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16a-5-201. (UCCC) Effect of violations on rights of parties. (1) If a creditor has violated the provisions of this act applying to collection of excess charges or enforcement of rights (subsection (4) of section 16a-1-201), restrictions on interests in land as security (section 16a-2-307), limitations on the schedule of payments or loan terms for supervised loans (section 16a-2-308), attorney's fees (section 16a-2-507), security in sales and leases (section 16a-3-301), assignments of earnings (section 16a-3-305), authorizations to confess judgment (section 16a-3-306), certain negotiable instruments prohibited (section 16a-3-307), assignees subject to defenses (section 16a-3-404), credit card issuer subject to defenses (section 16a-3-403), or limitations on default charges (section 16a-3-402), the consumer has a cause of action to recover actual damages and in addition a right in an action other than a class action to recover from the person violating such provisions of this act a penalty in an amount determined by the court not less than $100 nor more than $1,000. With respect to violations arising from sales or loans made pursuant to open end credit, no action pursuant to this subsection may be brought more than two years after the violations occurred. With respect to violations arising from other consumer transactions, no action pursuant to this subsection may be brought more than one year after the due date of the last scheduled payment of the agreement.

(2) If a creditor has violated the provisions of this act applying to authority to make supervised loans (section 16a-2-301), the loan is void and the consumer is not obligated to pay either the amount financed or finance charge. If the consumer has paid any part of the amount financed or of the finance charge, the consumer has a right to recover the payment from the person violating this act or from an assignee of that person's rights who undertakes direct collection of payments or enforcement of rights arising from the debt. With respect to violations arising from loans made pursuant to open end credit, no action pursuant to this subsection may be brought more than two years after the violation occurred. With respect to violations arising from other loans, no action pursuant to this subsection may be brought more than one year after the due date of the last scheduled payment of the agreement pursuant to which the charge was paid. Persons subject to the penalties in this subsection shall not include attorneys or collection agencies who do not purchase a consumer obligation.

(3) A consumer is not obligated to pay a charge in excess of that allowed by this act, and if the consumer has paid an excess charge the consumer has a right to a refund of twice the excess charge. A refund may be made by reducing the consumer's obligation by twice the amount of the excess charge. If the consumer has paid an amount in excess of the lawful obligation under the agreement, the consumer may recover twice the excess amount from the person who made the excess charge or from an assignee of that person's rights who undertakes direct collection of payments from or enforcement of rights against debtors arising from the debt. Persons subject to the penalties in this subsection shall not include attorneys or collection agencies who do not purchase a consumer obligation.

(4) If a creditor has contracted for or received a charge in excess of that allowed by this act, or if a consumer is entitled to a refund and a person liable to the consumer refuses to make a refund within a reasonable time after demand, the consumer may recover from the creditor or the person liable in an action other than a class action a penalty in an amount determined by the court not less than $100 or more than $1,000. With respect to excess charges arising from sales or loans made pursuant to open end credit, no action pursuant to this subsection may be brought more than two years after the time the excess charge was made. With respect to excess charges arising from other consumer credit transactions no action pursuant to this subsection may be brought more than one year after the due date of the last scheduled payment of the agreement pursuant to which the charge was made. Persons subject to the penalties in this subsection shall not include attorneys or collection agencies who do not purchase a consumer obligation.

(5) Except as otherwise provided, no violation of the provisions of K.S.A. 16a-1-101 through 16a-9-102, and amendments thereto, impairs rights on a debt.

(6) A creditor has no liability for a penalty under subsection (1) or subsection (4) if within 15 days after discovering an error, and prior to the institution of an action under this section or the receipt of written notice of the error, the creditor notifies the person concerned of the error and corrects the error. If the violation consists of a prohibited agreement, giving the consumer a corrected copy of the writing containing the error is sufficient notification and correction. If the violation consists of an excess charge, correction shall be made by an adjustment or refund.

(7) If the creditor establishes by a preponderance of evidence that a violation is unintentional or the result of a bona fide error of law or fact notwithstanding the maintenance of procedures reasonably adapted to avoid any such violation or error, no liability is imposed under subsections (1), (2), and (3), the validity of the transaction is not affected, and no liability is imposed under subsection (4) except for refusal to make a refund.

