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First Substitute H.B. 404

Representative Don L. Ipson proposes the following substitute bill:


             1     
MOTOR VEHICLE BUSINESS AMENDMENTS

             2     
2010 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Don L. Ipson

             5     
Senate Sponsor: Stephen H. Urquhart

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies the Motor Vehicles Code by amending provisions relating to motor
             10      vehicle business.
             11      Highlighted Provisions:
             12          This bill:
             13          .    amends priority rights for certain security interests in certain motor vehicles;
             14          .    amends constructive notice provisions for liens and encumbrances against vehicles,
             15      vessels, and outboard motors;
             16          .    provides that certain corporate surety bonds shall be conditioned upon the dealer not
             17      violating certain provisions;
             18          .    provides that reasonable cause for denial, suspension, or revocation of a license
             19      includes having had a license revoked within five years from the date of application;
             20          .    specifies certain acts or practices that are unlawful for a motor vehicle business
             21      licensee to engage in;
             22          .    amends provisions relating to the payoff of liens on motor vehicles traded in; and
             23          .    makes technical changes.
             24      Monies Appropriated in this Bill:
             25          None


             26      Other Special Clauses:
             27          None
             28      Utah Code Sections Affected:
             29      AMENDS:
             30          41-1a-601, as last amended by Laws of Utah 2007, Chapter 272
             31          41-1a-604, as last amended by Laws of Utah 1992, Chapter 218 and renumbered and
             32      amended by Laws of Utah 1992, Chapter 1
             33          41-1a-606, as last amended by Laws of Utah 2000, Chapter 252
             34          41-3-205, as last amended by Laws of Utah 2007, Chapter 267
             35          41-3-209, as last amended by Laws of Utah 2008, Chapter 382
             36          41-3-402, as last amended by Laws of Utah 2006, Chapter 108
             37      ENACTS:
             38          41-3-211, Utah Code Annotated 1953
             39      REPEALS AND REENACTS:
             40          41-1a-605, as last amended by Laws of Utah 2006, Chapter 252
             41     
             42      Be it enacted by the Legislature of the state of Utah:
             43          Section 1. Section 41-1a-601 is amended to read:
             44           41-1a-601. Lien validity -- Security interest.
             45          (1) Except as provided under Subsection (2) or (3), a lien upon a vehicle, vessel, or
             46      outboard motor, except a lien dependent upon possession, is not valid against the creditors of
             47      an owner acquiring a lien by levy or attachment, or subsequent purchasers, or encumbrancers
             48      without notice until Sections 41-1a-602 through 41-1a-606 have been complied with.
             49          (2) Security interests in inventory consisting in part of vehicles subject to registration
             50      under this chapter, that are held for sale by a person in the business of selling goods of that
             51      kind, shall be perfected under Section 70A-9a-310 , except that:
             52          (a) buyers in the ordinary course of business, as defined in Section 70A-1a-201 , take
             53      free of the security interests as provided in Section 70A-9a-320 [.]; and
             54          (b) security interests of persons extending credit to buyers in the ordinary course of
             55      business, as defined in Section 70A-1a-201 , take free of the security interests as provided in
             56      Section 70A-9-320 .


             57          (3) Security interests in inventory consisting in part of vehicles subject to registration
             58      under this chapter, which are held for sale by a person in the business of selling goods of that
             59      kind, shall be perfected under Section 70A-9a-310 , except that a lienholder with a security
             60      interest noted on the title shall have priority unless the lienholder has been paid in full in
             61      accordance with Section 41-3-402 .
             62          Section 2. Section 41-1a-604 is amended to read:
             63           41-1a-604. Filing effective to give notice of liens.
             64          The filing and the issuance of a new certificate of title under Sections 41-1a-602 and
             65      41-1a-603 constitute constructive notice of all liens and encumbrances against the vehicle,
             66      vessel, and outboard motor to creditors of the owner, to a person financing the inventory of a
             67      motor vehicle dealer that sells or offers the vehicle for sale, and to subsequent purchasers and
             68      encumbrancers.
             69          Section 3. Section 41-1a-605 is repealed and reenacted to read:
             70          41-1a-605. Constructive notice.
             71          (1) If a person files an application in the form for an original certificate of title in
             72      accordance with Section 41-1a-602 within 30 days after the owner receives a delivery of the
             73      vehicle, vessel, or outboard motor, constructive notice dates from the time of the execution of
             74      the document creating the security interest and the security interest takes priority over the rights
             75      of a buyer, lessee, or lien creditor which arise after the time of execution of the document
             76      creating the security interest.
             77          (2) If a person files an application in the form for an original certificate of title pursuant
             78      to Section 41-1a-602 after 30 days after the owner receives delivery of the vehicle, vessel, or
             79      outboard motor, constructive notice dates from the time of filing of the document creating the
             80      security interest and the security interest takes priority over the rights of a buyer, lessee, or lien
             81      creditor as of the time of filing.
             82          (3) If a person relocates a motor vehicle within the state with a title issued by another
             83      state bearing a lien, the rights of the lienholder are perfected in accordance with the law of the
             84      state issuing the title.
             85          Section 4. Section 41-1a-606 is amended to read:
             86           41-1a-606. Method of giving notice -- Exceptions.
             87          The method provided in Sections 41-1a-602 through 41-1a-605 , for giving


