The CARLAWYER©

By Thomas B. Hudson and Nicole F. Munro

Here’s our monthly article on legal developments in the auto sales, finance and leasing world.  This month, the action involves the Bureau of Consumer Financial Protection and the Federal Trade Commission.  As usual, this month’s article features our “Case of the Month.”

Note that this column does not offer legal advice.  Always check with your lawyer to learn how what we report might apply to you, or if you have questions.

This Month’s CARLAWYER© Compliance Tip

Note the Federal Trade Commission enforcement action described below dealing with mailing fake recall notices.  The FTC settlements include both the dealer and the promotions company.  The lesson for dealers from this action is clear – vendors can get you into trouble.  Before you sign up for that next ad campaign, do your due diligence and have your lawyer review the contract.  Hint – the time for those actions is BEFORE you sign up.  You should also have a vendor management process in place to ensure the activities of your vendors on your behalf comply with the law.

Federal Developments

 Fake News!  On October 10, the FTC announced that a group of car dealerships and their president and vice president have settled allegations that they mailed more than 21,000 fake “urgent recall” notices to consumers to lure them to visit dealerships. The FTC also has agreed to a settlement with a California-based marketing firm and its owner that, according to the complaint, designed the fake recall notices and worked closely with the dealerships to send them.  According to the FTC, the vast majority of the vehicles covered by the notices did not have open recalls. The court orders settling the FTC’s charges bar the defendants from such deceptive conduct in the future.

The dealerships do business as Passport Toyota, Passport Nissan of Alexandria, Virginia, and Passport Nissan of Marlow Heights, Maryland. The marketing company, Temecula Equity Group, LLC, does business as Overflowworks.com.

Se habla español.  On October 15, the Bureau released an updated and expanded glossary, prepared in cooperation with other federal agencies, that contains an extensive list of common financial terms translated into Spanish.  The glossary is supposed to help financial service providers, financial educators, government agencies, and other organizations effectively communicate with consumers with limited ability to speak, write, or read English.  Use of the glossary is not mandated, nor is it guidance or a requirement for any stakeholder.  The Bureau uses the glossary to ensure consistency as it translates consumer education materials from English to Spanish.  If you use an ad company, make sure to send it a copy of the glossary.  If you do ads in-house, you’ll need a copy, as well.

Complain, Complain, Complain!  On October 23, the Bureau released its “Complaint Snapshot” a 50-state report, illustrating complaints reported by people in all 50 states and the District of Columbia. The Bureau says it received more complaints from California consumers than from any other state, followed by Florida, Texas, New York, and Georgia.  Florida consumers complained most often about credit or consumer reporting, while Texas consumers beefed (sorry, couldn’t resist) the most about debt collection.  Wyoming consumers complained the least.

“Small-Dollar” Rules Revisited.  On October 26, the Bureau stated that it expects to issue proposed rules in January 2019 that will reconsider the Bureau’s rule regarding Payday, Vehicle Title, and Certain High-Cost Installment Loans, issued by the Bureau in October 2017.  The Bureau is planning to revisit only the ability-to-repay provisions of the rule and not the payments provisions, in part because the ability-to-repay provisions “have much greater consequences for both consumers and industry than the payment provisions.”  The Bureau will also address the compliance date for the rule, currently August 19, 2019.  The Bureau noted that it will make final decisions regarding the scope of the proposal closer to the date of issuance of the proposed rules.

Big Federal Privacy Shindig.  The FTC recently announced that it is accepting presentations for its fourth annual PrivacyCon, to be held on June 27, 2019.  PrivacyCon addresses the latest research and trends related to consumer privacy and data security.  The call for presentations seeks empirical research responding to several questions, including: (1) What new privacy and security issues arise from emerging technologies such as the Internet of Things, artificial intelligence, and virtual reality? (2) What are the greatest threats to consumer privacy today? (3) How can one quantify the costs and benefits to consumers of keeping data about them private? (4) What are the incentives for manufacturers and software developers to implement privacy and security by design in their goods or services and keep security up to date? (5) Is there evidence that the market can provide efficient levels of privacy and data security?

 

Case of the Month

Odometer Act Claim Against Dealer Failed Where Buyer’s Vehicle Was Exempt from Act’s Disclosure Requirements and Dealer Did Not Waive Exemption.  In March 2018, a buyer bought a 2008 GMC Yukon with an odometer reading of 138,616 miles from a dealership. The dealership provided the buyer with two documents showing that the mileage was 138,616, but the bill of sale stated, “Odometer Reading: EXEMPT.”

Almost immediately after buying the vehicle, the buyer had problems and was told by the dealership that the vehicle needed extensive repairs.  When the buyer took the vehicle to get a trade-in valuation, he received a title report showing that, in November 2014, the odometer reading was 199,689 and that, in September 2015, the odometer reading was 98,000.

The buyer sued for violations of the federal Odometer Act.  The dealership moved to dismiss, arguing that the Act and regulations expressly exempt vehicles manufactured 10 years before the date of sale.  Because the buyer bought the vehicle in March 2018, more than 10 years after its January 2008 manufacture date, the dealership was not required to disclose the vehicle’s mileage.

The buyer argued that even though the dealership did not have a legal obligation to disclose the odometer reading, because it voluntarily disclosed the vehicle’s mileage to him and his lender in two documents provided at the sale, the odometer disclosure must be truthful and accurate.  The federal trial court disagreed with the buyer.  The court distinguished a case in which the seller of an RV, exempt from the odometer disclosure requirements, disclosed the odometer reading to the buyer in an Odometer Disclosure Statement and a Buyer’s Order.  In this case, no such statements were made, and, as noted by the court, the bill of sale specifically stated “EXEMPT” next to the odometer reading.  Because the vehicle was exempt from the odometer disclosure requirements in the Odometer Act and the dealership did not waive that exemption in documents it provided to the buyer, the court concluded that the Odometer Act claim failed.  See Tirtel v. Sunset Auto & Truck, LLC, 2018 U.S. Dist. LEXIS 173222 (M.D. Fla. October 9, 2018).

So, there’s this month’s roundup!  Stay legal, and we’ll see you next month.