(8) In an action in which it is found that a creditor has violated any provision of K.S.A. 16a-1-101 through 16a-9-102, and amendments thereto, the court shall award to the consumer the costs of the action and to the consumer's attorneys their reasonable fees. Reasonable attorney's fees shall be determined by the value of the time reasonably expended by the attorney and not by the amount of the recovery on behalf of the consumer.

(9) A creditor who in good faith complies with a written administrative interpretation shall not be subject to any penalties under this section for any act done or omitted in conformity with such written administrative interpretation.

History: L. 1973, ch. 85, § 89; L. 1992, ch. 80, § 2; July 1.

KANSAS COMMENT, 2010

1. Rights that are accompanied by inadequate remedies or no remedy at all and limitations on agreements and practices that do not provide for sufficient penalties or for any penalty at all are generally ineffective to accomplish the desired result. They become little more than exhortatory, easily ignored, and meaningless proclamations. In order to protect rights created and to deter provisions of agreements and practices proscribed by legislation, suitable remedies and penalties must exist. Since an aggrieved party is one of the persons best able to enforce violations of rights and limitations, this section sets forth a right of action in the consumer in the event of violation by the creditor of each section of the U3C that does not include its own provision for infraction and, better to deter such practices, even of some that do, as in the case of restrictions on land as security (K.S.A. 16a-2-307).

2. Subsection (1) lists eleven provisions of the U3C for the contravention of which actual damages and a penalty may be recovered. The formula used for the penalty is derived from TILA 15 U.S.C. § 1640, with a minimum and a maximum recovery. Within this range, a court may apportion penalties according to the seriousness of the offense and the overall circumstances of each violation. These civil penalties attach irrespective of the fact that the consumer has suffered no monetary damage. They are designed to encourage individual consumers to serve as their own "private attorneys general" in order that the U3C may be vigorously enforced. Thus, the penalties are designed not only to provide a deterrent to potential violators but also an incentive to consumers to bring an action when a violation has occurred. In Credit Union One of Kansas v. Stamm, 254 Kan. 367, 867 P.2d 285 (1994), the court held that a contract provision in a consumer credit transaction authorizing the creditor to recover attorney fees to the extent authorized by law, did not violate the prohibition in K.S.A. 16a-2-507 (overruling Halloran v. North Plaza State Bank, 17 Kan.App.2d 840, 844 P.2d 764 (1993)). Given its strong minimum civil penalty approach, subsection (1) also provides for a relatively short statute of limitations: one year after the last installment is due under a closed end contract and two years after the violation occurs under open end credit.

3. Subsection (2) describes the remedy available to the consumer when a loan with an annual percentage rate exceeding 12% is made by a person not authorized to make such a loan. The remedy is to void the transaction and allow the consumer to retain the proceeds.

4. Subsections (3) and (4) set forth the rights of the consumer with respect to excess charges by a creditor. The penalty is recovery of twice the amount of the excess charge (subsection (3)) as well as the $100 minimum civil penalty (subsection (4)) provided for in subsection (1). As in subsection (1), a short statute of limitations is provided and attorneys or collection agencies are insulated from liability so long as they did not purchase the usurious obligation. An excess charge might arise when the consumer credit transaction expressly provides for a finance charge in excess of what is allowable under the U3C. It might also arise indirectly, as when the creditor improperly uses multiple agreements in violation of K.S.A. 16a-3-304.

5. Under subsection (5), except in cases where the obligation is expressly voided by the U3C (as, for example, in cases involving unlicensed loans under K.S.A. 16a-2-301, referral sales under K.S.A. 16a-3-309, or extortionate loans under K.S.A. 16a-5-107), the creditor may enforce an otherwise valid obligation even though the creditor has violated one of the provisions of the U3C. For example, a creditor suing to enforce an installment contract would, if the installment contract form included a negotiable note, simply face a counterclaim based on the civil penalties in subsection (1). See K.S.A. 16a-5-202.

6. Subsection (6) provides that if the creditor voluntarily notifies the consumer of the error and corrects the error within 15 days after discovering it, the creditor is not subject to a penalty. Such a provision encourages the autonomous correction of errors and violations. Voluntariness is considered to cease, however, either upon the commencement of an action against the creditor or upon the creditor's receipt of written notification from the consumer of the violation.