             88      [constructive] notice of a lien or encumbrance upon a registered vehicle is exclusive except for
             89      liens dependent upon possession and any lien or encumbrance filed as provided under this
             90      chapter, which are exempt from the provisions of Section 70A-9a-311 , and other provisions of
             91      law that otherwise require or relate to the recording or filing of instruments creating or
             92      evidencing title retention or other liens or encumbrances upon vehicles of a type subject to
             93      registration under this chapter.
             94          Section 5. Section 41-3-205 is amended to read:
             95           41-3-205. Licenses -- Bonds required -- Maximum liability -- Action against
             96      surety -- Loss of bond.
             97          (1) (a) Before a dealer's, special equipment dealer's, crusher's, or body shop's license is
             98      issued, the applicant shall file with the administrator a corporate surety bond in the amount of:
             99          (i) $50,000 until June 30, 2006, and $75,000 on or after July 1, 2006 , for a motor
             100      vehicle dealer's license;
             101          (ii) $20,000 until June 30, 2006, and $75,000 on or after July 1, 2006 , for a special
             102      equipment dealer's license;
             103          (iii) $10,000 for a motorcycle, off-highway vehicle, or small trailer dealer's or crusher's
             104      license; or
             105          (iv) $20,000 for a body shop's license.
             106          (b) The corporate surety shall be licensed to do business within the state and have a
             107      rating of at least B+ by the A.M. Best Company.
             108          (c) The form of the bond:
             109          (i) shall be approved by the attorney general;
             110          (ii) shall be conditioned upon the applicant's conducting business as a dealer without:
             111          (A) fraud;
             112          (B) fraudulent representation; [or]
             113          (C) violating Subsection 41-3-301 (1) which requires a dealer to submit or deliver a
             114      certificate of title or manufacturer's certificate of origin; [and] or
             115          (D) violating Subsection 41-3-402 (1) which requires payoff of liens on motor vehicles
             116      traded in; and
             117          (iii) may be continuous in form.
             118          (d) The total aggregate liability on the bond to all persons making claims, regardless of


             119      the number of claimants or the number of years a bond remains in force, may not exceed the
             120      amount of the bond.
             121          (2) (a) A cause of action under Subsection (1) may not be maintained against a surety
             122      unless:
             123          (i) a claim is filed in writing with the administrator within one year after the cause of
             124      action arose; and
             125          (ii) the action is commenced within two years after the claim was filed with the
             126      administrator.
             127          (b) The surety or principal shall notify the administrator if a claim on the bond is
             128      successfully prosecuted or settled against the surety or principal.
             129          (3) (a) A surety or principal may not make a payment on a surety bond to any claimant
             130      until six months have expired from the date when the first claim on the bond was filed with the
             131      surety or principal in writing.
             132          (b) After six months have expired following the filing of the first bond claim, the
             133      surety or principal shall:
             134          (i) assess the validity of all claims on the bond; and
             135          (ii) submit a distribution assessment determined in accordance with Subsection (3)(c)
             136      regarding the bond proceeds to the claimants of valid claims for approval.
             137          (c) (i) If the total verifiable claims on the bond are less than the bond amount, then
             138      each bond claimant shall be entitled to the full amount of a valid claim.
             139          (ii) If the total verifiable claims exceed the bond amount, then the proceeds shall be
             140      distributed pro rata to the bond claimants of valid claims.
             141          (d) If the distribution assessment under Subsection (3)(b) is not unanimously approved
             142      by the claimants of all valid claims on the bond, the principal or surety shall file an interpleader
             143      action in the state district court where the defaulting dealer was licensed.
             144          (4) (a) A person making a claim on the bond shall be awarded attorneys' fees in cases
             145      successfully prosecuted or settled against the surety or principal if the bond has not been
             146      depleted.
             147          (b) A surety or principal may not be awarded attorney fees that exceed $2,500 for an
             148      interpleader action filed under Subsection (3)(d).
             149          (5) (a) (i) If a dealer, body shop, or crusher loses possession of the bond required by


