The CARLAWYER©Feb2020

The CARLAWYER©

By Nicole F. Munro and Thomas B. Hudson 

A late Happy Groundhog Day 2020!   Punxsutawney Phil could not find his shadow, so we’re in for an early spring. Or so the legend goes.  We’ll see.

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

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.

Federal Developments

What Does “Abusive” Mean, Anyway?  On January 24, the CFPB issued a policy statement to provide clarification on how it will apply the Dodd-Frank Act “abusiveness” standard in supervision and enforcement matters.  The DFA prohibits a provider of consumer financial products or services from engaging in unfair, deceptive, or abusive acts or practices.

The statement is intended to address uncertainty about the scope and meaning of the term “abusiveness” under the Act.  The CFPB will apply the following principles during supervision and enforcement matters immediately. First, the CFPB intends to focus on citing conduct as abusive in supervision or challenging conduct as abusive in enforcement if the Bureau concludes that the harms to consumers from the conduct outweigh the benefits to consumers.

Second, the CFPB will generally avoid challenging conduct as abusive that relies on all or nearly all of the same facts that the Bureau alleges are unfair or deceptive.  Where the CFPB nevertheless decides to include an alleged abusiveness violation, it intends to plead such claims in a manner designed to clearly demonstrate the nexus between the cited facts and the Bureau’s legal analysis of the claim.  In its supervision activity, the CFPB similarly intends to provide more clarity as to the specific factual basis for determining that a covered person has violated the abusiveness standard.

Third, the CFPB generally does not intend to seek certain types of monetary relief for abusiveness violations where the covered person was making a good-faith effort to comply with the abusiveness standard.

FTC Ups the Ante.  The FTC has adjusted the maximum civil penalty dollar amounts for violations of 16 provisions of federal law.  Commission Rule § 1.98 sets forth the applicable civil penalty amounts for violations of certain laws enforced by the FTC, while the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 directs agencies to implement annual inflation adjustments based on a prescribed formula.  As directed by the FCPIAA, the FTC has issued adjustments to increase certain maximum civil penalty amounts to address inflation since its prior 2019 adjustment. The FTC Act does not provide for civil penalties for unfair or deceptive acts and practices unless the defendant is already under an administrative order or has actual knowledge that the FTC has determined a specific practice to be UDAP in a prior litigated order.

The maximum civil penalty amounts for violations of the FTC Act’s sections on UDAP have increased as follows:  (1) Section 5(l) of the FTC Act, 15 U.S.C. 45(l) – violation of a cease & desist order – has increased from $42,530 to $43,280; (2) Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. 45(m)(1)(A) – violation of a Trade Regulation Rule or any rule or law that can be enforced as one (such as Regulation B or the Fair Debt Collection Practices Act) – has increased from $42,530 to $43,280; (3) Section 5(m)(1)(B) of the FTC Act, 15 U.S.C. 45(m)(1)(B) – violation of UDAP where the FTC had previously determined there to be an FTC Act violation during administrative litigation, if the FTC can show the defendant had actual notice of the violation – has increased from $42,530 to $43,280.  The maximum civil penalty amount for violations of Section 621(a)(2) of the FCRA, 15 U.S.C. 1681s(a)(2) – knowing violation of the FCRA – has increased from $3,993 to $4,063.

CFPB Forms Taskforce.  On January 9, the CFPB announced four members for its new Taskforce on Federal Consumer Financial Law.  The taskforce will examine the current legal and regulatory environment facing consumers and financial services providers and report to Director Kraninger its recommendations for ways to improve and strengthen consumer financial laws and regulations.

The taskforce will “produce new research and legal analysis of consumer financial laws in the United States, focusing specifically on harmonizing, modernizing, and updating the federal consumer financial laws – and their implementing regulations – and identifying gaps in knowledge that should be addressed through research, ways to improve consumer understanding of markets and products, and potential conflicts or inconsistencies in existing regulations and guidance.”

