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Calif. App. Court (1st Dist) Holds Bail Bond Premium Finance Agreements Are Consumer Credit

premium financing agreementThe Court of Appeal of the State of California, First Appellate District, recently affirmed a trial court’s order enjoining a bail bonds company from enforcing bail bond premium financing agreements on a classwide basis on the ground that the statutory notice pursuant to California Civil Code section 1799.91 had not been provided.

In so ruling, the First District held that a bail bond premium financing agreement between a cosigner and the bail bond agent is a consumer credit contract subject to the notice provision of section 1799.91 and related statutory protections.

A copy of the opinion in BBBB Bonding Corp. v. Caldwell is available at:  Link to Opinion.

The appellee in this case cosigned an “Unpaid Premium Agreement” to obtain a bail bond for her friend and was unable to pay the premiums. The bail bonds company then began collection efforts.

The cosigner filed a putative class action, alleging causes of action for supposed violation of the California Unfair Competition Law (Bus. & Prof. Code § 17200 et seq.) and declaratory judgment. The cosigner then filed a motion for a preliminary injunction seeking to enjoin the company from enforcing or attempting to collect on the premium agreement and other similar agreements cosigned by the putative cosigner class members because they were not provided with the notice required under California Civil Code section 1799.91.

The trial court granted the cosigner’s motion, determining that the cosigner had shown a substantial likelihood of success on the merits of her UCL claim under the UCL’s unlawful prong. The trial court also found that the premium agreement was a consumer credit contract subject to the notice requirements of section 1799.91.

The trial court’s ruling was stayed for 15 days. Shortly before that stay expired, the bail bonds company petitioned the Appellate Court for a writ of supersedeas. The Appellate Court subsequently stayed the trial court’s ruling and ordered expedited briefing.

As you may recall, pursuant to long-standing California Supreme Court case law, “trial courts should evaluate two interrelated factors when deciding whether or not to issue a preliminary injunction. The first is the likelihood that the plaintiff will prevail on the merits at trial. The second is the interim harm that the plaintiff is likely to sustain if the injunction were denied as compared to the harm that the defendant is likely to suffer if the preliminary injunction were issued.” (Urgent Care Medical Services v. City of Pasadena (2018) 21 Cal.App.5th 1086, 1092.) Appellate courts review a trial court’s application of these factors for abuse of discretion. (Id.)

This appeal required interpretation of a long-standing consumer protection statute in a novel context: whether the requirement under California Civil Code section 1799.91 — that notice be afforded to cosigners of consumer credit contracts about the risks of guaranteeing such an agreement — applies to bail bond premium financing agreements.

The bail bonds company first asserted on appeal that section 1799.91 has never applied to bail bond agents or to bail bond premium contracts before and that, because the Legislature adopted a comprehensive scheme under the California Insurance Code to regulate the conduct of bail bond licensees, it intended to exclude from such transactions the consumer protections applicable to consumer credit contracts.

The First District, however, held that no statute or regulatory provision supported the bail bonds company’s claim that the legal regime governing bail bond licensees was intended to operate as the exclusive source of law for the bail bond industry.

Additionally, the Appellate Court concluded that the company failed to identify any conflict between the notice requirement of section 1799.91 and any provision of the California Insurance Code.

The company next argued that the consumer credit contract laws had no application here because the premium agreement was not a consumer credit transaction.

Section 1799.90, subdivision (a) defines a “‘Consumer credit contract’” as an obligation “to pay money on a deferred payment basis” where the subject matter of the contract is “primarily for personal, family or household purposes” and the obligation falls within any of six general categories.

The First District was concerned here with the fourth type of consumer credit obligation: “Loans or extensions of credit secured by other than real property, or unsecured, for use primarily for personal, family or household purposes.” (§ 1799.90, subd. (a)(4).)

The First District concluded that the premium agreement qualified as an “extension of credit” under section 1799.90, subdivision (a)(4). Subdivision (a)(4) does not define the term “extension of credit,” but also determined that the term’s meaning can be readily discerned by a commonsense understanding of its component words. Black’s Law Dictionary defines “credit” as “[t]he time that a seller gives the buyer to make the payment that is due.” (Black’s Law Dictionary (11th ed. 2019) at p. 463.) To “extend” means “to make available.” (Merriam-Webster’s Collegiate Dictionary (11th ed. 2009) p. 442.)

Given this understanding, the First District found that a bail premium financing agreement is an “extension of credit” because it is an agreement by which the bail agent makes available to the consumer the ability to satisfy his or her obligation to pay the bail bond premium amount over a series of monthly installments.

Thus, the First District held that the premium agreement qualified as a consumer credit contract because (1) the cosigner signed an agreement “to pay money on a deferred payment basis”; (2) the subject matter of the contract was “primarily for personal, family or household purposes”; (3) the obligation involved an “extension[] of credit” because the cosigner was allowed to satisfy her bail premium obligation over a series of monthly payments; and (4) the cosigner’s obligation was “secured by other than real property, or unsecured.” (§ 1799.90, subd. (a)(4).)

Because it concluded that the premium agreement was a consumer credit contract within the meaning of section 1799.90, the Appellate Court also found that such a contract is subject to the consumer protections provided by statute, including the notice provision to cosigners of a consumer credit contract.

Therefore, the First District held that the trial court did not abuse its discretion in determining that the respondent was likely to succeed on the merits of her claims.

The First District also ruled that the trial court did not abuse its discretion in finding that the balance of hardships favored the cosigner because she had demonstrated that she and others like her had been supposedly victimized by the company’s failure to provide section 1799.91 notice.  In the Appellate Court’s view, the actual harm presented stemmed from the fact that the cosigner and other putative class members were being held to contracts they supposedly would not otherwise have entered had they been provided with the required notice.

The company asserted it might lose bail premiums worth millions of dollars if section 1799.91 were enforced against it.  However, the First District found that the company made no showing that it cannot provide the notice and comply with the statute simultaneously.

Accordingly, the First District affirmed the trial court’s order granting the cosigner’s motion for a preliminary injunction.

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Daniel Miller is an associate in the Chicago office of Maurice Wutscher LLP, practicing in the firm’s Consumer Credit Litigation and Commercial Litigation groups. Daniel has substantial experience as a litigation attorney representing clients in both individual and class action cases involving the FDCPA, TCPA, FCRA, TILA, RESPA, Illinois Consumer Fraud Act, and various other federal and state statutes. He also has experience in representing corporate clients in commercial transactions and executive compensation agreements. Daniel earned his Juris Doctor from the University of Illinois College of Law, and his Bachelor of Arts in History from Durham University in the United Kingdom. He is admitted to practice law in Illinois and the U.S. District Courts for the Northern District of Illinois and the Southern District of Illinois.

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