             150      this chapter, the dealer, body shop, or crusher license is automatically suspended.
             151          (ii) All licenses, pocket cards, temporary permits, and special plates issued to the
             152      licensee shall be immediately returned to the administrator.
             153          (b) A dealer, body shop, or crusher may not continue to use or permit to be used
             154      licenses, pocket cards, temporary permits, or special plates until the required bond is on file
             155      with the administrator and the license has been reinstated.
             156          (6) A representative or consignee of a dealer is not required to file a bond if the dealer
             157      for whom the representative or consignee acts fully complies with the provisions of this
             158      chapter.
             159          Section 6. Section 41-3-209 is amended to read:
             160           41-3-209. Administrator's findings -- Suspension and revocation of license.
             161          (1) If the administrator finds that an applicant is not qualified to receive a license, a
             162      license may not be granted.
             163          (2) (a) If the administrator finds that there is reasonable cause to deny, suspend, or
             164      revoke a license issued under this chapter, the administrator shall deny, suspend, or revoke the
             165      license.
             166          (b) Reasonable cause for denial, suspension, or revocation of a license includes, in
             167      relation to the applicant or license holder or any of its partners, officers, or directors:
             168          (i) lack of a principal place of business;
             169          (ii) lack of a sales tax license required under Title 59, Chapter 12, Sales and Use Tax
             170      Act;
             171          (iii) lack of a bond in effect as required by this chapter;
             172          (iv) current revocation or suspension of a dealer, dismantler, auction, or salesperson
             173      license issued in another state;
             174          (v) nonpayment of required fees;
             175          (vi) making a false statement on any application for a license under this chapter or for
             176      special license plates;
             177          (vii) a violation of any state or federal law involving motor vehicles;
             178          (viii) a violation of any state or federal law involving controlled substances;
             179          (ix) charges filed with any county attorney, district attorney, or U.S. attorney in any
             180      court of competent jurisdiction for a violation of any state or federal law involving motor


             181      vehicles;
             182          (x) a violation of any state or federal law involving fraud; [or]
             183          (xi) a violation of any state or federal law involving a registerable sex offense under
             184      Section 77-27-21.5 [.]; or
             185          (xii) having had a license issued under this chapter revoked within five years from the
             186      date of application.
             187          (c) Any action taken by the administrator under Subsection (2)(b)(ix) shall remain in
             188      effect until a final resolution is reached by the court involved or the charges are dropped.
             189          (3) If the administrator finds that the license holder has been convicted by a court of
             190      competent jurisdiction of violating any of the provisions of this chapter or any rules made by
             191      the administrator, or finds other reasonable cause, the administrator may, by complying with
             192      the emergency procedures of Title 63G, Chapter 4, Administrative Procedures Act:
             193          (a) suspend the license on terms and for a period of time the administrator finds
             194      reasonable; or
             195          (b) revoke the license.
             196          (4) (a) After suspending or revoking a license, the administrator may take reasonable
             197      action to:
             198          (i) notify the public that the licensee is no longer in business; and
             199          (ii) prevent the former licensee from violating the law by conducting business without
             200      a license.
             201          (b) Action under Subsection (4)(a) may include signs, banners, barriers, locks,
             202      bulletins, and notices.
             203          (c) Any business being conducted incidental to the business for which the former
             204      licensee was licensed may continue to operate subject to the preventive action taken under this
             205      subsection.
             206          Section 7. Section 41-3-211 is enacted to read:
             207          41-3-211. Unlawful acts or practices.
             208          (1) A licensee may not knowingly or intentionally engage in any of the following
             209      unlawful acts or practices:
             210          (a) provide a financial institution or person being contacted to provide financing for the
             211      purchase of a motor vehicle, a motor vehicle contract of sale, document of sale, contract,


             212      request for proposal, or other document that does not accurately state:
             213          (i) the terms of the motor vehicle purchase; or
             214          (ii) if the vehicle is a rebuilt vehicle;
             215          (b) sell a motor vehicle to a purchaser that is subject to financing that is not the motor
             216      vehicle described in a motor vehicle contract of sale, document of sale, contract, request for
             217      proposal, or other document as of the time the contract of sale, document of sale, contract,
             218      request for proposal, or other document provided to the financial institution or person
             219      providing financing; or
             220          (c) make payments on any loan or lease on a motor vehicle subject to a loan or lease
             221      that is subject to the payoff requirements of Subsection 41-3-402 (1).
             222          (2) The provisions of Subsection (1)(c) do not prohibit a dealer from making one or
             223      more loan or lease payments for a motor vehicle if making the payments is:
             224          (a) stated in writing in a motor vehicle contract of sale, document of sale, contract,
             225      request for proposal, or other document; or
             226          (b) stated in the notice to the lienholder of the trade-in of the vehicle as required by
             227      Subsection 41-3-402 (5).
             228          (3) A person who violates the provisions of this section is subject to the penalties
             229      provided in Section 41-3-701 and Subsection 41-3-702 (1)(a).
             230          Section 8. Section 41-3-402 is amended to read:
             231           41-3-402. Payoff of liens on motor vehicles traded in.
             232          (1) If a dealer takes a trade-in from a retail customer as part of the sale or lease of a
             233      motor vehicle and there is an outstanding loan balance owing on the trade-in, then the dealer[,]:
             234          (a) within 21 calendar days of the date of sale or lease, or within 15 calendar days of
             235      receiving payment in full for the motor vehicle it sold, whichever date is earlier, shall remit
             236      payment to the lienholder sufficient to pay off the lien on the traded in motor vehicle, unless
             237      the underlying contract of sale or lease contract has been rescinded before expiration of the 21
             238      days[.]; and
             239          (b) shall remit payment to the lienholder sufficient to pay off the lien on the traded in
             240      motor vehicle prior to selling or placing the motor vehicle for sale unless Subsection (2) is
             241      complied with.
             242          (2) (a) A dealer shall, at the time of sale of a motor vehicle with a trade-in, notify in