________

Tom (thudson@hudco.com) is Of Counsel and Nikki (nmunro@hudco.com) is a Partner in the law firm of Hudson Cook, LLP.  Tom has written several books and is the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers.  He is the CEO of CounselorLibrary.com, LLC and the Senior Editor of CounselorLibrary.com’s CARLAW®, a monthly report of legal developments for the auto finance and leasing industry.  Nikki is Editor in Chief of CARLAW®, a contributing author to the F&I Legal Desk Book and frequently writes for Spot Delivery®. For information, visit www.counselorlibrary.com. © CounselorLibrary.com 2018, all rights reserved. Single publication rights only, to the Association. (11/18).  HC 4812-7784-4346.

The CARLAWYER©

The CARLAWYER©

 By Thomas B. Hudson and Nicole F. Munro

Here’s our monthly article on legal developments in the auto sales, finance and leasing world.  This month, the action involves the Bureau of Consumer Financial Protection and the Federal Trade Commission.  As usual, this month’s article features our “Case of the Month.”

Note that this column does not offer legal advice.  Always check with your lawyer to learn how what we report might apply to you, or if you have questions.

This Month’s CARLAWYER© Compliance Tip

In our Case of the Month, below, we describe an attempt by a dealer to “piggyback” on the arbitration agreement of a direct lender financing a sale for the dealer’s buyer.  The attempt failed.  What do your customer-facing documents say about arbitration?  Are you certain that you can use them to compel arbitration and stay out of the crosshairs of those class action lawyers?  Maybe it’s time for a legal checkup.

Federal Developments

 Debt Collectors Slammed.  When the FTC goes after debt collectors, finance companies and buy-here, pay-here dealers need to take notice.  On September 7, the FTC announced settlements with the operators of a Georgia-based debt collection business.  The business, which allegedly used false claims and threats to get people to pay debts – including debts they allegedly did not owe or that the defendants allegedly had no authority to collect.  The settlement bans the operators from the debt collection business and from buying or selling debt.

The FTC’s complaint alleged that the defendants’ business model was based on falsely claiming to consumers that they had committed a crime and would be sued, have their wages garnished, or be put in prison if they did not pay purported debts. It further alleged the defendants collected debts consumers had already paid or that the defendants otherwise had no authority to collect, illegally contacted consumers’ employers and other third parties, and failed to provide written notices and disclaimers required by law.  The settlement prohibits the defendants from misrepresentations regarding any financial products and services, and from profiting from or failing to properly dispose of customers’ personal information collected as part of the challenged practices.  Each order imposes a $3,462,664 judgment that will be partly suspended, due to the defendants’ inability to pay, when they have surrendered certain assets. In each case, the full judgment becomes due immediately if the defendants are found to have misrepresented their financial condition.

Credit Freeze Notice Changes.  On September 12, the Bureau issued an interim final rule, effective September 21, 2018, updating the model Summary of Consumer Identity Theft Rights and model Summary of Consumer Rights provided in Appendices I and K to Regulation V, which implements the Fair Credit Reporting Act.  This interim final rule is driven by the FCRA’s recent amendment by the Economic Growth, Regulatory Relief, and Consumer Protection Act.  These legislative changes add a new notice requirement to any summary of rights required by section 609 of the FCRA.  The notice language, provided in S. 2155, explains new consumer rights to a national credit freeze with the nationwide consumer reporting agencies and an initial fraud alert for at least one year.  The Bureau’s rule begins the new notice with a header explaining that the security freeze right is available specifically through nationwide consumer reporting agencies, even though the notice must be provided by all consumer reporting agencies.  The rule also updates the contact information provided in the model Summary of Consumer Rights in Appendix K.  To mitigate the impact of these changes on users of the existing model forms, the interim final rule also provides that the Bureau will regard the use of the current model forms published in Appendices I and K, to constitute compliance with the FCRA provisions requiring such forms, so long as a separate page that contains the additional required information is provided in the same transmittal.  Comments are due by November 19, 2018.

Credit Invisible Consumers?  On September 18, the Bureau released its third “Data Point” report on consumers for whom the nationwide consumer reporting agencies have no credit file (i.e., “credit invisible”) and consumers for whom the CRAs have only limited credit histories.  The first report – Credit Invisibles – estimated the number and demographic characteristics of consumers who were credit invisible or had an unscorable credit record.  The second report – Becoming Credit Visible – explored the ways in which consumers establish credit records.  In this new report – The Geography of Credit Invisibility – the Bureau examined geographic patterns in the incidence of credit invisibility to assess the extent to which where one resides is correlated with one’s likelihood of remaining credit invisible.

Pssst!  Wanna Buy a Fake ID?  On September 18, the FTC announced that the operators of websites that sold fake documents used to facilitate identity theft and other frauds have agreed to permanently shut down their businesses as part of separate settlements with the Federal Trade Commission.  In separate cases filed by the FTC, the Commission alleged that individuals and their affiliated companies operated websites that sold customers a variety of fake financial and other documents – such as pay stubs, income tax forms, and medical statements – which can be used to facilitate identity theft, tax fraud, and other crimes.

Case of the Month

Alfredo Fuentes signed a purchase agreement with TMCSF, Inc., d/b/a Riverside Harley-Davidson, to buy a new motorcycle.  The purchase agreement did not include an arbitration provision.

At the same time, Fuentes signed a security agreement with Eaglemark Savings Bank to finance the purchase.  The security agreement included an arbitration provision that governed all claims “between [Fuentes] … and ESB and/or any of ESB’s successors, assigns, parents, subsidiaries, or affiliates and/or any employees, officers, directors, [or] agents.”  “ESB” was defined as Eaglemark and its successors and assigns.

Fuentes brought a class action against TMCSF, alleging that it made various misrepresentations in connection with the advertising and sale of its motorcycles.  TMCSF moved to compel arbitration pursuant to the arbitration provision in the security agreement.

The trial court denied the motion, concluding that TMCSF was not a party to the security agreement (it was solely between Fuentes and Eaglemark) and the arbitration provision did not state that it governed claims between Fuentes and TMCSF.  TMCSF appealed.

The Court of Appeal of California affirmed the trial court’s decision.  The appellate court held that TMCSF was not entitled to compel arbitration because: it was not a party to the security agreement containing the arbitration provision (and not a non-party expressly specified as able to invoke the arbitration provision); it was not acting in the capacity of an agent of a party to the arbitration provision; and it was not a third-party beneficiary of the arbitration provision.  The appellate court also agreed with the trial court that Fuentes was not equitably estopped from denying the application of the arbitration provision to his claims.