Acts done or omitted in conformity with a written administrative interpretation of the administrator result in no liability under the U3C except for refund of an excess charge. See subsection (9) and K.S.A. 16a-6-104(4).

7. Subsection (8) directs the court to award to the consumer the costs of the action and to the consumer's attorneys their reasonable fees in any action where it is found that a creditor has violated the U3C. The direction to award attorney's fees should enable consumers to find attorneys to prosecute their cases, an essential element if the consumers' rights provided by the U3C are to be enforced, as an attorney is assured of adequate compensation. This subsection applies whether or not the particular violation is one of those enumerated in subsection (1). For example, in Topeka Datsun Motor Co. v. Stratton, 12 Kan. App. 2d 95, 736 P.2d 82 (1987), the court awarded attorney's fees in a case involving a failure to conduct a commercially reasonable resale in violation of K.S.A. 16a-5-103; and in Farmers State Bank v. Haflich, 10 Kan. App. 2d 333, 699 P.2d 553 (1985), an award was made in a case involving a violation of the notice and right to cure rules of K.S.A. 16a-5-110 and 16a-5-111. The court in both cases also held that an award of attorney's fees under this subsection is mandatory. Thus, the trial court has no discretion to refuse to consider the consumer's motion for attorney's fees.

8. The U3C provides for other remedies in addition to those set forth in this section. For example, the consumer has a defense to the enforcement of a transaction which violates K.S.A. 16a-5-107 on extortionate extensions of credit. K.S.A. 16a-5-108 gives a consumer a remedy in certain cases of unconscionability.

In addition to the foregoing individual consumers' remedies, the U3C provides for actions by the administrator for the benefit of consumers. The administrator may issue cease and desist orders with respect to violations of the U3C or may bring civil actions to restrain violations of it. See K.S.A. 16a-6-108 and 16a-6-110. The administrator may also bring a civil action against a creditor to recover actual damages sustained and excess charges paid by one or more consumers who have a right to recover explicitly granted by the U3C, but not for penalties, and amounts recovered shall be paid to each consumer or set off against such consumer's obligation. See K.S.A. 16a-6-113. K.S.A. 16a-6-111 provides for civil actions by the administrator for injunctions against a course of making unconscionable agreements or of fraudulent or unconscionable conduct.

Finally, in addition to the individual consumers' remedies and remedies of the administrator described above, the consumer may have other remedies based on general principles of law or equity, or based on the provisions of other applicable law such as the KCPA. See K.S.A. 16a-1-103 and 16a-6-115. Also, damages or penalties to which a consumer is entitled may be set off against the consumer's obligation, and may be raised as a defense to an action on the obligation without regard to the time limitations prescribed by this section. See K.S.A. 16a-5-202.

Law Review and Bar Journal References:

"The New Kansas Consumer Legislation," Barkley Clark, 42 J.B.A.K. 147, 200 (1973).

"A New Kansas Approach to an Old Fraud," Polly Higdon Wilhardt, 14 W.L.J. 623, 633, 634 (1975).

"Summary Repossession, Replevin, and Foreclosure of Security Interests," Thomas V. Murray, 46 J.B.A.K. 93, 102 (1977).

"Lemon Aid for Kansas Consumers," Barkley Clark, 46 J.B.A.K. 143, 145 (1977).

"Survey of Kansas Law: Consumer Law," John C. Maloney, 27 K.L.R. 197, 207 (1979).

"Recovery of Attorney Fees in Kansas," Mark A. Furney, 18 W.L.J. 535, 545, 546, 548, 557 (1979).

"Interest Rates in Kansas: The Decline and Fall of Ezekiel," Barkley Clark, 49 J.B.A.K. 81, 86, 87 (1980).

"The U.C.C.C. and Real Estate Financing: A Square Peg in a Round Hole," Thomas L. Griswold, 28 K.L.R. 601, 614, 615 (1980).

"Combining Flexibility with Tax Sheltered Savings: Qualified Retirement Plan Loans," Alson R. Martin, 29 K.L.R. 179, 189 (1981).

"Recovery of Attorney Fees-An Historical Perspective," Ron Leslie, 53 J.K.B.A. 154 (1984).

"Interest on Legal Fees," Calvin J. Karlin, 58 J.K.B.A. No. 5, 23, 24 (1989).