             243      writing the person trading in the vehicle that the person remains responsible for any unpaid
             244      loan, lease, or other obligation related to the vehicle being traded in.
             245          (b) The person trading in the vehicle must separately acknowledge receipt of the notice
             246      and acknowledge in writing the person's continuing obligation related to the vehicle being
             247      traded in.
             248          (3) The notice and acknowledgment required under Subsection (2) may be combined
             249      with an authorization for payoff and shall contain the following:
             250          (a) the customer's name;
             251          (b) the customer's address;
             252          (c) the dealer's name;
             253          (d) the dealer's address;
             254          (e) notice to the customer that the motor vehicle the customer is trading in is subject to
             255      an unpaid loan, lease, or other obligation;
             256          (f) notice to the customer that the customer remains responsible for the unpaid loan,
             257      lease, or other obligation despite the trade-in of the motor vehicle; and
             258          (g) acknowledgment by signature of the customer that the customer remains
             259      responsible for payment of the unpaid loan, lease, or other obligation.
             260          (4) (a) A dealer shall, within seven calendar days of the date of a trade-in, notify a
             261      lienholder on the motor vehicle that the vehicle has been traded in.
             262          (b) The notice under Subsection (4)(a) is not required if the lien is fully satisfied within
             263      seven calendar days of the date of a trade-in.
             264          [(2) A lienholder who has been paid in full by a dealer in accordance with the terms of
             265      this section shall deliver to the dealer a properly executed title that releases the lien within:]
             266          [(a) one business day after the business day on which the funds are received when the
             267      funds are in cash, cashier's check, certified check, teller's check, or other certified source of
             268      funds;]
             269          [(b) three business days after the business day on which the funds are received when
             270      the funds are in the form of a check drawn on a local originating depository institution; or]
             271          [(c) six business days after the business day on which the funds are received when the
             272      funds are in the form of a check drawn on a nonlocal originating depository institution.]
             273          (5) The notice to the lienholder required by Subsection (4) may be combined with an


             274      authorization for payoff or a notice to the person trading in the motor vehicle subject to the lien
             275      and shall contain the following:
             276          (a) notice that a motor vehicle subject to the lienholder's lien has been traded in;
             277          (b) notice that the person trading in the motor vehicle subject to the lien has been
             278      provided with a notice as required by Subsection (3);
             279          (c) the date the motor vehicle was traded in; and
             280          (d) (i) a statement that payment for the lien accompanies the notice; or
             281          (ii) a statement that payment will be made within the time frame required under
             282      Subsection (1).
             283          (6) A lienholder shall deliver to the dealer a properly executed title that releases the
             284      lien within nine calendar days after the day on which the funds are received if the lienholder:
             285          (a) has possession of the title for the motor vehicle; and
             286          (b) has been paid in full.
             287          (7) (a) A lienholder who does not have possession of the title but has its account paid
             288      in full by a dealer shall provide the dealer with a written statement that the lienholder no longer
             289      claims a lien against the motor vehicle.
             290          (b) The statement described in Subsection (7)(a) shall be provided within the time limit
             291      required by Subsection (6).
             292          [(3)] (8) If the final day for performing an act under this section falls on a Saturday,
             293      Sunday, or a legal holiday, then the time for performance is extended to the immediately
             294      following business day.
             295          [(4)] (9) A dealer's failure to comply with the provisions of this section subjects the
             296      dealer to the sanctions set forth in Section 41-3-701 .
             297          [(5)] (10) A person who trades in a motor vehicle to a dealer and who thereafter
             298      sustains loss or damage as a result of a dealer's failure to pay off a properly recorded lien on the
             299      traded in motor vehicle within the time specified by Subsection (1)[(b)], may bring an action
             300      against the offending dealer to recover damages proximately caused by the dealer's failure to
             301      comply with the provisions of this section, together with costs and reasonable [attorneys']
             302      attorney fees.


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