Fuentes v. TMCSF, Inc., 2018 Cal. App. LEXIS 759 (Cal. App. August 23, 2018)

So, there’s this month’s roundup!  Stay legal, and we’ll see you next month.


Tom (thudson@hudco.com) is Of Counsel and Nikki (nmunro@hudco.com) is a Partner in the law firm of Hudson Cook, LLP.  Tom has written several books and is the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers.  He is the CEO of CounselorLibrary.com, LLC and the Senior Editor of CounselorLibrary.com’s CARLAW®, a monthly report of legal developments for the auto finance and leasing industry.  Nikki is Editor in Chief of CARLAW®, a contributing author to the F&I Legal Desk Book and frequently writes for Spot Delivery®. For information, visit www.counselorlibrary.com. © CounselorLibrary.com 2018, all rights reserved. Single publication rights only, to the Association. (10/18).  HC 4852-5358-1174.

NC DEALERS – NEW STATUTE WITH SOME IMPORTANT CHANGES

Posted 7/5/18…      The General Assembly passed the following law, with some important changes. 
You now have 20 days to deliver paperwork to the tag office after issuing a 30 day tag.  Yay!!!  
 
The new law also allows you to sell a vehicle without having the title, under certain restrictions.  Before you get too excited, the new law requires that you use forms developed and approved by DMV, and DMV has not yet developed those forms.  I will keep you updated when the forms are made available. Basically, the following restrictions apply.  This is based on my reading of the statute, so please understand DMV may interpret it differently.  As always, you should check with your DMV Inspector or your attorney before changing your business practices in order to sell vehicles without the title.
 
  • Vehicle must be currently titled in NC
  • Submit a sworn statement to DMV that all liens have been paid
  • That you are unable to obtain the title because:
    • The title was not delivered to you
    • The title has been lost or misplaced
  • Knowing and intentionally filing a false statement will be a felony offense
  • Once you have the title, you have to send it to DMV and keep a copy
  • You must deliver the title to DMV within 20 days of receipt of the title, no later than 60 days after the sale
  • If you offer a vehicle for sale without having the title, you must notify the potential buyer in writing before the sale that you do not have the title
  • If the title is lost, you must apply for a duplicate title within 5 days of the date of sale
  • If you fail to deliver title within 60 days, the buyer has a right to get their  money/trade-in back, plus 5% of the purchase price up to $1000.00, if they request it in writing within 10 days
  • You can still face potential civil suits and criminal charges
Here is the statute itself:
GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2017
 
