16a-3-405.   (UCCC) Lender subject to defenses arising from sales and leases.(1) A lender, other than the issuer of a lender credit card, who, withrespect to a particular transaction, makes a consumer loan for thepurpose of enabling a consumer to buy or lease from a particular selleror lessee goods or services is subject to all claims and defenses of theconsumer againstthe seller or lessor arising from that sale or lease of the goods andservices if:

      (a)   The lender knows that the seller or lessor arranged, for acommission, brokerage, or referral fee, for the extension of credit bythe lender;

      (b)   the lender is a person related to the seller or lessor unlessthe relationship is remote or is not a factor in the transaction;

      (c)   the seller or lessor guarantees the loan or otherwise assumesthe risk or loss by the lender upon the loan;

      (d)   the lender directly supplies the seller or lessor with thecontract document used by the consumer to evidence the loan, and theseller or lessor significantly participates in the preparation of thedocument; or

      (e)   the loan is conditioned upon the consumer's purchase or lease ofthe goods or services from the particular seller or lessor, but thelender's payment of proceeds of the loan to the seller or lessor doesnot in itself establish that the loan was so conditioned.

      (2)   Claims or defenses of a buyer or lessee specified in subsection(1) may be asserted against the lender only:

      (a)   If the buyer or lessee has attempted in good faith to obtainreasonable satisfaction from the seller or lessor with respect to theclaims or defenses;

      (b)   if the buyer or lessee, when requested in writing to do so bythe seller, lessor or the lender, has given notice in writing to theseller or lessee and the lender stating the claims or defenses,

      (c)   to the extent of the amount owing to the lender with respect tothe sale or lease at the time the lender has notice of the claims ordefenses. Such notice, generally stating the claims or defenses, must bein writing and shall be sent to the seller (or lessor), and to thelender if the buyer or lessee has received written notice of the nameand address of the lender; and

      (d)   as a matter of defense to or setoff against claims by the lenderexcept that the buyer or lessee shall not be prohibited from bringing anaction to rescind an obligation against which it has a defense orsetoff.

      (3)   For the purpose of determining the amount owing to the lenderwith respect to the sale or lease:

      (a)   Payments received by the lender after the consolidation of twoor more consumer loans, other than pursuant to open end credit, aredeemed to have been first applied to the payment of the loans firstmade; if the loans consolidated arose from loans made on the same day,payments are deemed to have been first applied to the smaller orsmallest loan or loans; and

      (b)   payments received upon an open end credit account are deemed tohave been first applied to the payment of finance charges in the orderof their entry to the account and then to the payment of debts in theorder in which the entries of the debts are made to the account.

      (4)   An agreement may not provide greater rights for a lender thanthis section permits.

      (5)   Notwithstanding any of the foregoing, the participation of thelender or lessor in any of the arrangements between seller and buyer toinsure the perfection of the lender or lessor's security interest shallnot in itself establish a relationship described and controlled bysubsection (1).

      History:   L. 1973, ch. 85, § 60; L. 1975, ch. 127, § 2; L. 1981,ch. 93, § 14; July 1.