December 2016 – The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

We wish you and your families a very happy holiday and New Year.

Here’s our last 2016 report of legal developments in the auto sales, finance and lease world. This month, we feature developments from the Consumer Financial Protection Bureau and the Federal Trade Commission, as well as our “Case of the Month.” Remember – we aren’t reporting every recent legal development, only those we think might be particularly important or interesting.

Why do we include items from other states? We want to show you new legal developments and trends. Also, another state’s laws might be a lot like your state’s laws. If attorneys general or plaintiffs’ lawyers are pursuing particular types of claims in other states, those claims might soon appear in your state.

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

This Month’s CARLAWYER© Compliance Tip

 We saw yet another case this month involving a dealership whose computers were misaligned, causing the disclosures required by the Truth in Lending Act to appear where they didn’t belong.  If you are having these alignment problems, it would be a lot less expensive to have some reprograming done than to fight off a consumer’s complaint that your disclosures were faulty.

Federal Developments

 FTC Finally Issues Final Used Car Rule.  On November 10, the FTC announced final amendments to its Used Car Rule.  The FTC is revising the Buyers Guide by:

  • changing the description of an “As Is” sale;
  • placing boxes in the Buyers Guide that dealers can check to show whether a vehicle is covered by a third-party warranty and whether a service contract may be available;
  • providing a box dealers can check to show that an unexpired manufacturer’s warranty applies;
  • adding air bags and catalytic converters to the Buyers Guide’s list of major defects;
  • adding statements that direct consumers to obtain a vehicle history report, check for open recalls, visit ftc.gov/usedcars for information on how to obtain a vehicle history report, and visit safercar.gov to check for open safety recalls;
  • adding a statement in Spanish to the English-language Buyers Guide advising Spanish-speaking consumers to ask for the Buyers Guide in Spanish if the dealer conducts the sale in Spanish; and
  • providing a Spanish translation of the statement that dealers may use to obtain a consumer’s acknowledgement of receipt of the Buyers Guide.

The amended rule permits dealers to use their remaining stock of Buyers Guides until January 27, 2018, a year after the effective date of the amended rule.

Time to Amend Your Pay Plan?  On November 28, the CFPB issued Compliance Bulletin 2016-03 warning supervised financial companies that sales and production incentive programs for employees and service providers may pose risks to consumers and lead to violations of federal consumer financial laws when such programs are not properly implemented and monitored.  The bulletin outlines existing CFPB guidance given in other contexts and highlights examples from the CFPB’s supervisory and enforcement experience in which incentives contributed to substantial consumer harm.  The bulletin also describes compliance management steps supervised entities should take to mitigate risks posed by incentive programs.

Where is the CFPB Going Next?  On November 28, the CFPB announced its fall 2016 statement of regulatory priorities.  Short-term priorities of particular interest to those in the auto sales and financing area: (1) the CFPB is considering a final arbitration rule for spring 2017; (2) there is no timetable for the small-dollar rule or the larger participant rule for installment lenders, both of which might have some unintended spill-over effects on auto finance; (3) the CFPB expects to convene a Small Business Regulatory Enforcement Fairness Act proceeding focusing on companies that collect their own debts; (4) the CFPB is analyzing the results of a survey of consumer experiences with debt collection and testing to determine what information would be useful for consumers to have about debt collection and their debts and how that information should be given to them; (5) the CFPB continues its research on section 1071, which requires financial institutions to report information about credit applications by women-owned, minority-owned, and small businesses (the CFPB states that it is in its early stages of implementing section 1071 and is currently focused on outreach and research to develop its understanding of the players, products, and practices in the business lending markets and of the potential ways to implement section 1071).  Long-term, the CFPB is looking at possible rulemaking for credit reporting and student loans. Of course, with the new administration, these priorities could change.