SESSION LAW 2018-42
SENATE BILL 411
 
 
AN ACT TO EXPAND THE REQUIRED USE OF THE ELECTRONIC LIEN SYSTEM IMPLEMENTED BY THE DIVISION OF MOTOR VEHICLES, TO REVISE THE LAW GOVERNING WHEN A MOTOR VEHICLE DEALER THAT DOES NOT HAVE A MOTOR VEHICLE’S STATEMENT OF ORIGIN OR CERTIFICATE OF TITLE MAY TRANSFER TITLE TO THE MOTOR VEHICLE, AND TO MAKE OTHER CHANGES TO LAWS AFFECTING MOTOR VEHICLE DEALERS.
The General Assembly of North Carolina enacts:
SECTION 1.  G.S. 20‑58.4A(i) reads as rewritten:
“(i)       Mandatory Participation. – Beginning July 1, 2016, allAll individuals and lienholders who are normally engaged in the business or practice of financing motor vehicles, and who conduct at least five transactions annually,annually shall utilize the electronic lien system implemented in subsection (a) of this section to record information concerning the perfection and release of a security interest in a vehicle.”
SECTION 2.(a)  G.S. 20‑52.1(d) reads as rewritten:
“(d)      When a manufacturer’s statement of origin or an existing certificate of title on a motor vehicle is unavailable, a motor vehicle dealer licensed under Article 12 of this Chapter may also transfer title to a vehicle currently titled in this State to another by certifying in writing in a sworn statement to the Division thatsigned by the dealer principal, general manager, general sales manager, controller, or owner of the dealership that, to the best of the signatory’s knowledge and information as of the date of sworn certification, all prior perfected liens on the vehicle that are known or reasonably ascertainable by the signatory have been paid and that the motor vehicle dealer, despite having used reasonable diligence, is unable to obtain the vehicle’s statement of origin or certificate of title. For purposes of this subsection, a dealer may certify that the dealer is unable to obtain the vehicle’s statement of origin or certificate of title because the statement of origin or certificate of title was either (i) not delivered to the dealer or (ii) lost or misplaced. The Division is authorized to require any information it deems necessary for the transfer of the vehicle and shall develop a form for this purpose. The knowing and intentional filing of a false sworn certification with the Division pursuant to this subsection shall constitute a Class H felony. A dealer principal, owner, or manager who is not a signatory of the sworn certification under this subsection may only be charged for a criminal violation for filing a false certification under this subsection by another dealership employee if the dealer principal, owner, or manager had actual knowledge of the falsity of the sworn certification at the time the sworn certification was submitted to the Division. The dealer shall hold harmless and indemnify the consumer‑purchaser from any damages arising from the use of the procedure authorized by this subsection. No person shall have a cause of action against the Division or Division contractors arising from the transfer of a vehicle by a sworn certification pursuant to this section.
SECTION 2.(b)  G.S. 20‑58 reads as rewritten:
“§ 20‑58.  Perfection by indication of security interest on certificate of title.
(a)        Except as provided in G.S. 20‑58.8, a security interest in a vehicle of a type for which a certificate of title is required shall be perfected only as hereinafter provided.
(1)        If the vehicle is not registered in this State, the application for notation of a security interest shall be the application for certificate of title provided for in G.S. 20‑52.
(2)        If the vehicle is registered in this State, the application for notation of a security interest shall be in the form prescribed by the Division, signed by the debtor, and contain the date of application of each security interest, and name and address of the secured party from whom information concerning the security interest may be obtained. The application must be accompanied by the existing certificate of title unless in the possession of a prior secured party.party or in the event the manufacturer’s statement of origin or existing certificate of title (i) was not delivered to the dealer or (ii) was lost or misplaced on the date the dealer sells or transfers the motor vehicle. If there is an existing certificate of title issued by this or any other jurisdiction in the possession of a prior secured party, the application for notation of the security interest shall in addition contain the name and address of such prior secured party. An application for notation of a security interest may be signed by the secured party instead of the debtor when the application is accompanied by documentary evidence of the applicant’s security interest in that motor vehicle signed by the debtor and by affidavit of the applicant stating the reason the debtor did not sign the application. In the event the certificate cannot be obtained for recordation of the security interest, when title remains in the name of the debtor, the Division shall cancel the certificate and issue a new certificate of title listing all the respective security interests.
(3)        If the application for notation of security interest is made in order to continue the perfection of a security interest perfected in another jurisdiction, it may be signed by the secured party instead of the debtor. Such application shall be accompanied by documentary evidence of a perfected security interest. No such application shall be valid unless an application for a certificate of title has been made in North Carolina. The security interest perfected herein shall be subject to the provisions set forth in G.S. 20‑58.5.
(b)        When If a manufacturer’s statement of origin or an existing certificate of title on a motor vehicle is unavailable,was (i) not delivered to the dealer or (ii) was lost or misplaced on or prior to the date the dealer sells or transfers the motor vehicle, a first lienholder who holds a valid license as a motor vehicle dealer issued by the Commissioner under Article 12 of this Chapter or his designee may file a notarized copy of an instrument creating and evidencing a security interest in the motor vehicle with the Division of Motor Vehicles. A filing pursuant to this subsection shall constitute constructive notice to all persons of the security interest in the motor vehicle described in the filing. The constructive notice shall be effective from the date of the filing on the date of the security agreement if the filing is made within 20 days after the date of the security agreement. The constructive notice shall date from the date of the filing with the Division if it is made more than 20 days after the date of the security agreement. The notation of a security interest created under this subsection shall automatically expire 60 days after the date of the creation of the security interest, or upon perfection of the security interest as provided in subsection (a) of this section, whichever occurs first. A security interest notation made under this subsection and then later perfected under subsection (a) of this section shall be presumed to have been perfected on the date of the earlier filing. The Division may charge a fee not to exceed ten dollars ($10.00) for each notation of security interest filed pursuant to this subsection. The fee shall be credited to the Highway Fund. A false filing with the Division pursuant to this subsection shall constitute a Class H felony. It shall constitute a Class H felony for a person to knowingly and intentionally file a false notice with the Division pursuant to this subsection. A dealer principal, owner, or manager of a motor vehicle dealership who is not a signatory of the notice required under this subsection may only be charged for a criminal violation for filing a false notice with the Division under this subsection by another dealership employee if the dealer principal, owner, or manager had actual knowledge of the falsity of the filing at the time the filing was submitted to the Division.
….”
SECTION 2.(c)  G.S. 20‑72(b) reads as rewritten:
“(b)      In order to assign or transfer title or interest in any motor vehicle registered under the provisions of this Article, the owner shall execute in the presence of a person authorized to administer oaths an assignment and warranty of title on the reverse of the certificate of title in form approved by the Division, including in such assignment the name and address of the transferee; and no title to any motor vehicle shall pass or vest until such assignment is executed and the motor vehicle delivered to the transferee. The provisions of this section shall not apply to any foreclosure or repossession under a chattel mortgage or conditional sales contract or any judicial sale. The provisions of this subsection shall not apply to (i) any transfer to an insurer pursuant to G.S. 20‑109.1(b)(2) or (ii) any transfer to a used motor vehicle dealer pursuant to G.S. 20‑109.1(e1).
When a manufacturer’s statement of origin or an existing certificate of title on a motor vehicle is unavailable, a motor vehicle dealer licensed under Article 12 of this Chapter may also transfer title to a vehicle currently titled in this State to another by certifying in writing in a sworn statement to the Division that is signed by the dealer principal, general manager, general sales manager, controller, or owner of the dealership that, to the best of the signatory’s knowledge and information as of the date of the sworn certification, all prior perfected liens on the vehicle that are known or reasonably ascertainable by the signatory have been paid and that the motor vehicle dealer, despite having used reasonable diligence, is was unable to obtain the vehicle’s statement of origin or certificate of title. For purposes of this subsection, a dealer may certify that the dealer is unable to obtain the vehicle’s statement of origin or certificate of title if the statement of origin or certificate of title has either (i) not been delivered to the dealer or (ii) has been lost or misplaced. The Division is authorized to request any information it deems necessary to transfer the vehicle and shall develop a form for this purpose. The filing of a false sworn certification with the Division pursuant to this paragraph The knowing and intentional filing of a false sworn certification with the Division pursuant to this subsection shall constitute a Class H felony. A dealer principal, owner, or manager of a motor vehicle dealership who is not a signatory of the sworn certification required under this subsection may only be charged for a criminal violation for filing a false certification under this subsection by another dealership employee if the dealer principal, owner, or manager had actual knowledge of the falsity of the sworn certification at the time the sworn certification was submitted to the Division.