"Debtor's Remedies When Debitor Seeks Deficiency Judgment on a Consumer Installment Contract," John F. Cowles, XIV J.K.T.L.A. No. 4, 19 (1991).

"Creditor Beware: From Default Through Deficiency Judgment," Wanda M. Temm, 60 J.K.B.A. No. 8, 17, 22 (1991).

"Will Debtors Win the Battle as Creditors Win the War?: Retroactive Recovery of Attorney Fees in Consumer Credit Contracts in Kansas," Tamara Putnam and Jonathan Lautt, 34 W.L.J. 556, 559, 562, 565 (1995).

"History & Overview of the Uniform Consumer Credit Code," Ryan E. Hodge, J.K.T.L.A. Vol. XXVI, No. 3, 8 (2003).

Attorney General's Opinions:

Recovery by the administrator. 80-122.

CASE ANNOTATIONS

1. Question of compliance herewith raised; summary judgment not warranted where record reflected genuine issues of fact, even though requested by both parties. Henrickson v. Drotts, 219 Kan. 435, 440, 548 P.2d 465 (1976).

2. Attorney fees awarded against either party may be considered in determining amount in controversy for supreme court appeal (K.S.A. 60-2102). Central Finance Co., Inc. v. Stevens, 221 Kan. 1, 4, 558 P.2d 122 (1976).

3. Penalties and attorney's fees not recoverable hereunder when note not governed by UCCC. Farmers State Bank v. Cooper, 227 Kan. 547, 551, 608 P.2d 929 (1980).

4. Statute provides court shall award consumer costs of action and reasonable attorney fees. United Kansas Bank & Trust Co. v. Rixner, 4 Kan. App. 2d 662, 667, 668, 610 P.2d 116 (1980).

5. Cited in holding where successful self-help repossession occurs without incident, totality of facts reveals no breach of peace under K.S.A. 16a-5-112 and 84-9-503. Wade v. Ford Motor Credit Co., 8 Kan. App. 2d 737, 738, 668 P.2d 183 (1983).

6. UCCC does not require licensing of FDIC before it may undertake collection of loans purchased under federal authority. Federal Deposit Ins. Corp. v. Gates, 594 F. Supp. 36, 40 (1984).

7. Statute mandatory; attorney fees due where creditor violated K.S.A. 16a-5-110 on notice of default. Farmers State Bank v. Haflich, 10 Kan. App. 2d 333, 340, 699 P.2d 553 (1985).

8. Cited; obligation as found in K.S.A. 16a-5-202 refers only to note or contract on which suit brought. Valley View State Bank v. Caulfield, 11 Kan. App. 2d 601, 602, 731 P.2d 316 (1987).

9. Debtor entitled to costs and attorney fees; K.S.A. 16a-5-103(1), incorporating K.S.A. 84-9-504 by reference, violated. Topeka Datsun Motor Co. v. Stratton, 12 Kan. App. 2d 95, 104, 109, 736 P.2d 82 (1987).

10. Attorney fees disallowed; notice of right to cure default (K.S.A. 16a-5-111) not required where loan payable in single installment (K.S.A. 16a-5-110). First Nat'l Bank of Shawnee Mission v. Hundley, 12 Kan. App. 2d 487, 489, 748 P.2d 903 (1988).

11. Attorney fees awarded when creditor violations discussed. Halloran v. North Plaza State Bank, 17 Kan. App. 2d 840, 841, 844, 844 P.2d 764 (1993).

12. Security agreement language providing for attorney fees under bankruptcy code does not violate section's attorney fee prohibition. Credit Union One of Kansas v. Stamm, 254 Kan. 367, 370, 867 P.2d 285 (1994).

13. Issue concerning whether mortgage company was entitled to good faith defense in KUCCC (K.S.A. 16a-5-102 et seq.) action precluded summary judgment. Pilcher v. Direct Equity Lending, 189 F. Supp. 2d 1198, 1207 (2002).

14. Award of attorney fees mandatory for violation of K.S.A. 16a-2-510 by charging interest on interest. D.A.N. Joint Venture III v. Turk, 36 Kan. App. 2d 353, 359, 138 P.3d 1253 (2006).

15. Provisions of article 5 apply only to creditors, not assignees. Independent Financial, Inc. v. Wanna, 39 Kan. App. 2d 733, 738 to 740, 186 P.3d 196 (2008).


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