Which Credit and Lease Transactions are Covered?  On November 28, the CFPB and the FRB issued final rules on adjusting the thresholds for exempting certain consumer credit and lease transactions from the Truth in Lending Act and Consumer Leasing Act.  The Dodd-Frank Act provides that the TILA and CLA dollar amount thresholds must be adjusted annually by any annual percentage increase in the consumer price index.  The final rules say that if there is no annual percentage increase in the CPI, the CFPB and Board will not adjust the prior year’s thresholds.  The final rules also provide the agencies’ calculation method for adjustment in years after a year in which there is no annual percentage increase in the CPI.  Based on the CPI as of June 1, 2016, the exemption threshold remains at $54,600 through 2017.  Therefore, TILA and the CLA generally will apply to consumer credit transactions and consumer leases of $54,600 or less in 2017 – the same as the 2016 thresholds.

 Case of the Month

 Buyer Stated TILA Claim against Dealership and Finance Company for Failing to Disclose Additional Finance Charges Included in Inflated Sales Price: An individual went to a dealership and for $14,995 bought a used car with 103,724 miles on it and a history of front-end damage. The vehicle’s MSRP when it was new in 2007 was $14,295, and the NADA and Kelley Blue Book retail prices for the vehicle ranged from $5,000 to $6,000. The buyer agreed to an interest rate of approximately 24% in the retail installment sale contract. After the buyer experienced problems with the car that the dealership was unable to fix, she sued the dealership and the finance company to which her finance contract was assigned for violating the Truth in Lending Act, among other laws, by failing to disclose all financing charges. Specifically, she alleged that the sales price of the car was inflated to hide additional financing fees within the sales price. The defendants moved to dismiss. The Virginia federal trial court concluded that the buyer adequately alleged a claim that the defendants inflated the sales price of the car because it was financed, not purchased with cash. The court noted that the “excessive sales price in relation to the NADA and Kelley Blue Book value creates an inference that the dealership would not truly charge the same price to a cash customer, and thus failed to disclose the true extent of the financing charges.” Therefore, the court refused to dismiss the TILA claim against both defendants. See Harold v. TMC Enterprises, LLC, 2016 U.S. Dist. LEXIS 142928 (W.D. Va. October 17, 2016).

 

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


 

Tom (thudson@hudco.com) and Nikki (nmunro@hudco.com) are partners 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 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. Copyright CounselorLibrary.com 2016, all rights reserved. Single publication rights only, to the Association. (12/16). HC# 4811-0676-9469 v.1.

October 16 -The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

This isn’t Halloween “Trick or Treat,” although you might be forgiven if you are feeling tricked by Washington these days. Here’s what we’ve recently learned about legal developments in the auto sales, finance and lease world. This month, we feature developments from the Consumer Financial Protection Bureau, the Federal Trade Commission, and the Department of Justice, as well as our “Case of the Month.” Remember – we aren’t reporting every recent legal development, only those we think might be particularly important or interesting to industry.

Why do we include items from other states? We want to show you new legal developments and trends. Also, another state’s laws might be a lot like your state’s laws. If attorneys general or plaintiffs’ lawyers are pursuing particular types of claims in other states, those claims might soon appear in your state.

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

This Month’s CARLAWYER© Compliance Tip

Get Those Deal Jackets in Order! Do your deal jackets look like the rats have taken up residence in them? Do you have a checklist of the documents that belong and don’t belong in your deal jackets? Do you audit the content of your deal jackets to make sure that your document order and retention policies are being followed? Do those documents appear in the same order in every deal jacket? Have you asked your lawyer which documents you must retain and which you can omit from the deal jacket? And, finally, maybe you should give those documents a good read to ensure that the documents in your deal jacket are consistent and reflect your actual business practices.