Any person transferring title or interest in a motor vehicle shall deliver the certificate of title duly assigned in accordance with the foregoing provision to the transferee at the time of delivering the vehicle, except when a certificate of title is unavailable as provided in this subsection or in G.S. 20‑72.1, and except that where a security interest is obtained in the motor vehicle from the transferee in payment of the purchase price or otherwise, the transferor shall deliver the certificate of title to the lienholder and the lienholder shall forward the certificate of title together with the transferee’s application for new title and necessary fees to the Division within 20 days. If the title to a vehicle is unavailable and the dealer transfers the vehicle on a sworn certification pursuant to this section or G.S. 20‑52.1, and the title is subsequently received or found by the dealer, the dealer shall retain a copy for its records and submit the title to the Division. Any person who delivers or accepts a certificate of title assigned in blank shall be guilty of a Class 2 misdemeanor. No person shall have a cause of action against the Division or Division contractors arising from the transfer of a vehicle by a sworn certification pursuant to this section.
The title to a salvage vehicle shall be forwarded to the Division as provided in G.S. 20‑109.1, except with respect to the title of any salvage vehicle transferred pursuant to G.S. 20‑109.1(b)(2) or G.S. 20‑109.1(e1).”
SECTION 2.(d)  Part 4 of Article 3 of Chapter 20 of the General Statutes is amended by adding a new section to read:
§ 20‑72.1.  Transfer by owner when a certificate of title is unavailable; consumer remedies.
(a)        Notwithstanding any other provision in this Article, when a manufacturer’s statement of origin or an existing certificate of title on a motor vehicle is unavailable, a motor vehicle dealer licensed under Article 12 of this Chapter shall deliver the manufacturer’s statement of origin or certificate of title to the Division within 20 days of receipt of the title, but no later than 60 days following the later of the date of the sale or transfer of the vehicle or the date of the creation of a security interest in the vehicle pursuant to G.S. 20‑58(b). The dealer may offer the vehicle for sale provided that the purchaser is given written notice prior to sale that the dealer is not in possession of the manufacturer’s statement of origin or certificate of title and that the purchaser may be entitled to liquidated damages pursuant to subsection (b) of this section if the dealer fails to deliver the manufacturer’s statement of origin or certificate of title to the Division in accordance with this subsection. For purposes of this subsection, a vehicle’s manufacturer’s statement of origin or existing certificate of title shall be considered unavailable under either of the following circumstances:
(1)        The manufacturer’s statement of origin or certificate of title has not been actually delivered to the dealer on or prior to the date the dealer sold or transferred the vehicle.
(2)        The manufacturer’s statement of origin or certificate of title was lost or misplaced on or prior to the date the dealer sold or transferred the vehicle. If the motor vehicle being sold or transferred is a used motor vehicle, the dealer is required to make application to the Division for a duplicate title within five working days of the date of the sale or transfer of the vehicle. If the vehicle being sold or transferred is a new motor vehicle, the dealer is required to request a new or duplicate manufacturer’s statement of origin from the applicable manufacturer or distributor within five working days of the date of the sale or transfer of the vehicle.
(b)        In any case where a dealer fails to deliver the manufacturer’s statement of origin or certificate of title to the Division within the 60‑day time period allowed in subsection (a) of this section, the vehicle purchaser may elect to receive liquidated damages from the dealer in the amount of five percent (5%) of the vehicle purchase price, not to exceed one thousand dollars ($1,000), provided that the dealer receives written demand for liquidated damages from the purchaser within 10 days after the expiration of the 60‑day period provided in subsection (a) of this section. The liquidated damages provided in this subsection shall be payable by the dealer within 30 days after the receipt of the purchaser’s written demand. Nothing in this section shall be construed to limit any other civil remedies or consumer protections available to the vehicle purchaser.
SECTION 2.(e)  G.S. 20‑79.1(h) reads as rewritten:
“(h)      Temporary registration plates or markers shall expire and become void upon the receipt of the limited registration plates or the annual registration plates from the Division, or upon the rescission of a contract to purchase a motor vehicle, or upon the expiration of 30 days from the date of issuance, depending upon whichever event shall first occur. No refund or credit or fees paid by dealers to the Division for temporary registration plates or markers shall be allowed, except in the event that the Division discontinues the issuance of temporary registration plates or markers or unless the dealer discontinues business. In this event the unissued registration plates or markers with the unissued registration certificates shall be returned to the Division and the dealer may petition for a refund. Upon the expiration of the 30 days from the date of issuance, a second 30‑day temporary registration plate or marker may be issued by the dealer upon showing the vehicle has been sold, a temporary lien has been filed as provided in G.S. 20‑58, and that the dealer, having used reasonable diligence, is unable to obtain the vehicle’s statement of origin or certificate of title so that the lien may be perfected. For purposes of this subsection, a dealer shall be considered unable to obtain the vehicle’s statement of origin or certificate of title if the statement of origin or certificate of title either (i) has not been delivered to the dealer or (ii) was lost or misplaced.
SECTION 2.(f)  The Division of Motor Vehicles, in consultation with the North Carolina Automobile Dealers Association, Inc., shall study the following:
(1)        The impacts of this section on Division processes and procedures, along with recommended statutory changes to further improve the lawful transfer of motor vehicles.
(2)        Methods to ensure consumer protection in the motor vehicle transfer process.
(3)        Potential changes to the Division’s electronic lien and title program or other processes that could assist with reducing the delay in the release of a satisfied security interest in a motor vehicle.
(4)        Any other issues the Division deems appropriate.
The Division shall report its findings, including any legislative recommendations, to the Joint Legislative Transportation Oversight Committee by December 31, 2020.
SECTION 2.(g)  G.S. 20‑73(a) reads as rewritten:
“(a)      Time Limit. – A person to whom a vehicle is transferred, whether by purchase or otherwise, must apply to the Division for a new certificate of title. An application for a certificate of title must be submitted within 28 days after the vehicle is transferred. A person who must follow the procedure in G.S. 20‑76 to get a certificate of title and who applies for a title within the required 20‑day time limit or who transfers title to a vehicle pursuant to a sworn certificate pursuant to G.S. 20‑52.1(d) is considered to have complied with this section even when the Division issues a certificate of title to the person after the time limit has elapsed.
A person may apply directly for a certificate of title or may allow another person, such as the person from whom the vehicle is transferred or a person who has a lien on the vehicle, to apply for a certificate of title on that person’s behalf. A person to whom a vehicle is transferred is responsible for getting a certificate of title within the time limit regardless of whether the person allowed another to apply for a certificate of title on the person’s behalf.”
SECTION 2.(h)  Subsection 2(f) of this section is effective when it becomes law. The remainder of this section becomes effective January 1, 2019.
SECTION 3.(a)  G.S. 20‑79.02(g) reads as rewritten:
“(g)      Applicability. – Prior to January 1, 2019,2021, a new motor vehicle dealer may, but is not required to, display an LD license plate on a service loaner vehicle. Beginning on or after January 1, 2019,2021, a new motor vehicle dealer shall display an LD license plate on any new motor vehicle placed into service as a loaner vehicle if either of the following circumstances exists:
(1)        The new motor vehicle dealer is receiving incentive or warranty compensation from a manufacturer, factory branch, distributor, or distributor branch for the use of the vehicle as a service loaner.
(2)        The new motor vehicle dealer is receiving a fee or other compensation from the dealer’s customers for the use of the vehicle as a service loaner.”
SECTION 3.(b)  Section 1.1(b) of S.L. 2015‑232 reads as rewritten:
SECTION 1.1.(b)  This section is effective when this act becomes law and expires December 31, 2018.2020.
SECTION 3.(c)  Section 1.4(b) of S.L. 2015‑232 reads as rewritten:
SECTION 1.4.(b)  This section is effective when this act becomes law and expires December 31, 2018.2020.
SECTION 4.  G.S. 20‑79.1(d) reads as rewritten:
“(d)      A dealer shall:
(1)        Not issue, assign, transfer, or deliver temporary registration plates or markers to anyone other than a bona fide purchaser or owner of a vehicle which he has sold.
(2)        Not issue a temporary registration plate or marker without first obtaining from the purchaser or owner a written application for titling and registration of the vehicle and the applicable fees.
(3)        Within 10 working days,20 days of the issuance of a temporary registration plate or marker, mail or deliver the application and fees to the Division or deliver the application and fees to a local license agency for processing. Delivery need not be made if the contract for sale has been rescinded in writing by all parties to the contract.
(4)        Not deliver a temporary registration plate to anyone purchasing a vehicle that has an unexpired registration plate that is to be transferred to the purchaser.
(5)        Not lend to anyone, or use on any vehicle that he may own, any temporary registration plates or markers.