The taskforce members are: Dr. J. Howard Beales, III, former Professor of Strategic Management and Public Policy at the George Washington University and former Director of the Bureau of Consumer Protection at the Federal Trade Commission; Dr. Thomas Durkin, Senior Economist (Retired) at the Federal Reserve Board; L. Jean Noonan, Partner at Hudson Cook, LLP, former General Counsel at the Farm Credit Administration, and former Associate Director of the Bureau of Consumer Protection’s Credit Practice at the Federal Trade Commission; and Todd J. Zywicki, Professor of Law at George Mason University Antonin Scalia Law School, Senior Fellow of the Cato Institute, and former Executive Director of the GMU Law and Economics Center.

Taking Action Against Pesky Consumers Who Post Unfavorable Online Reviews?  Read This.  On January 7, the FTC announced a $120,000 settlement with Mortgage Solutions FCS, Inc., a mortgage broker, and its owner to resolve allegations that the company publicly disclosed its customers’ personal information in response to the customers’ critical online Yelp reviews of the company’s services.  The company allegedly responded to customers who posted negative reviews by disclosing their credit histories, debt-to-income ratios, taxes, health, sources of incomes, family relationships, and other personal information, as well as first and last names.

The FTC alleged that the company used consumer reports for an impermissible purpose in violation of the Fair Credit Reporting Act, failed to develop and implement an information security program and failed to test such a program in violation of the Safeguards Rule, provided customers with inaccurate privacy notices and engaged in impermissible disclosure of nonpublic personal information in violation of Regulation P, and committed unfair and deceptive acts or practices in violation of the FTC Act.

Case of the Month

Dealer Whose Lease Agreement Included Lease Acquisition Fee Along with Vehicle’s Agreed Upon Value Did Not Raise Lease Price of Vehicle or Fail to Include Lease Acquisition Fee in Advertised Price, in Violation of Ohio Law.  A vehicle lessee sued his lessor, alleging various causes of action related to the $595 lease acquisition fee he was charged in addition to the agreed upon value of $29,300 in the lease agreement. The trial court dismissed the lessee’s complaint, and the Court of Appeals of Ohio affirmed.

The Ohio Administrative Code provides that it is a deceptive or unfair practice for a dealer to raise or attempt to raise the actual purchase price of a vehicle to a specific consumer or to advertise any price for a vehicle unless the price includes all costs to the consumer except tax, title and registration fees, and a documentary service charge. The lessee claimed that the lessor raised the vehicle’s lease price by inserting the lease acquisition fee in its preprinted form lease agreement and/or failed to include the lease acquisition fee in the advertised price included in the lease agreement.

The appellate court found that the lease agreement included the advertised price, which consisted of the agreed upon value of $29,300 and the lease acquisition fee of $595. The appellate court noted that this case is not one in which “suspect fees were surreptitiously added to the payment that [the lessee] agreed to pay” or in which “[the lessee] claims … that he was orally advised of a price other than that set forth in the Lease Agreement that did not include the lease-acquisition fee or that he saw a television commercial that advertised the lease price for an amount that did not include this fee.”

See Hatfield v. Preston Chevrolet-Cadillac, Inc., 2019 Ohio App. LEXIS 4796 (Ohio App. November 18, 2019).

This Month’s CARLAWYER© Compliance Tip

The Hatfield case decision on acquisition fees came out in favor of the dealer.  That’s always good news, but the consumer’s challenge of the fees should send up a warning flag.  The question of whether a dealer may charge such a fee in a lease or retail installment sale transaction and, if so, how it must be disclosed, is one of the thorniest legal problems facing dealers.  It’s a question that involves both federal and state law, and one that involves several issues. What’s more, the treatment of these fees may differ depending on whether the deal is a lease or a retail installment sale.  If your dealership imposes such fees and has not had a recent thoroughgoing legal review of its practices, it’s lawyer time again.

So, there’s this month’s article. See you next month!


Nikki (nmunro@hudco.com) is a Partner in the law firm of Hudson Cook, LLP., Editor in Chief of CounselorLibrary.com’s CARLAW®, a contributing author to the F&I Legal Desk Book and a frequent writer for Spot Delivery,® a monthly legal newsletter for auto dealers  Tom (thudson@hudco.com) is Of Counsel to the firm, has written several books and is a frequent writer for Spot Delivery®.  He is the Senior Editor of CARLAW®.   For information, visit www.counselorlibrary.com. © CounselorLibrary.com 2020, all rights reserved. Single publication rights only, to the Association.