Federal Developments

Warranty Disclosure Rules Modernized. On September 6, the FTC announced a final rule, effective October 17, 2016, amending the rules on Disclosure of Written Consumer Product Warranty Terms and Conditions (“Disclosure Rule”) and Pre-Sale Availability of Written Warranty Terms (“Pre-Sale Availability Rule”) to give effect to the E-Warranty Act, which allows warranty terms to be given to consumers online, under some circumstances. The Disclosure Rule provides disclosure requirements for written warranties on consumer products costing more than $15, specifies the aspects of warranty coverage that must be disclosed in written warranties and the language required for certain disclosures, and requires simple language in a single document. The warrantor must disclose any limits on the duration of implied warranties “on the face of the warranty.” The final amendments to the Disclosure Rule specify that, for a warranty posted on a website or displayed electronically, disclosures required to appear “on the face of the warranty” must be in close proximity to where the warranty term text begins. The Pre-Sale Availability Rule describes the methods by which warrantors and sellers must provide warranty terms to consumers before a sale. The final amendments to the Pre-Sale Availability Rule allow warrantors to post warranty terms on websites if they also provide a non-Internet-based method for consumers to obtain the terms and satisfy certain other conditions, and allow certain sellers to display warranty terms pre-sale in an electronic format if the warrantor has chosen to display its warranty terms online.

FTC Eyeballs Disposal Rule. On September 12, the FTC, as part of its systematic review of all its regulations and guides, issued a notice seeking public comment on its Disposal of Consumer Report Information and Records Rule (“Disposal Rule”). The Disposal Rule requires that persons subject to the Commission’s jurisdiction who maintain or otherwise possess consumer information for a business purpose properly dispose of such information by taking reasonable measures to protect against unauthorized access to or use of the information in connection with its disposal. The FTC seeks comment on the economic impact and benefits of the Rule, possible conflicts with state, local, or other federal laws, and its effect on any technological or other industry changes. The FTC also seeks comment on whether the definition of “consumer information” should be expanded to include aggregate information or information that can be reasonably linked to an individual. Comments are due by November 21, 2016.

FTC Studying Consumer Car Buying Experiences. On September 14, the FTC issued a second Federal Register notice seeking public comments on a proposed “qualitative survey” it plans to conduct to obtain information from consumers about their experiences in selecting, purchasing, and financing vehicles from dealerships. The survey will also involve reviewing consumers’ purchase and finance documents. The survey is intended to inform the FTC about current consumer protection issues that may exist and that could be addressed through FTC action, including enforcement initiatives, rulemaking, or education.

CFPB Sues Title Lenders. On September 21, the CFPB announced that it filed administrative lawsuits against five Arizona-based vehicle title lenders for failing to disclose the APR for title loans in their online advertisements, in violation of the Truth in Lending Act. The CFPB alleged that the companies advertised a periodic interest rate, but did not state the corresponding APR. The CFPB is seeking civil money penalties and administrative orders requiring the companies to correct their practices.

CFPB Fines Title Lender. On September 26, the CFPB announced that it reached a consent order with TMX Finance LLC, the parent company to several vehicle title loan subsidiaries, including TitleMax. The CFPB alleged that TMX misled consumers about potential loan costs if the consumers renewed their title loans multiple times, instead of repaying them in 30 days. Specifically, it alleged that, while negotiating 30-day single-payment title loans, TMX employees offered consumers a “monthly option” for making loan payments. Employees also offered consumers a “Voluntary Payback Guide” that showed how to repay the loan with smaller payments over a longer period of time. The Bureau charged that the employees and the guide did not explain the total cost to the consumer if he or she repeatedly renewed the loan over a certain period. In addition, some TMX employees allegedly revealed sensitive information about consumers’ past-due debts while visiting consumers’ homes, references, and places of employment in attempts to collect the debts. Under the consent order, TMX is required to pay a $9 million civil penalty.

