HANOVER, Md. — A bill currently being considered by the U.S. Senate Judiciary Committee could prove to be harmful for subprime auto financing and for used-vehicle dealers, and the industry should be aware of its potentially "dangerous" impact, according to Tom Hudson, an attorney for Hudson Cook, LLP.

The S. 257 bill, also known as the Consumer Credit Fairness Act, is on the Judiciary Committee's schedule for May 21. Essentially, if passed, it would change federal bankruptcy law so that bankruptcy would be mandated to disallow any claim resulting from a "high-cost consumer credit transaction," Hudson explained.

"This one is really dangerous, and it looks like it has some chance of passage," Hudson told SubPrime Auto Finance News.

The bill defines a "high-cost consumer credit transaction" as an extension of credit by a creditor that results in consumer debt with APR that is greater than the lesser of the following: the sum of 15 percent and the yield on U.S. Treasury securities on a 30-year period of maturity; or 36 percent, Hudson noted.

The APR calculation under this bill considers "costs and fees incurred in connection with the extension of such credit (late fees, NSF fees, modification fees, etc.), and the APR limitation applies over the life of the transaction, i.e., not just at origination," according to Hudson.

He added: "For secured creditors, the disallowance of the claim under this new provision likely extinguishes the lien, which would leave such creditors with no claim against the bankruptcy estate or the collateral."