Regulating in the Shadow of the U.C.C.: How Courts Should Interpret State Consumer Protection Laws

Article excerpt

Uniform Commercial Code (U.C.C.) Article 9 governs the taking of security interests in personal property; all fifty states have consumer protection statutes, which also govern the taking of security interests in personal property. The requirements of these two statutes are often redundant or mutually exclusive. For secured creditors and borrowers, exactly which statute actually governs their transaction is often uncertain.

The U.C.C. theoretically has a solution to this problem. U.C.C. section 9-201 provides: "In case of conflict between this article and a rule of law, statute, or regulation described in subsection (b) [a state consumer protection law], the rule of law, statute, or regulation controls." If there is "conflict" between a consumer protection statute and U.C.C. Article 9, then the consumer protection statute should "control." Superficially, this is clear. In practice, it is not. When exactly is there a "conflict" between the U.C.C. and a consumer protection law? And what exactly does it mean for the consumer protection statute to "control"?

This level of confusion will soon increase. Revised Article 2 of the U.C.C. includes a new provision, section 2-108, that is the parallel of section 9-20l. (1) Section 2-108 substitutes the word "govern" but is otherwise identical, providing that a consumer protection law that "conflicts" with Article 2 will "govern" in its place.

The scope of this problem is large. Courts across the country have struggled with the meaning of section 9-201. (2) For lenders and borrowers, it is simply not clear which statute governs. And, as I will demonstrate, the U.C.C. and consumer protection statutes often impose radically different requirements. The confusion is harmful for both lenders and debtors. For lenders, it means added transaction costs and a concomitant decreased willingness to extend credit. For borrowers, it means weakened consumer protections. The expansion of this statutory arrangement to Article 2 will multiply the confusion. Article 9 applies only to secured transactions, while Article 2 applies to all purchases and sales, an even larger universe of transactions.

This Comment proposes a route out of this confusion. I present a method to define "conflict" and "control," (3) dividing responsibility between the U.C.C. and state consumer protection laws in a way that will preserve and enhance state powers to protect consumers while also protecting the integrity and purpose of the U.C.C.


A sample case will illustrate the problem. In Ford Motor Credit Co. v. Edwards, (4) the Maryland Court of Appeals (that state's highest court) adjudicated the boundary line between the U.C.C. and a state consumer protection law. U.C.C. Article 9 governs security interests in personal property. If a debtor holding secured property defaults, a secured creditor is usually entitled to repossess the property. (5) After fulfilling certain requirements, the creditor is allowed to sell the repossessed property, using the proceeds of sale to cover the debtor's debt. (6)

After repossessing the property, the secured creditor cannot immediately sell it. The U.C.C. requires that the secured creditor notify the debtor of the impending sale. (7) In the case of a public sale (for example, auction), former section 9-504 provided that "reasonable notification of the time and place of any public sale ... shall be sent by the secured party to the debtor." (8)

Frequently, state statutes impose notice requirements with different language. Maryland's Retail Installment Sales Act (RISA) (9) statute, for instance, provides that, before any repossessed collateral may be sold, the secured creditor (and repossesser) must deliver a notice to the debtor informing her (1) that she has the right to redeem the repossessed goods upon payment; (2) that she may be liable for a deficiency after the goods are sold; and (3) of the location where the goods are stored. …