Case of the Month

Dealership Was “Creditor” Required to Provide ECOA Adverse Action Notice. A dealership sold a car to a buyer, who made a $1,248 down payment and signed a retail installment sale contract for the remaining amount owed. After the dealership assigned the RISC, the dealership requested that the buyer return to the dealership. When she did, the dealership demanded that she make an additional $1,500 down payment. Because the buyer was unable to do so, the dealership revoked the RISC and kept the car. The buyer sued the dealership for violating the Equal Credit Opportunity Act, and the trial court granted the buyer’s motion for summary judgment. The appellate court affirmed. The dealership argued that the trial court erred in finding that it was a “creditor” required to provide the buyer an adverse action notice. The appellate court disagreed, finding that because the dealership regularly sets the terms of its financing agreements and routinely restructures deals, it is a “creditor” under the ECOA, even though it acts as a middleman between car buyers and the assignees of their RISCs. See Tyson v. Sterling Rental, Inc., 2016 U.S. App. LEXIS 16258 (6th Cir. (E.D. Mich.) September 2, 2016).

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

Tom (thudson@hudco.com) and Nikki (nmunro@hudco.com) are partners 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 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. Copyright CounselorLibrary.com 2016, all rights reserved. Single publication rights only, to the Association. (10/16). HC# 4840-2928-1080 v.1.

August 2016 – The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

It’s after the All-Star break, and summer’s on the wane, with the thermometer seeming to reach new highs every day.  But despite the heat, we’re back, passing on what we’ve recently learned about legal developments in the auto sales, finance and lease world. This month, we feature developments from the Consumer Financial Protection Bureau, the Federal Trade Commission, and a group of state Attorneys General, as well as our “Case of the Month.” Remember – we aren’t reporting every recent legal development, only those we think might be particularly important or interesting to industry.

Why do we include items from other states? We want to show you new legal developments and trends. Also, another state’s laws might be a lot like your state’s laws. If attorneys general or plaintiffs’ lawyers are pursuing particular types of claims in other states, those claims might soon appear in your state.

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

This Month’s CARLAWYER© Compliance Tip

 How well does your dealership score on protecting the privacy of its customers?  Take a stroll around your operation and do a little detecting.  Can the conversation between a buyer and a salesman be overheard by others?  Are sales and financing documents left out on desks, in view of anyone walking by?  When your personnel leave their desks, do they secure protected customer information?  What does your dealership’s privacy policy say about how you are handling your customers’ protected information?  Is that description accurate?  If that description doesn’t match what you are seeing, it’s time to do a little compliance heavy lifting.  Oh, and don’t forget to require any third party vendor that has your customer’s protected information to safeguard it.

Federal Developments

 The Inside Scoop on CFPB Actions.  On June 30, the CFPB issued its Summer 2016, 12thedition, of Supervisory Highlights, covering its supervisory activities completed generally between January 2016 and April 2016.  In the report, the CFPB shares recent supervisory observations in the areas of vehicle financing, debt collection, mortgage origination, small-dollar lending, and fair lending.  In addition to public enforcement actions, the report reveals issues uncovered by the CFPB during its supervisory examinations that are resolved without public enforcement actions.  The non-public supervisory actions covered in the report include alleged illegal activity in the area of vehicle financing, resulting in restitution of approximately $24.5 million to consumers.  Highlighted violations related to auto finance include deceptive advertising of GAP products and CMS deficiencies, which allowed for violation of consumer financial services laws.  When examinations determine whether a supervised entity has violated a statute or regulation, the CFPB directs the entity to implement appropriate corrective measures, including remediation of consumer harm when appropriate. The report does not refer to specific institutions unless they were subject to public enforcement actions.  See http://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-no-12-summer-2016/.

Shopping for a Car?  On July 8, the FTC released four 60-second videos intended to help consumers shop for cars.  The four videos offer information on how to identify deceptive car advertisements, buying a used car, financing a car, and understanding add-on products sold in connection with a car purchase. Everyone in your dealership should watch these videos to see what the regulators are telling car buyers.