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The CARLAWYER© Jan2020

The CARLAWYER©

 

By Nicole F. Munro and Thomas B. Hudson 

 

Happy new year!  We hope that you had a great holiday, and that the upcoming year is good to you.  As is the case in most years during the holidays, the federal regulators were taking time off for shopping and family, so our docket isn’t crowded this month.  

 

Here’s our monthly article on selected legal developments we think might interest the auto sales, finance, and leasing world.  This month, the action involves the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Trade Commission, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the Department of Justice.   As usual, our article features the “Case of the Month” and our “Compliance Tip”.

 

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.

 

Federal Developments

 

The CFPB and the FTC have extended the deadline to submit comments on issues affecting the accuracy of traditional consumer credit reports as well as employment and tenant background screening reports. The new deadline is January 31, 2020. 

 

On December 18, the CFPB issued a report to Congress describing the Bureau’s and other agencies’ enforcement actions and required reimbursements to consumers by supervised institutions related to the Truth in Lending Act, the Electronic Fund Transfer Act, and the Credit Card Accountability Responsibility and Disclosure Act and their respective implementing regulations. The report also gives an assessment of the extent to which compliance with TILA and EFTA, and their implementing regulations, has been achieved. 

 

On December 9, the CFPB released a special edition of Supervisory Highlights focusing on its examinations of consumer reporting companies and furnishers of information to consumer reporting companies to determine compliance with the Fair Credit Reporting Act and Regulation V. Furnishers covered in the report include banks, mortgage servicers, auto financing servicers, student loan servicers, and debt collectors.

 

On December 3, the FRB, CFPB, FDIC, NCUA and the OCC issued an interagency statement on the use of alternative data in credit underwriting by banks, credit unions, and non-bank financial firms. The statement highlights potential benefits and risks of using alternative data in underwriting. For purposes of the statement, alternative data means information not typically found in consumers’ credit files with the nationwide consumer reporting agencies or customarily provided by consumers as part of credit applications. The statement explains that a well-designed compliance management program provides for a thorough analysis of relevant consumer protection laws and regulations to ensure firms understand the opportunities, risks, and compliance requirements before using alternative data.

 

On November 20, the CFPB published its Fall 2019 rulemaking agenda. The agenda lists regulatory matters the Bureau reasonably anticipates having under consideration from October 1, 2019, to September 30, 2020.

 

On October 30, the CFPB and the FRB announced that they are increasing the dollar thresholds in Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) for exempt consumer credit and lease transactions. The Dodd-Frank Act provides that the dollar amount thresholds for TILA and the CLA must be adjusted annually by any annual percentage increase in the consumer price index. Because there was an annual percentage increase in the consumer price index as of June 1, 2019, the protections of TILA and the CLA generally will apply to consumer auto finance and lease transactions of $58,300 or less in 2020.

 

Case of the Month

This month we feature a case that illustrates a problem we’ve described in earlier articles – dueling arbitration clauses.  

A car owner traded in his old car and leased a new one from a dealership. The car owner sued the dealership, alleging various state law claims arising from an undisclosed fee he was charged in connection with paying off the lien on the car he traded in. 

The dealership moved to compel arbitration under an arbitration provision in the parties’ lease agreement. The trial court granted the motion, but the Superior Court of New Jersey, Appellate Division, reversed, finding that the arbitration provision was vague and unenforceable. 

The dealership then moved to compel arbitration under an arbitration provision in the parties’ motor vehicle retail order. The trial court denied the motion, finding that the arbitration provisions in the lease agreement and the retail order conflicted with one another and were, therefore, unenforceable. The trial court added that the dealership waived its right to arbitration under the arbitration provision in the retail order because it did not rely on that provision when it filed its first motion to compel arbitration. 

The appellate court affirmed. First, the appellate court noted that it agreed with the trial court that the dealership waived its right to assert the retail order’s arbitration provision by failing to invoke that provision in its first motion to compel arbitration and by waiting over a year to assert that provision, a delay that prejudiced the car owner. 

