IN RE: ERIC R. BACHMAN-JOHNSON CASE NO. 96-51031
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
ERIC R. BACHMAN-JOHNSON CASE NO. 96-51031
KYLE L. BACHMAN-JOHNSON
ERIC R. BACHMAN-JOHNSON PLAINTIFFS
KYLE L. BACHMAN-JOHNSON
VS. ADVERSARY NO. 96-5048
NATIONAL AUTO TITLE LOAN
LTD. COMPANY DEFENDANT
This case was heard by the court on May 23, 1996, on motion of the debtors, by counsel, for an expedited hearing on their complaint for an order requiring the defendant, National Auto Title Loan Ltd. Company, to forthwith turn over to the debtors a 1996 Dodge Neon automobile. The defendant repossessed the automobile on or about May 11, 1996. The debtors filed a petition for relief under chapter 13 of the Bankruptcy Code on May 16, 1996. The complaint commencing this adversary proceeding seeking an order compelling return of the automobile was filed May 22, 1996.
The 1996 Dodge Neon automobile was given to the debtors by Mrs. Bachman-Johnson's father sometime in late 1995. There were no liens on the vehicle at that time. In the schedules to their chapter 13 petition the debtors value the car at $8,000.
On December 4, 1995, the debtors "pawned" the automobile to the defendant, National Auto Title Loan Ltd. Company for $1,000 as evidenced by a "pawn ticket" of that date. The debtors agreed to pay the defendant $1,220 on or before January 2, 1996 to redeem the automobile.
On December 18, 1995 the debtors "pawned" the automobile to the defendant, National Auto Title Loan Ltd. Company for an additional $1,000. The debtors agreed to pay to defendant $1,220 on or before January 18, 1996 to redeem the automobile.
Pursuant to the terms of two "pawn tickets" issued by the defendant the debtors were required to pay the defendant $440 every 30 days simply to renew the pawn. This payment is for interest and pawn charges and does not reduce the principal amount of the $2,000 debt of the debtors to the defendant.
On December 19, 1995, in connection with the second pawn transaction, the defendant caused its lien to be noted on the certificate of title issued by the Commonwealth of Kentucky Transportation Cabinet for the automobile. The debtors were permitted to retain possession of the automobile until it was repossessed by the defendant on or about May 11, 1996.
A preliminary review of the applicable law convinces the court too many novel consumer debtor protection issues are presented to permit a ruling on this matter in summary fashion.
Chapter 226 of the Kentucky statutes defining and governing pawnbrokers does not appear to permit a pawnbroker to retain a nonpossessory security interest in property to secure a loan of money. See In re Lynn, 173 B.R. 894 (Bankr. M.D. Tenn. 1994) (holding that the much more broadly worded Tennessee Pawnbroker Act does not authorize a transaction of this nature).
It has also been held that a transaction of this nature violates state usury laws and the Federal Truth in Lending Act. See In re Fryer, 183 B.R. 322 and 183 B.R. 654 (Bankr. S.D. Ga. 1995).
Also, since the defendant took a nonpossessory security interest in the 1996 Dodge Neon and caused its lien to be noted on the certificate of title to the motor vehicle, it would appear this transaction may be governed by Article 9 of the Uniform Commercial Code. KRS 355.9-101, et seq.
Moreover, the defendant appears to fall within the definition of a "loan broker" under the Kentucky Consumer Protection statutes. KRS 367.380(4). The enforcement of the Consumer Protection statutes is the responsibility of the Kentucky Attorney General. KRS 367.150(8). Accordingly, a copy of this order shall be served on the Attorney General as notice of this pending action.
In any event, following receipt of the answer of the defendant the court will expedite the trial of this matter, but this is not a matter that can be resolved without a full evidentiary hearing.
By the court -
JOE LEE, CHIEF JUDGE
Ginger C. Knight, Esq.
National Auto Title Loan Ltd. Company
Sidney N. White, Trustee
Kentucky Attorney General, Consumer Protection Division
Ann Sheadel, Chief
P. O. Box 2000
Frankfort, KY 40602