June 2006 COLLATERAL AVAILABLE IN CONSUMER CREDIT SALES If your business extends credit to consumers in sales transactions, you should be aware of the Colorado statutes that govern the type of collateral you can take to secure that credit. There are restrictions on the types of collateral creditors can utilize. A "consumer credit sale" is defined as: sale of goods, services, a mobile home, or an interest in land in which: (I) Credit is granted or arranged by a person who regularly engages as a seller in credit transactions of the same kind or pursuant to a seller credit card; (II) The buyer is a person other than an organization; (III) The goods, services, mobile home, or interest in land are purchased primarily for a personal, family, or household purpose; (IV) Either the debt is by written agreement payable in installments or a finance charge is made; and (V) With respect to a sale of goods or services, the amount financed does not exceed seventy-five thousand dollars. Section 5-3-201, C.R.S. provides that in a consumer credit sale, the creditor can take a security interest in the property sold, the goods upon which services are performed or to which goods sold are annexed, or in land to which the goods are affixed or that is maintained or improved as a result of the sale of goods or services. If the security interest is land, the debt must be at least $3,000. If the security interest is goods, the debt must be at least $1,000. An important clause in the statute provides that "a creditor may not otherwise take a security interest in property of the consumer to secure the debt arising from a consumer credit sale". So, for example, the creditor cannot use the consumer's mutual funds or stock as collateral for a consumer credit sale. Nor can the creditor collateralize land or other goods owned by the consumer that were not part of the credit sale. A creditor may, however, cross-collateralize by securing the consumer's goods or property that were used as collateral in a prior credit sale with the same parties. Pursuant to this statute, creditors should be aware that when a consumer account is opened and a credit sale is made, the creditor's ability to secure the sale is limited to the goods sold to the consumer, the goods upon which services were performed, or the land to which goods are affixed. Even if the consumer is willing to offer other collateral, the security interest would be voidable and the creditor could not attach that collateral. Credit sellers must contract with the consumers in writing for all credit terms, no later than the time when credit is extended, and must provide the consumer with a copy of the written agreement.
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