The appellate court also agreed with the trial court that the conflicting terms in the two arbitration provisions, including terms addressing the ability to pursue claims in court, the venue of an arbitration proceeding, the scope of the claims covered, and whether the arbitrator or the court has the power to decide the validity and scope of waiver of class action rights, rendered each arbitration provision unenforceable. 

If the forms you ask your customers to sign include multiple arbitration agreements, time for another lawyer visit.

See Trout v. Winner Ford, 2019 N.J. Super. Unpub. LEXIS 2440 (N.J. Super. App. Div. December 3, 2019).

 

This Month’s CARLAWYER© Compliance Tip

 

Okay, it’s January.  What better time to blow your whistle and run a compliance drill.  Hold a meeting of your Compliance Officer, your Red Flags Officer and your Privacy Officer and go over your dealership’s compliance program for the upcoming year.  First, you’ll determine whether the people who were appointed to those positions are still employed by the dealership, then you can discuss continuing training for each officer’s area of specialty and the budget allocation for each officer’s area of responsibility (remember – no budget allocation for compliance usually means no compliance).  Finally, each officer can be tasked with the development of a 2020 compliance plan for his or her area of responsibility. Sound like a plan?

 

So, there’s this month’s article. See you next month!

________

 

Nikki (nmunro@hudco.com) is a Partner in the law firm of Hudson Cook, LLP., Editor in Chief of CounselorLibrary.com’s CARLAW®, a contributing author to the F&I Legal Desk Book and a frequent writer for Spot Delivery,® a monthly legal newsletter for auto dealers  Tom (thudson@hudco.com) is Of Counsel to the firm, has written several books and is a frequent writer for Spot Delivery®.  He is the Senior Editor of CARLAW®.   For information, visit www.counselorlibrary.com. © CounselorLibrary.com 2020, all rights reserved. Single publication rights only, to the Association. 

 

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The CARLAWYER© 7/19

By Nicole F. Munro and Thomas B. Hudson

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

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.

Federal Developments

FTC Hosts PrivacyCon. On June 27, the FTC hosted PrivacyCon, which focused on the latest research and trends in consumer privacy and data security. The event involved four sessions of presentations and discussions on research submitted for the event. The first focused on research related to privacy policies, disclosures, and permissions and featured presentations on research examining such topics as the European Union General Data Protection Regulation’s impact on web privacy. The second explored research on consumer preferences, expectations, and behaviors, including a presentation on historical data on consumers’ understanding and attitudes about digital privacy and online tracking. The third focused on tracking and online advertising research, including a presentation examining paid and free apps. The last session focused on research related to vulnerabilities, leaks, and breach notifications. A webcast of the event is available on the FTC’s website.

CFPB Holds First Symposium Addressing Dodd-Frank’s Prohibition on Abusive Acts and Practices. On June 25, the CFPB held its first symposium addressing the Dodd-Frank Act’s prohibition on abusive acts and practices. The Dodd-Frank Act authorizes the Bureau to take enforcement, supervision, and rulemaking actions concerning unfair, deceptive, or abusive acts and practices. The Bureau notes that the meaning of “abusive” is less developed than the meaning of “unfair” and “deceptive,” which have been well defined by the FTC Act. The symposium provided a public forum for the CFPB and the public to hear various perspectives on the meaning of abusiveness. This first symposium had two panels of UDAAP experts. The first panel included a discussion with leading consumer protection academic experts on various policy issues relating to the abusive standard under Dodd-Frank. The second panel examined how the abusive standard has been used in practice and included leading legal experts in the field. The symposium also included remarks by Bureau Director Kathleen L. Kraninger and Deputy Director Brian Johnson.

CFPB Delays Compliance Date for Mandatory Underwriting Provisions of Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule. On June 17, the CFPB issued a final rule to delay the August 19, 2019, compliance date for the mandatory underwriting provisions of the CFPB’s 2017 rule governing Payday, Vehicle Title, and Certain High-Cost Installment Loans. Compliance with these provisions of the rule is delayed by 15 months, to November 19, 2020. The CFPB also made certain conforming changes and corrections to address several clerical and non-substantive errors it identified in the rule.