AGs Scold Agencies.  On July 11, the attorneys general from 15 states sent a letter to members of Congress urging them to place limits on federal agencies that create and enforce regulations by strengthening the Administrative Procedure Act.  In the letter, likely aimed primarily at the CFPB, the AGs state that federal agencies are, with increasing frequency, (1) issuing guidance documents, interpretive rules, and policy statements that effectively bind regulated parties, but are not required to go through the APA’s notice and comment process; (2) adopting regulations without statutory authority; (3) failing to consider regulatory costs; and (4) failing to fully consider the effect of their regulations on states and state law.  The letter notes that the APA requires an agency to publish a notice of proposed rulemaking in the Federal Register and provide for a comment period in order for the public to inform the agency when a rulemaking is contrary to statutory authority, based on unsound reasoning, or lacks factual support.  The attorneys general express concern that federal agencies often avoid such compliance with the APA.  The letter explains that congressional action is needed to ensure that agencies engage in transparent rulemaking.

Servicemembers and Repossession.  On July 26, the Justice Department sued a Michigan-based credit union alleging that it violated the Servicemembers Civil Relief Act by repossessing vehicles owned by protected servicemembers without obtaining the necessary court orders.  The complaint also alleged that the credit union’s vehicle repossession procedures did not include a process to determine debtors’ military status before conducting repossessions.  The SCRA requires a court to review and approve any repossession if the servicemember obtained financing for a vehicle and made a payment before entering military service.

Debt Collection in the Spotlight.  The CFPB held a field hearing about debt collection on July 28, 2016 in Sacramento, California.  The hearing featured remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.  The CFPB simultaneously published a proposed rule to regulate third-party debt collectors, and indicated that another proposed rule to regulate creditors collecting their own debt would be forthcoming.

Case of the Month

Claims Based on Dealership’s Failure to Disclose Prior Damage to Car Not Conclusively Defeated by “As-Is” Clause: A buyer bought a used car from a dealership. The buyers guide sticker on the car’s window stated that the car was being sold “as-is.” During the negotiations, frame/unibody damage to the car was not disclosed to the buyer.  The salesperson told the buyer that the car was a “good car” and that she could trade it in for something bigger after about a year. Less than a year later, the buyer started looking for a larger car, but a different dealership would not accept her car as a trade-in because of the frame/unibody damage. The buyer sued the dealership where she bought the car for violating the Texas Deceptive Trade Practices Act by failing to disclose known information about the car to her and by committing an unconscionable action or course of action. The trial court granted the dealership’s motion for a directed verdict, finding that the as-is clause negated causation as a matter of law. The buyer appealed.

The appellate court referenced a Texas Supreme Court case holding that an as-is clause can conclusively negate the element of causation and defeat claims for DTPA violations, fraud, and negligence. However, the appellate court provided two exceptions to enforceability of an as-is clause: (1) fraudulent representation or concealment of information by the seller, and (2) where an as-is clause appears in a standard form contract that cannot be negotiated, particularly if the parties are not equally sophisticated. The appellate court concluded that both exceptions could apply. With regard to the second exception, the appellate court first found that the parties did not have equal bargaining positions. Second, the as-is clause was not clear because the average consumer could reasonably construe it to relate only to repairs. However, the buyer’s claims were not based on the dealership’s failure to repair her vehicle. Third, the appellate court found that because the as-is clause was a pre-printed, boilerplate provision required by law and appears on every used vehicle that is sold, the boilerplate nature of the as-is clause also weighed against its enforceability. With respect to the first exception, the appellate court concluded that the evidence raised a fact issue regarding whether the dealership’s fraudulent representation or concealment induced the buyer to buy the car. The appellate court found that the buyer provided sufficient evidence of fraudulent representation by alleging that the salesperson told her the car was a “good car” and that she would be able to bring it back after a year and trade it in for a different car. Because the buyer provided evidence that she could not trade it in after a year, she raised a fact issue as to whether the salesperson’s representations about the car were false. An issue of fact also existed as to whether the representations were material and whether the salesperson intended for the buyer to rely on the representations. Accordingly, the appellate court reversed the trial court’s judgment on the DTPA claims and remanded the case. See Bishop v. Creditplex Auto Sales, L.L.C., 2016 Tex. App. LEXIS 6719 (Tex. App. June 23, 2016).

