign qualification in the New Hampshire Business Corporations Act could be an appropriate basis for determining whether an entity is “engaging in business” in New Hampshire for purposes of the Act.

While the new scope of the licensing obligation is not fully clear, the legislation certainly raises the consequences for guessing incorrectly. The Act previously imposed criminal penalties for failure to obtain a license as required (and continues to do so after the amendments, if done “knowingly”). As if that weren’t sufficient deterrence, House Bill 1243 provides that any person that engages in the business of a sales finance company (or retail seller) in the state or with consumers located in the state without first obtaining a license “shall have no right to collect, receive, or retain any principal, interest, or charges whatsoever on any purported retail nonexempt installment contract and any such contract shall be null and void.” The amendments also provide that no person shall assist or aid and abet any person in the conduct of business under the Act without a license as required by the Act. With a retroactive effective date of July 1, 2024, the licensing provision and the other substantive changes have understandably sent the New Hampshire automobile financing industry scrambling for answers.

The Department announced that it spearheaded the legislation (but was unable to fix the effective date), and “intends to engage in outreach and education” on the amendments until January 1, 2025. The agency did not, in that announcement, commit to engaging “only” in outreach and education, nor did it describe any efforts to amend the legislation’s effective date. However, the Department promises to provide further guidance on an ad hoc basis to any business that reaches out with “compliance challenges.” In its August 26, 2024 guidance, the Department described a “no-action” process through which the public may seek further specific guidance. In seeking a response to a no-action request, financial institutions will need to identify themselves and provide detailed and particular facts and circumstances, along with the legal basis for their interpretation. Financial institutions may seek confidential treatment of those requests, which the Department may grant in accordance with the state’s Right-to-Know Law and other provisions.

The Department emphasized, though, that any no-action letter or response to a request for such a letter that the Department issues will not constitute legal advice, and its answers to frequently asked questions are intended only as informal guidance.