1. What is a "security interest"?

    -see introduction section of lecture notes

2. What must a creditor do in order to retain a security interest in goods purchased with credit?

    -only needs to be disclosed in contract; no formalities (recall TILA from last class)
    -may only be a checked box on the contract

3. As a general rule, a creditor may retain a security interest in
a. the goods purchased with the advance of money from the creditor (purchase money security interest)
b. other goods previously purchased from the creditor by the consumer (cross-collateral clause)
c. future wages of the consumer (wage assignment)
d. all of the above

Questions 4-14 relate to the opinion of the Court of Appeals for the District of Columbia in Williams v. Walker-Thomas Furniture Company.

4.  Who was Ora Lee Williams and what was her socioeconomic status?

    -welfare mom; seven kids; monthly income of $218

5.  Was Walker-Thomas (WT) aware of her status?

    -yes; lower court, at least, seemed to consider that important

6.  For how many years had Williams been purchasing from WT and how much had she paid over that time?

    -five years (1957-1962)
    -had paid $1400 on purchases of $1800
    -balance reduced to $164 when purchased stereo for $514.95

7.  What happened that put Williams into default and led WT to take action?

    -she defaulted (missed payment or payments)
   

8.  Did WT try to take back only the items on which Williams had defaulted, or everything she had purchased since 1957?

    -everything!

9.  What language in the contract did WT rely on to support its action?

    -see * p. 1

10.  What was the practical effect of that clause?

    -if she defaulted on one item, they could repossess previous items leased, even though she had paid more than their cost
    -problem is the "pro rata" language
    -see note A in file with amounts owing at time of default

11.  How did the lower court rule?

12. What did the Court of Appeals have to say about the trial court's decision?

    -said that unconscionability is a common law concept and court can thus apply it in absence of statute

So, what are the elements of an unconscionable contract?
    -see * p. 3

How does this case differ from the Remco v. Houston case?
    -in this case there was language hidden in the fine print that was not easily understood

13. As a result of this case, are all "cross-collateral clauses" now illegal?

    -no
    -see example in file from CAP
    -only if elements of unconscionability are present

14. If you were the credit manager at Walker-Thomas, how might you revise the way payments are allocated to two or more contracts so that the result is fairer to the consumer and thus less likely to be challenged as unconscionable?

    -allow the consumer to decide how payment is allocated
    -allocate in order purchased, so that first item purchased receives payments until it's paid off
    -allocate pro rata based on original purchase price (as done in Vermont) rather than based on current balance

15. What is a "blanket security interest in household goods"? What are the consequences if the consumer defaults?

    -creditor can take everything in the consumer's home

16. In its staff report on the Credit Practices Rule, what reason(s) did the FTC give for banning such security interests?
a. household goods have great value to consumers but little value to creditors, so its primary purpose was to threaten consumers
b. although repossessions were rare, the consequences were devastating to consumers
c. consumers were often unaware of the existence of the security interest (e.g., the woman whose car was repo'd for credit card default; contract in file)
d. all of the above

Questions 17-22 relate to the FTC's Credit Practices Rule, linked in the lecture notes.

17. Section 444.2(a)(4) prohibits any "non-possessory security interest in household goods other than a purchase money security interest." Section 444.1(i) defines "household goods" to exclude: works of art; electronic entertainment equipment (except one television and one radio); antiques; and jewelry (except wedding rings). What is the practical effect of those exclusions? Why do you suppose the Rule excludes wedding rings and one television and radio?

    -a television and radio are necessities?
    -unlike other jewelry, a wedding ring has meaning above and beyond its monetary value?

18. What is a "non-possessory security interest"? What is its significance here?

    -creditor possesses the item until consumer pays for it
    -allows for "layaway" (though we rarely see layaways these days; anybody even heard of it?)
   

19. What is a "purchase money security interest"? Why is it an exception?

    -consumer uses the money to buy a specific item--e.g., a car loan
    -rather than a "small loan"
    -consequences are different than 'household goods' clause
    -not unreasonable

20. True or False: garnishment and wage assignment are the same thing

    -wage assignment is voluntary
    -garnishment is a debt collection tactic
    -only permitted after a court order (except guaranteed student loans--n.b., some of you)
       -government sometimes makes rules exempting itself from requirements it imposes on others

21. True or False: Under Vermont law, wage assignments are prohibited

    -FTC Rule regulates it
    -Vermont went step further and outlawed it

22. Section 444.2(a)(3) permits a wage assignment only if
a. it can be revoked by the debtor
b. it it is a payroll deduction plan beginning at the time of the purchase
c. it only applies to wages earned at the time of the transaction
d. at least one of the above is provided in the contract

    -there is an "or" between the above in the regulation
    -makes it pretty harmless in states that do not outlaw it altogether

Go over co-signer provision in Regulation
    -deals with problem of co-signer not being aware of obligation
    -note para. 3 of notice

Go over discussion question
    -court isn't saying "can't sell luxury itme to a welfare recipient"
    -but is saying you have to be more careful
    -Why?
    -Cuz 1/2 of the unconscionability standard is met (unequal bargaining power)