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


Tom (thudson@hudco.com) and Nikki (nmunro@hudco.com) are partners 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 Editor in Chief of CARLAW®, a monthly report of legal developments for the auto finance and leasing industry. Nikki is a contributing author to theF&I Legal Desk Book and frequently writes for Spot Delivery. For information, visit www.counselorlibrary.com. Copyright CounselorLibrary.com 2016, all rights reserved. Single publication rights only, to the Association. (8/16). HC# 4810-5998-5973.

June 2016 – The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

We’re back, passing on what we’ve recently learned about legal developments in the auto sales, finance and lease world. This month, we feature developments from the Consumer Financial Protection Bureau and the Federal Trade Commission, as well as our “Case of the Month.” Remember – we aren’t reporting every recent legal development, only those we think might be particularly important or interesting to industry.

Why do we include items from other states? We want to show you new legal developments and trends. Also, another state’s laws might be a lot like your state’s laws. If attorneys general or plaintiffs’ lawyers are pursuing particular types of claims in other states, those claims might soon appear in your state.

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

This Month’s CARLAWYER© Compliance Tip

Signed up for the CFPB’s complaint portal yet?  You need to be monitoring complaints from all sources, and the CFPB offers one more source for determining whether your customers are unhappy with you.  And taking care of complaints is one of the most effective ways of staying out of the regulators’ crosshairs.  What, exactly, are you waiting for?

Federal Developments

Speaking of complaints, on May 24, the CFPB released its monthly complaint report, which highlights trends in the complaint data the Bureau receives through its Consumer Complaint Database. The report includes complaint data specific to certain companies, overall complaint volume and complaint volume by state, and other trends in the data. Each month, the report spotlights complaints about a particular issue and complaints from a particular geographic location. The latest report focuses on complaints related to credit reporting and highlights complaints from consumers residing in New Mexico.

Are You Involved in Title Lending?  On May 18, the CFPB released a report on the title loan business. The CFPB’s report demonstrated that 20% of borrowers who obtain a single-payment auto title loan have their car or truck seized by their lender when they default. Evidently, that means that 80% of these borrowers managed to get past their dire financial problems without having their cars seized, but that narrative doesn’t advance the CFPB’s agenda.  According to the CFPB’s research, lenders renewed more than 80% of these loans on the due date because borrowers could not otherwise repay the loan. The report examined nearly 3.5 million anonymized, single-payment auto title loan records from nonbank lenders from 2010 through 2013. The CFPB concluded from its study that these auto title loans have issues similar to payday loans, including high rates of consumer reborrowing, which can trigger high costs in fees and interest.

Warranty Rule Changes on the Way.  On May 18, the FTC proposed to amend the rules governing Disclosure of Written Consumer Product Warranty Terms and Conditions (“Disclosure Rule”) and Pre-Sale Availability of Written Warranty Terms (“Pre-Sale Availability Rule”) to implement the E-Warranty Act, which allows for the use of websites to disseminate warranty terms to consumers in some circumstances. The Disclosure Rule specifies the aspects of warranty coverage that must be disclosed in written warranties, as well as the exact language that must be used for certain disclosures with respect to state law regarding the duration of implied warranties and the availability of consequential or incidental damages. Under the Disclosure Rule, warranty information must be disclosed in simple, easily understandable, and concise language in a single document. The warrantor must disclose any limitations on the duration of implied warranties on the face of the warranty, as mandated by the Magnuson-Moss Warranty Act. The FTC proposes to revise the Disclosure Rule to specify that disclosures mandated to appear ‘on the face’ of a warranty posted on an Internet website or displayed electronically must be placed close to the text of the warranty terms begins. The Pre-Sale Availability Rule details the methods by which warrantors and sellers must provide warranty terms to consumers prior to sale of the warranted item. The FTC proposes to revise the Pre-Sale Availability Rule to allow warrantors to post warranty terms on websites if they also provide a non-Internet method for consumers to obtain the warranty terms and satisfy certain other conditions. Comments on the proposed rule are due by June 17.