A dealer may issue temporary markers, without obtaining the written application for titling and registration or collecting the applicable fees, to nonresidents for the purpose of removing the vehicle from the State.”
SECTION 5. G.S. 20‑183.4C(a)(1) reads as rewritten:
“(1)      A new vehicle must be inspected before it is sold delivered to a purchaser at retail in this State. Upon purchase, a receipt approved by the Division must be provided to the new owner certifying compliance.”
SECTION 6.  G.S. 105‑562 reads as rewritten:
“§ 105‑562.  Collection and scope.
(a)        Collection. – A tax or a tax increase levied under this Article becomes effective on the date set by the board of trustees in the resolution levying the tax or the tax increase. The effective date must be the first day of a month and may not be earlier than the first day of the sixth calendar month after the board of trustees adopts the resolution. To the extent the tax applies to vehicles whose tax situs is in a county the entire area of which is within the jurisdiction of the Authority, the Division of Motor Vehicles shall collect and administer the tax. To the extent the tax applies to vehicles whose tax situs is in a county that is only partially within the jurisdiction of the county, the Authority shall collect and administer the tax. The Authority may contract with one or more local governments in its jurisdiction to collect the tax on its behalf.
Upon receipt of the resolutions under G.S. 105‑561, the Division of Motor Vehicles shall proceed to collect and administer the tax as provided in this Article. The tax is due at the same time and subject to the same restrictions as in G.S. 20‑87(1), (2), (4), (5), (6), and (7) and G.S. 20‑88. The Division of Motor Vehicles may adopt rules to carry out its responsibilities under this Article.
(b)        Scope. – Only vehicles required to pay a tax under G.S. 20‑87(1), (2), (4), (5), (6), and (7) and G.S. 20‑88 shall be subject to the tax provided by this Article. Taxes shall be prorated in accordance with G.S. 20‑95.
(c)        Tax Situs. – The tax situs of a motor vehicle for the purpose of this Article is its ad valorem tax situs. If the vehicle is exempt from ad valorem tax, its tax situs for the purpose of this Article is the ad valorem tax situs it would have if it were not exempt from ad valorem tax.
(d)       Any tax or tax increase levied under this Article applicable to a motor vehicle sold or leased by a motor vehicle dealer, as defined in G.S. 20‑286(11), is only applicable to a motor vehicle sale or lease made on or after the effective date of the tax or tax increase regardless of the date of submission of a title and registration application for the motor vehicle to the Division of Motor Vehicles. No tax or tax increase levied under this Article applies to a motor vehicle sale or lease made prior to the effective date of the tax or tax increase.
SECTION 7.  G.S. 105‑570 reads as rewritten:
“§ 105‑570.  County Vehicle Registration Tax; shared with municipalities.
(a)        A county is considered an authority under Article 51 of this Chapter, and the board of commissioners of that county is considered the board of trustees of the authority under Article 51, except that the maximum tax that may be levied by a county under this Article is seven dollars ($7.00) per year.
(b)        A county may not levy a tax under this Article unless the county or at least one unit of local government in the county operates a public transportation system.
(c)        Any tax levied under this Article shall, after the receipt of those funds from the Division of Motor Vehicles, be retained or distributed by the county on a per capita basis as it receives those funds as follows:
(1)        Pro rata (i) retained by the county based on the population of the county that is not in an incorporated area, and (ii) distributed to the municipalities within the county based on the population of that municipality that is located within that county. To determine the population of each county and municipality, the county shall use the most recent annual estimate of population certified by the State Budget Officer.
(2)        Notwithstanding subdivision (1) of this subsection, if a municipality to which funds are to be distributed does not operate a public transportation system, the population of that municipality shall be excluded from the calculations of subdivision (1) of this subsection and no distribution shall be made to that municipality.
(3)        Notwithstanding subdivision (1) of this subsection, if a county for which funds are to be retained does not operate a public transportation system, the population of that county not in an incorporated area shall be excluded from the calculations of subdivision (1) of this subsection, and the county shall not retain any funds.
If a county that does not retain funds or a municipality that does not receive an allocation of funds on account of subdivision (2) or (3) of this subsection begins to operate a public transportation system, that county or municipality shall begin retaining or receiving funds beginning the first day of July that is more than 30 days thereafter.
(d)       The proceeds of a tax imposed under this Article may be used by that county or municipality only to operate a public transportation system, including financing, constructing, operating, and maintaining that public transportation system. The term “public transportation system” has the same meaning as defined in G.S. 105‑506.1.
(e)        As used in this section, operation of a public transportation system includes a contract or interlocal agreement for operation of the public transportation system by another county or municipality, or by a transportation authority created under (i) a municipal charter; or (ii) Article 25, 26, or 27 of Chapter 160A of the General Statutes. As used in this section, operation of a public transportation system also includes a contract with a private entity for operation of the public transportation system.
(f)        An interlocal agreement under this section may also deal with allocation of funds between a municipality and county for operation by the county of a human services public transportation system within the municipality when the municipality also operates a public transportation system.
(g)        This Article is supplemental to Article 51 of this Chapter.
(h)        Any tax or tax increase levied under this Article applicable to a motor vehicle sold or leased by a motor vehicle dealer, as defined in G.S. 20‑286(11), is only applicable to a motor vehicle sale or lease made on or after the effective date of the tax or tax increase regardless of the date of submission of a title and registration application for the motor vehicle to the Division of Motor Vehicles. No tax or tax increase levied under this Article applies to a motor vehicle sale or lease made prior to the effective date of the tax or tax increase.
SECTION 8.  G.S. 20‑4.02 reads as rewritten:
“§ 20‑4.02.  Quadrennial adjustment of certain fees and rates.
(a)        Adjustment for Inflation. – Beginning July 1, 2020, and every four years thereafter, the Division shall adjust the fees and rates imposed pursuant to the statutes listed in this subsection for inflation in accordance with the Consumer Price Index computed by the Bureau of Labor Statistics. The adjustment for per transaction rates in subdivision (8a) of this subsection shall be rounded to the nearest cent and all other adjustments under this subsection shall be rounded to the nearest twenty‑five cents (25¢):
(1)        G.S. 20‑7.
(2)        G.S. 20‑11.
(3)        G.S. 20‑14.
(4)        G.S. 20‑16.
(5)        G.S. 20‑26.
(6)        G.S. 20‑37.15.
(7)        G.S. 20‑37.16.
(8)        G.S. 20‑42(b).
(8a)      G.S. 20‑63(h), with respect to the per transaction rates set in that subsection.
(9)        G.S. 20‑85(a)(1) through (10).
(10)      G.S. 20‑85.1.
(11)      G.S. 20‑87, except for the additional fee set forth in G.S. 20‑87(6) for private motorcycles.
(12)      G.S. 20‑88.
(13)      G.S. 20‑289.
(14)      G.S. 20‑385.
(15)      G.S. 44A‑4(b)(1).
(b)        Computation. – In determining the rate of inflation to use when making an adjustment pursuant to subsection (a) of this section, the Division shall base the rate on the percent change in the annual Consumer Price Index over the preceding four‑year period.
(c)        Rules. – The provisions of Chapter 150B of the General Statutes shall not apply to the inflation adjustment required by this section.
(d)       Consultation and Publication. – At least 90 days prior to making an adjustment pursuant to subsection (a) of this section, and notwithstanding any provision of G.S. 12‑3.1 to the contrary, the Division shall (i) consult with the Joint Legislative Commission on Governmental Operations, (ii) provide a report to the chairs of the Senate Appropriations Committee on Department of Transportation and the House of Representatives Appropriations Committee on Transportation, and (iii) publish notice of the fees that will be in effect in the offices of the Division and on the Division’s Web site.
(e)        Effective Date. – Any adjustment to fees or rates under this section applicable to a motor vehicle sold or leased by a motor vehicle dealer, as defined in G.S. 20‑286(11), is only applicable to a motor vehicle sale or lease made on or after the effective date of the fee or rate adjustment regardless of the date of submission of a title and registration application for the motor vehicle to the Division. No adjustment to fees or rates under this section applies to a motor vehicle sale or lease made prior to the effective date of the fee or rate adjustment.
SECTION 9.  Sections 6 and 7 of this act are effective when they become law and apply to any tax or tax increase with an effective date on or after that date. Except as otherwise provided, the remainder of this act is effective when it becomes law.
In the General Assembly read three times and ratified this the 14th day of June, 2018.
                                                                    s/  Philip E. Berger
                                                                         President Pro Tempore of the Senate
                                                                    s/  Tim Moore
                                                                         Speaker of the House of Representatives
                                                                    s/  Roy Cooper
                                                                         Governor
Approved 9:25 a.m. this 22nd day of June, 2018
Posted in NC