FTC Settles with Provider of DMS Software and Data Processing Services to Dealers. On June 12, the FTC announced a settlement with LightYear Dealer Technologies, LLC, d/b/a DealerBuilt, for violating the Gramm-Leach-Bliley Act’s Safeguards Rule and the FTC Act’s prohibition against unfair practices for failing to maintain adequate data security practices that led to a security breach of millions of consumers’ personal information.

FTC Updates CFPB on 2018 Enforcement Activities Related to Regs. Z, M, and E. On June 6, the FTC provided its annual letter to the CFPB concerning its 2018 enforcement activities related to compliance with Regulation Z (Truth in Lending Act), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Fund Transfer Act). The letter highlights, among other things, enforcement actions, rulemaking, and policy development related to vehicle financing and leasing, payday lending, and consumer electronics financing, as well as consumer protection issues related to servicemembers. With regard to vehicle financing and leasing, the letter highlighted the FTC’s continued efforts to combat deceptive dealer practices, as well as its continued work on a qualitative study of consumers’ experiences in buying and financing vehicles at dealerships.

Case of the Month

Two buyers bought cars from a dealership and signed conditional sales contracts. The dealership agreed to find financing for the buyers. The contracts provided that if the dealership could not obtain financing, it could cancel the contracts and retake the cars, but it must then return the down payments.

After the dealership was unable to obtain financing, it repossessed the cars, refused to return the buyers’ down payments, and challenged the buyers to sue. The buyers complained to the California Department of Motor Vehicles, which investigated the dealership and interviewed its owner. The investigator told the owner that he must return the down payments, but the owner refused.

The DMV held a disciplinary hearing to consider revocation of the dealership’s license for its refusal to return the down payments. The administrative law judge proposed an order by which the dealership must return the down payments to the buyers and have a probationary license for two years. The DMV adopted the proposed order.

The dealership petitioned the California Superior Court for a writ of administrative mandate to void the DMV’s order. The court declined the petition.

The California Court of Appeal affirmed the trial court’s decision to deny the dealership’s petition. The appellate court found substantial evidence that the dealership violated Section 2982.5(d) of the California Civil Code when it refused to return the down payments.

The appellate court explained that because the dealership agreed to arrange financing, the transactions were either bona fide credit sales or seller-assisted loans. The dealership argued that Section 2982.5(d) applied to seller-assisted loans, not credit sales, and that the transactions at issue were credit sales. The appellate court explained that in a bona fide credit sale, the seller intends to sell property on credit if the buyer obtains financing but to rescind the transaction if the buyer does not obtain financing. However, the dealership intended to abide by the terms of the sale contracts only if the buyers obtained financing; otherwise, it intended to keep the down payments despite the contracts’ terms.

The appellate court inferred the dealership’s intent for purposes of determining whether the transactions were seller-assisted loans from the dealership owner’s behavior, including his 14 years of experience in auto finance, his knowledge that the buyers were unlikely to sue, and his pattern of preying on vulnerable consumers. Because the appellate court found that the dealership intended to keep the down payments even if it could not obtain financing for the buyers, the court decided that the transactions were seller-assisted loans, not bona fide credit sales, and Section 2982.5(d) required the dealership to return the down payments.

Much of the court’s opinion in this case deals with the peculiarities of California law, but the takeaway here for dealers in other states is clear – just look at the Compliance Tip below.

Front Line Motor Cars v. Webb, 2019 Cal. App. LEXIS 430 (Cal. App. May 13, 2019).

This Month’s CARLAWYER© Compliance Tip

Unwinding a deal?  Re-contracting?  Both involve matters of state and federal law, and both are fraught with risk if not done properly.  Dealerships should have written procedures addressing these actions and should have those procedures reviewed and periodically updated by knowledgeable dealership compliance counsel.

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


Nikki (nmunro@hudco.com) is a Partner in the law firm of Hudson Cook, LLP., Editor in Chief of CounselorLibrary.com’s CARLAW®, a contributing author to the F&I Legal Desk Book and a frequent writer for Spot Delivery,® a monthly legal newsletter for auto dealers  Tom (thudson@hudco.com) is Of Counsel to the firm, has written several books and is a frequent writer for Spot Delivery®.  He is the Senior Editor of CARLAW®.   For information, visit www.counselorlibrary.com. © CounselorLibrary.com 2019, all rights reserved. Single publication rights only, to the Association.

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