Are You Up To Speed on Your Credit Reporting Responsibilities?  On May 9, the FTC announced a $72,000 settlement with Credit Protection Association, a debt collection agency, resolving allegations that the company violated the Fair Credit Reporting Act by failing to have adequate policies and procedures in place to handle consumer disputes of information the company provided to credit reporting agencies and by failing to adequately inform consumers about the outcomes of its investigations about disputed information. In addition to the civil penalty, the company will be required to adopt new procedures that comply with the requirements of the FCRA’s Furnisher Rule. The FTC also released a blog post discussing its settlement with Credit Protection, noting that the case offers compliance guidance for other companies covered by the Furnisher Rule.

Adios, Arbitration Agreements in Credit Contracts.  On May 5, the CFPB issued a proposed rule limiting mandatory arbitration clauses in a wide variety of contracts. The CFPB is seeking comment on a proposal to prohibit companies from using class action waivers in pre-dispute mandatory arbitration clauses with consumers. Companies would still be able to include arbitration clauses in their contracts, but for contracts subject to the proposal, the clauses would have to say explicitly that they cannot be used to stop consumers from being part of a class action in court. The proposal provides the specific language that companies must use. The proposal also requires companies using pre-dispute arbitration agreements to submit to the CFPB claims, awards, and certain related materials filed in arbitration cases to allow the Bureau to monitor  arbitrations to ensure that the process is fair for consumers. Comments on the proposed rule are due by August 22.

Case of the Month

Dealership’s Inflation of “Cash Price” to Compensate for Trade-In Over-Allowance Did Not Violate TILA: A consumer agreed to buy a new car from a dealership for $31,322. The manufacturer’s suggested retail price for the car was $24,150. The dealership subtracted $3,500 from the $31,322 price for the car that the consumer traded in as part of a promotion in which the dealership agreed to provide a $3,500 discount for any trade-in, regardless of the trade-in’s actual value, which in the consumer’s case was close to $0. In cases where the dealership gives the $3,500 discount, the buyer agrees not to negotiate the sale price, and the dealership adds $3,500 to the sale price.

The consumer sued the dealership for violating the federal Truth in Lending Act and the Connecticut Unfair Trade Practices Act. The federal trial court granted the dealership’s motion for summary judgment. The consumer claimed that the dealership violated TILA by failing to accurately itemize the amount financed and failing to accurately disclose the finance charge in the retail installment contract she signed.

Both arguments were based on the fact that the dealership inflated the cash price of the car the consumer bought to compensate for the trade-in discount it gave her for a car with almost no value.

First, the court found that the dealership accurately disclosed the finance charge. The consumer claimed that the increase in the sale price of the car to compensate for the trade-in discount constituted an undisclosed finance charge. The court disagreed, noting that because the dealership increased the sales prices of its cars to offset the trade-in allowances in both cash and credit transactions, the increase did not amount to a finance charge.

Second, the court found that the dealership accurately itemized the amount financed. The court noted that although the consumer agreed to a bad bargain, the itemization of amount financed represented a true and accurate description of the terms to which she agreed. After the court dismissed the consumer’s federal claims, it declined to exercise jurisdiction over her state law claims.

Just because the court found for the dealer on the Truth in Lending claim doesn’t mean the dealer is home free.  The court didn’t rule on the buyer’s state law unfair trade practice claims, leaving the buyer free to bring those claims in state court.  Note that we have seen these “$X dollars for anything you can push, pull, drive or drag” ad campaigns successfully attacked in other cases – you should avoid these sorts of advertisements.    See Morales v. Barberino Brothers, Inc., 2016 U.S. Dist. LEXIS 59726 (D. Conn. May 5, 2016).

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

___

Tom (thudson@hudco.com) and Nikki (nmunro@hudco.com) are partners 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 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. Copyright CounselorLibrary.com 2016, all rights reserved. Single publication rights only, to the Association. (6/16). HC# 4851-4777-3234.