The CARLAWYER©03/18

By Thomas B. Hudson and Nicole F. Munro

Here’s our monthly article on legal developments in the auto sales, finance and lease world.  This month, we’re reporting on activities of the Consumer Financial Protection Bureau, the Department of Justice and the courts.  As usual, this month’s article features our “Case of the Month.”

Note that this column does not offer legal advice.  Always check with your lawyer to learn how what we report might apply to you, or if you have questions.

This Month’s CARLAWYER© Compliance Tip

It’s that time of year again – dealer and finance company associations are gearing up for their spring conferences.  If you plan to attend one or more of these in search of ways to improve your operations, remember as you listen to the various presenters that state laws governing what dealers can and cannot do vary.  What’s permitted in State A might be a violation of the law in State B.  To put it another way, what might win an award in a 20-group’s “Best Ideas” contest might be legal in State A but might constitute a felony in State B.  So if you pick up a great idea at a conference, make sure that your lawyer blesses it for your state before you implement it.  And don’t forget to visit us at the CounselorLibrary.com booth and listen in on a few compliance sessions.

Federal Developments

Servicemembers and Leasing.  On February 22, the Department of Justice announced that it settled a case against a captive auto finance company, resolving allegations that the company violated the Servicemembers Civil Relief Act by failing to refund certain up-front lease amounts to servicemembers who lawfully terminated their vehicle leases early.

This is the first DOJ case addressing a vehicle lessor’s SCRA obligation to refund certain types of lease payments.  The SCRA allows servicemembers to end vehicle leases early after entering military service or receiving qualifying military orders for a permanent change of station or to deploy.

When servicemembers lawfully terminate vehicle leases, the SCRA requires that they be refunded all lease amounts paid in advance.  At issue in this case is which categories of fees are paid “in advance” that must be refunded under the SCRA.

The DOJ alleged that part of the lease’s capitalized cost reduction (“CCR”) is subject to a pro rata refund.  The CCR is an amount the consumer pays to the dealer at lease signing that reduces the amount of lease payments.  The CCR could come from a consumer’s cash payment, trade-in equity, or rebate or other credit provided by the manufacturer, lessor, or a third party.

Lessors have often contended that none of the CCR is an amount paid in advance on the lease, but rather the CCR acts as a form of down payment, retained by the dealer and not paid to or received by the lease assignee.

Without admitting factual allegations or statements of law, the finance company agreed to refund over $2 million to 492 servicemembers and their co-lessees.  In addition, the company will pay $60,788 to the U.S. Treasury.

