In Davis v. Ford Credit, 2009 WL 3859327 (2009), the California Court of Appeal in Los Angeles held that Ford Credit’s practice of applying a payment to past-due installments first, rather than to the current monthly installment, did not violate the Rees-Levering Automobile Sales Finance Act’s ban on late-fee pyramiding.  (Civ. Code, § 2982(k).)  The facts of the case were as follows:


In February 2004, Davis bought a car on credit from a dealer.  Davis’ contract was assigned to Ford Credit.  Under the contract, Davis was required to make monthly installment payments in a stated amount.  For each installment in default for a period of not less than 10 days, Ford Credit could assess a delinquency charge not to exceed five percent of the delinquent installment.  The delinquency charge could be collected only once on any installment, regardless of the period during which it remains in default. (Civ.Code, § 2982, subd. (k).) 


Davis skipped an installment and never brought his account fully current.  Ford Credit applied Davis’ payments to the oldest past due installment first, leaving the current installment unpaid.  It assessed Davis a new late fee each month for the newly delinquent current installment.


The Court of Appeal found that this practice did not violate the Rees-Levering Automobile Sales Finance Act, explaining: 


The vice which Civil Code section 2982, subdivision (k) eliminates is the practice of “pyramiding” of late charges. “By limiting the holder to one charge for each overdue installment, no matter how long it is overdue, the practice of pyramiding is eliminated.” (Project, Legislative Regulation of Retail Installment Financing (1960) 7 UCLA L.Rev. 623, 699.) An illustration of the practice of pyramiding of late charges is as follows: “Assume a monthly payment of $10, with a late charge of 5 per cent of the installment a month. In the first month, the failure to pay will result in a late charge of fifty cents. In the second month, a new payment is late, and an additional fifty cents is charged, but the first payment is now overdue an additional month, and a second fifty cents is charged for that. The buyer now owes $1.50 in late charges. While this may not seem unreasonable, if the installment is not paid up by the sixth month, the late charges for the delinquencies will amount to 100 per cent of the installment. Thereafter, the charges continue to increase. If the buyer now resumes his monthly payments of $10, they will be attributed to the delinquency charges and not to the unpaid balance of the obligation. Not only will the buyer never catch up, but he will continue to lose ground because the delinquency charge for each additional month becomes far in excess of the $10 he is paying.” (Id. at p. 698.)    Here, Ford’s practice of attributing a payment to a previous missed installment, rather than to the current month, has the effect of leaving the current installment unpaid, so as to trigger a new late fee for the current month. However, irrespective of how long an installment is overdue, the consumer is assessed only a single late charge for each overdue installment, in compliance with Civil Code section 2982, subdivision (k). Simply stated, Davis’s allegations are not within the scope of the harm which the statute sought to address.


The Court of Appeal also rejected Davis’ claims under the UCL and the CLRA.  As Ford Credit’s conduct did not violate the Rees-Levering Act, it was not “unlawful” nor did Ford falsely represent its entitlement to the late charges.  Ford Credit’s practice was not unfair because the harm of successive late charges “reasonably could have been avoided had Davis made his monthly payments timely, or within the 10-day grace period, in accordance with his obligations under the contract.”  


The Court of Appeal also rejected Ford Credit’s attorney fee claim, explaining: 




Here, as in Brown v. West Covina Toyota (1994) 26 Cal.App.4th 555, although the underlying transaction was subject to the provisions of Rees-Levering, the action was not prosecuted under Rees-Levering. Davis did not sue directly under Rees-Levering-rather, the alleged Rees-Levering violation was merely a predicate to the complaint’s UCL claims. We hold Rees-Levering’s reciprocal fee provision is inapplicable when an alleged Rees-Levering viola-tion is merely a predicate to a UCL claim, in that the public policy underlying the UCL must prevail over the reciprocal fee provision of Rees-Levering. Therefore, Ford was not entitled to recover attorney fees pursuant to Rees-Levering’s attorney fees provision (Civ.Code, § 2983.4).


Mark Joseph Kenney, Regina McClendon, and Erik Kemp of the Firm’s San Francisco Office defended Ford Credit in this matter, which was briefed and argued by Jan Chilton.  Questions regarding the case can be directed to Mark Joseph Kenney at or Regina McClendon at