Menu of Credit Sale Provisions
Consider the following clauses that can be incorporated into a credit application:
Creditor venue clause:
Problem: Many creditors mistakenly rely on this typical language: In the event of default, customer agrees to submit to the venue of the creditor’s jurisdiction. This can be fatal. Your customer can still move to dismiss your complaint.
Solution: A credit application should include a minimum contracts and continuity and regularity clause, making it much more difficult for a defaulting customer to circumnavigate jurisdiction. Establishing the right to sue within your locale is critical because it forces a non-paying customer to hire an attorney in your area. Statistically, 50% of non-paying customers pay without expensive collection procedures when confronted with the reality of defending an out-of-state lawsuit. Another advantage of this approach for creditors is that they can centralize legal interventions.
Personal guarantee clause with privacy notice:
Problem: Changes in privacy laws have rendered language contained in conventional personal guarantees obsolete. Credit grantors are advised to restructure this critical document. Most personal guarantees are open ended, and while establishing personal liability, creditors fail to include an SSN and electronic search provision. Privacy laws make it illegal to access confidential information, thereby frustrating personal guarantee enforcement.
Solution: Close the gap by bridging the personal liability guarantee with a clause that permits accessibility to attach assets, including waiver of privacy laws. What good is a personal guarantee if your customer transfers assets and/or conceals same? Worse, violate your customers’ right to privacy, and you could be sued.
ACH electronic debit with site draft:
Problem: If your customer goes bankrupt, goes out of business, or transfers assets, this remedy eliminates the stall tactic of “the check is in the mail.” This provisional remedy provides several option, including grace periods, discount incentives, and default remedies.
Solution: A creditor armed with this provision only needs to perform an electronic search, like SSN or EIN, on a bank account to debit funds. Because ACH debit provision permits transfer of funds, it cannot be challenged by the nonpaying customer. If the creditor also is armed with a personal guarantee, (see above) the wherewithal to electronically debit from personal, even joint or retirement accounts is available. As an added creditor recourse, you could add a site draft provision and/or credit card debit authorization. This provides a backup to the electronic debit feature.