What’s the Plan?  On February 12, the CFPB released its 5-year strategic plan.  The plan sets forth the CFPB’s mission to regulate the offering and provision of consumer financial products and services under the federal consumer financial laws and to educate and empower consumers to make better-informed financial decisions.  CFPB’s strategic goals include: (1) to ensure that all consumers have access to markets for consumer financial products and services; (2) to implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive; and (3) to foster operational excellence through efficient and effective processes, governance, and security of resources and information.  Acting Director Mulvaney stated: “If there is one way to summarize the strategic changes occurring at the Bureau, it is this:  we have committed to fulfill the Bureau’s statutory responsibilities, but go no further.”

New CFPB Faces.  On February 6, Mulvaney named Kirsten Sutton Mork as the CFPB’s new chief of staff.  Mork has been staff director of the House Financial Services Committee since early 2017.  In addition, on January 30, Mulvaney advised CFPB staff that the Office of Fair Lending and Equal Opportunity will be transferred to the Director’s Office, as part of the Office of Equal Opportunity and Fairness.  The Office of Fair Lending will continue to focus on advocacy, coordination, and education, but will no longer have enforcement responsibility.

More Information, Please!  The CFPB recently issued five Requests for Information as part of Mulvaney’s call for evidence to ensure the CFPB is fulfilling its proper and appropriate functions to best protect consumers.  These RFIs invite the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.  We reported last month on the first of these, dealing with the CFPB’s civil investigative demand process.  Here are four more CFPB RFIs.

The CFPB’s second RFI seeks public comment on whether and how the CFPB might improve its administrative adjudication processes, including its Rules of Practice for Adjudication Proceedings, which pertain to the general conduct of administrative adjudication proceedings; the initiation of such proceedings and prehearing rules; hearings; decisions and appeals; and temporary cease-and-desist proceedings.  Comments are due by April 6, 2018.

The CFPB’s third RFI seeks information to assess the overall efficiency and effectiveness of its processes related to the enforcement of federal consumer financial laws.  Comments are due by April 13, 2018.

The fourth RFI seeks information to assess the overall efficiency and effectiveness of the CFPB’s supervision program.  Comments are due by May 21, 2018.

Finally, the CFPB’s fifth RFI on external engagements seeks information on ways to engage the public and receive feedback on the agency’s work.  Comment deadlines for the fifth RFI have not yet been published.

No ACE up Their Sleeves?  On January 25, the Office of the Associate Attorney General at the U.S. Department of Justice issued a memorandum to its litigators announcing its policy regarding the use of agencies’ guidance documents in affirmative civil enforcement (“ACE”) cases.  The AAG states:  “Guidance documents cannot create binding requirements that do not already exist by statute or regulation.  Accordingly, effective immediately for ACE cases, the [DOJ] may not use its enforcement authority to effectively convert agency guidance documents into binding rules.  Likewise, [DOJ] litigators may not use noncompliance with guidance documents as a basis for proving violations of applicable law in ACE cases.  The [DOJ] may continue to use agency guidance documents for proper purposes in such cases.  For instance, some guidance documents simply explain or paraphrase legal mandates from existing statutes or regulations, and the [DOJ] may use evidence that a party read such a guidance document to help prove that the party had the requisite knowledge of the mandate.  However, the [DOJ] should not treat a party’s noncompliance with an agency guidance document as presumptively or conclusively establishing that the party violated the applicable statute or regulation.”

Case of the Month

 

Some lessons seem to require learning over and over again.  The lesson this month is:  Don’t employ multiple arbitration agreements in a single transaction.  Here’s what happened in a recent case.

Chuck Willis filed an adversary proceeding in his Chapter 7 bankruptcy case against Tower Loan of Mississippi, LLC.  Willis alleged that Tower Loan violated the Truth in Lending Act and Regulation Z by providing misleading and incorrect disclosures in his installment loan agreement with regard to, among other things, the credit insurance he bought in connection with the loan.

Tower Loan moved to compel arbitration under an arbitration clause in the loan agreement.  The agreement contained an arbitration disclaimer that said:  “By signing below and obtaining this loan, borrower agrees to the Arbitration Agreement on the additional pages of this agreement.  You should read it carefully before you sign below.  Important provisions, including our privacy policy, are contained on additional pages and incorporated herein.”  The reverse side of the loan agreement contained the Arbitration Agreement.

At the hearing on the motion, the parties presented to the court, for the first time, an Endorsement to Require Binding Arbitration, which represented the “additional pages” referenced in the arbitration disclaimer.  Willis argued that because the Arbitration Agreement and the Endorsement contained different and conflicting terms regarding the number of arbitrators, how the arbitrators will be selected, the notice required to arbitrate, the location of the arbitration, who pays the cost of arbitration, who would be entitled to attorneys’ fees and when, and when arbitration proceedings need not be initiated, there was no meeting of the minds with respect to arbitration.

The court denied Tower Loan’s motion to compel arbitration.  The court first addressed Tower Loan’s argument that the Arbitration Agreement and the Endorsement governed different issues and/or parties, and the dispute in this case was governed by the Arbitration Agreement.  The court disagreed, noting that both the Arbitration Agreement and the Endorsement governed claims against Tower Loan arising under the loan agreement, including any insurance purchased in connection with the loan.

The court went on to address the impact of the inconsistent and conflicting provisions and determined that, under Tenth Circuit precedent, the terms of the arbitration agreements were not “sufficiently definite” as required by Mississippi law, which governed the loan agreement.  Therefore, the court concluded that there was no “meeting of the minds” as to how to arbitrate claims under the arbitration agreements and, thus, no agreement to arbitrate.

Is it time to review your paperwork again?

In re Willis (Willis v. Tower Loan of Mississippi, LLC), 2017 Bankr. LEXIS 4243 (Bankr. S.D. Miss. December 12, 2017)

So, there’s this month’s roundup!  Stay legal, and we’ll see you next month.

________

Tom (thudson@hudco.com) is Of Counsel and Nikki (nmunro@hudco.com) is a Partner in the law firm of Hudson Cook, LLP. Tom has written several books and is the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers. He is the CEO of CounselorLibrary.com, LLC and the Editor in Chief of CARLAW®, a monthly report of legal developments for the auto finance and leasing industry. Nikki is a contributing author to the F&I Legal Desk Book and frequently writes for Spot Delivery®. For information, visit www.counselorlibrary.com. © CounselorLibrary.com 2018, all rights reserved. Single publication rights only, to the Association. (3/18).  HC/4843-0068-2590v1.