What does the automaker Honda have in common with Capital One? They both faced multi-million dollar class action lawsuits for alleged violations of Article 9 of the Uniform Commercial Code’s repossession provisions⁴. Recent lawsuits against both companies alleged that vehicles they financed were repossessed without providing the borrower with notice as required by Article 9.

Article 9 of the Uniform Commercial Code (“UCC”) outlines the rights and duties of parties to a secured transaction. While many provisions favor secured parties, there are some protections for debtors, such as notice requirements before the sale of collateral. As enacted in Pennsylvania⁵, § 9611 requires a secured party in most cases to send notification of its intent to sell or otherwise dispose of collateral after repossession. This notice must include specific provisions and must be sent to the debtor, any secondary obligors, such as co-signers or guarantors, and other parties with interest in the collateral. Failure to strictly comply with this notice provision can result in liability for damages arising from such noncompliance, in addition to statutory damages. In the case of Honda, such liability exceeded $20 million. Class action law suits provide borrowers with a remedy in which liability can be aggregated on a class basis to maximize recovery for what would be otherwise small claims standing alone.

Financial Institutions should examine current processes and practices to ensure compliance with Article 9 to avoid the significant risk in connection with this potential class action liability.

⁴ Langer v. Capital One Auto Finance, Docket No. 2:16-CV-06130, in the Eastern District of Pennsylvania; Williams v. American Honda Finance Corporation, Case No. 1:14-CV-12859, in the United States District Court for the District of Massachusetts. Both lawsuits ended in settlement.
⁵ 13 Pa.C.S.A. § 1101 et seq.