The Industry's Leading Source For F&I, Sales And Technology

Compliance

Can I Have That in Writing?

March 2008, F&I and Showroom - Feature

by Michael Benoit

A series of attacks on document preparation fees in several states has resulted in a line of cases holding that charging a fee to fill in the blanks on legal documents (for example, retail installment sale contracts) is the practice of law. If you do it and you’re not a licensed attorney, it’s the unauthorized practice of law. It doesn’t even matter if the fee is authorized by statute!

All states regulate the practice of law within their borders, and rightfully so. Users of legal services need some comfort that those they engage have at least some minimum skills. I’m in favor of regulating the practice of law, but the idea that a seller of goods who charges a fee for filling in the blanks on a contract is practicing law just makes me wonder why law school costs so much.

One Arkansas dealer recently found himself on the losing end of a claim that he engaged in the unauthorized practice of law when he charged a document preparation fee, expressly permitted by Arkansas law, for completing various credit and sale documents. This leads some to believe that one needs three years of law school to feed an installment sale contract into a printer and hit the “print” button. It leads others to believe that we lawyers really live in our own little world, somewhere down the rabbit hole. It’s a little more complicated than that, and there are important principles at issue, but this is one of those instances where the courts might benefit from a better understanding of how business operates.

We hear that the Arkansas legislature is considering a bill to “fix” the issue for dealers, but a recent Missouri case calls into question whether the Arkansas high court would accept it. In Missouri , the state’s Supreme Court recently held that a bank that charged borrowers a fee to complete various pre-printed mortgage loan documents, including promissory notes and deeds of trust, engaged in the unauthorized practice of law, and upheld the lower court’s judgment, which awarded plaintiffs more than $1.1 million.

The court (the highest in the state) recognized that Missouri law expressly states, “[n]o bank or lending institution that makes residential loans and imposes a fee of less than [$200] for completing residential loan documentation for loans made by that institution shall be deemed to be engaging in the unauthorized practice of law.” Sounds like the legislature decided that minimal fees for these activities are not the practice of law.

But despite this unambiguous expression of legislative intent, the court said the legislature needed to stay in its own sandbox, claiming that “the judiciary is necessarily the sole arbiter of what constitutes the practice of law.” The court had no problem with the fact that the legislature authorized the fee — they took issue with the activities the fee relates to, and who is performing them. So if the bank had charged the fee for attorney services that would have been alright.

It’s not entirely clear what the impact is on Missouri dealers. Document preparation fees in a motor vehicle installment sale transaction are not expressly prohibited, but they are not expressly permitted either.

A Colorado case making the same claims that a dealer engaged in the unauthorized practice of law when it charged a fee for document preparation survived a motion to dismiss in December. The magistrate hearing the motion agreed that the plaintiff s had stated a claim sufficient to take to trial. Colorado is another state that does not expressly prohibit or permit document preparation fees.

I’m fairly certain that these cases are only going to multiply. Many dealers charge document fees. In some instances, these fees are authorized by state law, but in others, they are not. Bottom line? Know whether your state permits document fees. If it does, check with your counsel about what activities you can apply these fees to without crossing the line into practicing law. What you spend on that legal advice will be far less than what you may spend defending yourself in court.

Michael Benoit is a partner in the Washington, D.C. office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at michael.benoit@bobit.com. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email: