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NC DEALERS: NEW DMV INTERPRETATION OF THE INSPECTION LAW

DMV has recently taken a fresh look at the inspection law and how it applies to wholesale transactions. This is their current interpretation:

If a dealer buys a car from another licensed NC dealer, and that dealer has had the vehicle inspected within the past 12 months, the dealer buying it does not have to have it inspected. He or she should get a copy of the inspection receipt from the selling dealer. When that inspection is 12 months old, the buying dealer will have to have it inspected.

If the selling dealer had the vehicle inspected in a safety only county and the buying dealer is in an emissions county, the buying dealer will have to have the vehicle inspected again.

The CARLAWYER© May 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, the action involves the Bureau, the Office of the Comptroller of the Currency (OCC), the Federal Trade Commission (FTC), the U.S. Senate and the New York Office of the Attorney General. 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

If you offer a warranty with the cars you sell, pay close attention to the FTC warning on warranties described immediately below. If your warranty contains provisions like the ones the FTC objects to, it’s time to sit down with your lawyer for a rewrite.

Federal Developments

Warning to Warrantors. On April 10, the FTC announced that its staff sent warning letters to six major companies that market and sell cars, cellular devices, and video gaming systems in the United States. The letters reportedly warn that FTC staff has concerns about the companies’ statements requiring consumers to use specified parts or service providers to keep their warranties intact. Unless warrantors provide the parts or services for free or receive a waiver from the FTC, such statements are generally prohibited by the Magnuson-Moss Warranty Act. Similarly, those statements may be deceptive under the FTC Act. Here are some examples of provisions the FTC staff questioned: (1) The use of [company name] parts is required to keep your … manufacturer’s warranties and any extended warranties intact; (2) This warranty shall not apply if this product … is used with products not sold or licensed by [company name]; and (3) This warranty does not apply if this product … has had the warranty seal on the [product] altered, defaced, or removed. The FTC staff requested that each company review promotional and warranty materials to ensure the materials do not state or imply that warranty coverage is conditioned on the use of specific parts or services. In addition, the FTC staff requested each company to revise its practices to comply with the law. The letters state that FTC staff will review the companies’ websites after 30 days and that failure to correct any potential violations may result in law enforcement action. The press release about the action can be found at https://www.ftc.gov/news-events/press-releases/2018/04/ftc-staff-warns-companies-it-illegal-condition-warranty-coverage.

Senate Rejects “Guidance.” On April 18, the U.S. Senate passed a joint resolution using its powers under the Congressional Review Act to vacate the Bureau’s March 2013 guidance for indirect auto lenders on compliance with the Equal Credit Opportunity Act and Regulation B. The joint resolution passed with a 51-47 vote. In December 2017, the Government Accountability Office concluded that the CFPB’s guidance was, at the time of its issuance, a rule subject to the Congressional Review Act. The joint resolution now heads to the House for a vote, where it is expected to pass. The president is also expected to sign the joint resolution.

Did You Say a Billion Dollar Fine? On April 20, the Bureau announced a settlement with Wells Fargo, N.A. in a coordinated action with the OCC. The Bureau alleged that Wells Fargo’s policies and practices regarding force-placed collateral protection insurance on vehicles that are collateral for loans (probably retail installment contracts) it originated or acquired were unfair under the Consumer Financial Protection Act (CFPA). In addition, the Bureau alleged that certain fees Wells Fargo charged mortgage loan borrowers for extensions on interest rate locks were unfair under the CFPA. Specifically, Wells Fargo allegedly force-placed collateral protection insurance on consumers’ vehicles that were already covered by insurance policies voluntarily obtained by the consumers. In instances where the company appropriately force-placed insurance on consumers’ vehicles, the company improperly maintained the force-placed insurance policies on the consumers’ accounts even after the consumers had obtained adequate insurance on their vehicles and provided proof of insurance. Wells Fargo also allegedly failed to provide sufficient refunds of fees associated with the improper forced-placement of collateral protection insurance. The consent order requires the company to undertake certain activities related to its risk and compliance management, and the company has begun voluntarily providing remediation to consumers to address deficiencies cited in the consent order. The Bureau assessed a $1 billion penalty against Wells Fargo and credited the $500 million penalty collected by the OCC toward the satisfaction of its fine. Information about the action can be found at https://www.consumerfinance.gov/policy-compliance/enforcement/actions/wells-fargo-bank-na-2018/.
So, there’s this month’s report. See you next month!

Case of the Month

Dealership’s Fraudulent Misrepresentations Regarding Condition of Used Vehicle Invalidated Implied Warranty Disclaimer: During a test drive of a truck with a salvage title, the potential buyer noticed that the check-engine light was on and the truck smoked. The salesperson explained that the truck smoked because it was a diesel and that the check-engine light was due to a faulty oxygen sensor that would be easy to fix.

The buyer bought the truck “as is” and received a third-party vehicle protection plan at no cost. Within days of purchase, the truck lacked power and continued to smoke. The dealership refused to diagnose or repair the truck. The buyer had the truck inspected and was advised that the engine needed replacing.

The buyer sued the dealership, alleging fraud and breach of the implied warranty of merchantability and seeking attorneys’ fees under the Magnuson-Moss Warranty Act. The trial court granted judgment for the buyer, awarding her $14,366 in damages based on the price she paid for the truck and the cost of the inspection, plus attorneys’ fees and costs. The dealership appealed.

The appellate court affirmed, as did the Supreme Court of Minnesota in this decision. The dealership argued that the “as is” disclaimer barred the buyer’s claim. The state high court disagreed, finding that, under Minnesota law, a warranty disclaimer is effective “unless the circumstances indicate otherwise.” The high court concluded “that [the dealership’s] fraudulent statements about the fitness of the truck for the purpose for which a truck is purchased are a circumstance that make the ‘as is’ disclaimers of implied warranties in the purchase documents ineffective.” See Sorchaga v. Ride Auto, LLC, 2018 Minn. LEXIS 111 (Minn. March 21, 2018).

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


Tom (thudson) is Of Counsel and Nikki (nmunro) 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. (5/18). HC/4822-8265-6869v1.

The CARLAWYER©02/18

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 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

Advertising and selling cars online has become commonplace. It is also common that sometimes the buyers and dealers in these online transactions are located in different states. What is less common is that a dealer, before undertaking these sales, has had the advertising and sales process reviewed by counsel. The “Case of the Month,” below, involves a Tennessee dealer who was sued in Alabama, after an Alabama buyer bought a car from the Tennessee seller. The dealer had the Alabama lawsuit dismissed, but gave the buyers permission to transfer the case to the appropriate jurisdiction. The case illustrates the perils of online transactions. Have you had your online advertising and sales processes reviewed by counsel?

Federal Developments

Struggle for Control of the CFPB. On January 10, 2018, the U.S. District Court for the District of Columbia denied CFPB Deputy Director Leandra English’s request for a preliminary injunction to block President Trump’s appointment of Mick Mulvaney as acting CFPB director. The court ruled that English is not likely to succeed on the merits of her claim that, by operation of the Dodd-Frank Act, she is the rightful acting CFPB director. English was also unable to show that a denial of the injunction would cause her or the agency to suffer irreparable harm.

As background: On November 24, 2017, Richard Cordray appointed English, his chief of staff, as deputy director and then resigned. Pursuant to a section of the Dodd-Frank Act that says the deputy director serves as the acting director when the director is unavailable, English claimed the title of acting director upon Cordray’s resignation. A few hours later, President Trump – using his authority under the Federal Vacancies Act to fill vacant positions that require Senate confirmation with another appointee who has already been confirmed by the Senate for another position – appointed Mulvaney, the director of the Office of Management and Budget, as the CFPB’s acting director until a permanent director is confirmed by the Senate, setting up a conflict with Cordray’s appointee.

English sued Mulvaney and the president, asking the court to restrain Mulvaney from heading the CFPB until a permanent director can be nominated and confirmed. In late November, the judge denied English’s initial request for a temporary restraining order.

Kiss the Payday Rule Goodbye? On January 16, 2018, the CFPB issued the following statement on its Payday, Vehicle Title, and Certain High-Cost Installment Loans final rule (“Payday Rule”): “January 16, 2018, is the effective date of the [Payday Rule]. The Bureau intends to engage in a rulemaking process so that the Bureau may reconsider the Payday Rule. Although most provisions of the Payday Rule do not require compliance until August 19, 2019, the effective date marks codification of the Payday Rule in the Code of Federal Regulations. [The] effective date also establishes April 16, 2018, as the deadline to submit an application for preliminary approval to become a registered information system (“RIS”) under the Payday Rule. However, the Bureau may waive this deadline pursuant to 12 C.F.R. 1041.11(c)(3)(iii). Recognizing that this preliminary application deadline might cause some entities to engage in work in preparing an application to become a RIS, the Bureau will entertain waiver requests from any potential applicant.”

A New Boss, With New Marching Orders. On January 23, 2018, the CFPB’s Acting Director Mulvaney wrote a memo to staff discussing how, under new leadership, the CFPB is shifting its governing philosophy in regard to carrying out its mandate under the Dodd-Frank Act. While Mulvaney affirmed the need to protect consumers and stated that the CFPB will enforce consumer financial protection laws vigorously, he noted that the CFPB will no longer “push the envelope” of the law in order to “send a message” to regulated entities. Mulvaney rejected his predecessor’s “good guy” versus “bad guy” language and promised to execute the CFPB’s mandate “with humility and prudence.”

Mulvaney indicated that the CFPB will be conducting a review of all activities in which it is engaged. More specifically, Mulvaney stated that the CFPB will be: (1) bringing enforcement actions where “quantifiable and unavoidable harm to the consumer” exists; (2) focusing on formal rulemaking instead of “regulation by enforcement;” and (3) prioritizing areas of focus based on consumer complaints (noting, specifically, that nearly a third of CY 2016 complaints related to debt collection, compared to 0.9% for prepaid cards and 2% for payday lending).

Finally, Mulvaney stated that the CFPB will engage in quantitative analysis to “consider the potential costs and benefits to consumers and covered persons” when determining whether to intervene in given situations.

Information, Please. On January 24, 2018, the CFPB issued a “Request for Information,” seeking feedback on all aspects of the CFPB’s civil investigative demand process to determine if any changes are necessary. The CFPB issues CIDs to entities and persons whom the CFPB has reason to believe have information relevant to a violation of the laws the CFPB enforces.

Recipients of a CID are required to produce the requested information to the Bureau, which uses that information to further its investigations of potential violations of federal consumer financial laws. Through the RFI, the CFPB is seeking information on how processes related to CIDs may be updated, streamlined, or revised to better achieve the CFPB’s statutory and regulatory objectives, while minimizing burdens on recipients, and how to align the CFPB’s CID processes with those of other agencies.

The CFPB believes that entities that have received one or more CID, lawyers who represent these entities, and members of the public are likely to have useful information and perspectives that will help inform the CFPB’s review of its CID processes. Comments are due by March 27, 2018.

The RFI on CIDs comes on the heels of the CFPB’s January 17, 2018, announcement that it is issuing a call for evidence to ensure the CFPB is fulfilling its proper and appropriate functions to best protect consumers. The CFPB will be publishing in the Federal Register a series of similar RFIs, seeking comment on enforcement, supervision, rulemaking, market monitoring, and education activities. These RFIs will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.

Case of the Month

This month’s case involves a dealer’s Internet advertising and sales activities. Here’s what happened.

Ashley and Derek Hand sued Wholesale Auto Shop, LLC, a Tennessee corporation with its principal place of business in Tennessee, for selling them a Jeep Wrangler with an odometer reading of 66,692 but with actual mileage of 252,603 miles. The Hands claimed that Wholesale Auto violated, among other laws, the Motor Vehicle Information and Cost Savings Act and the Alabama Deceptive Trade Practices Act.

After Wholesale Auto failed to answer the complaint, the Hands moved for a default judgment. The federal trial court asked the Hands to submit a supplemental brief addressing the issue of whether the court had personal jurisdiction over Wholesale Auto. After the Hands submitted the brief, the court denied the Hands’ motion for lack of personal jurisdiction, but granted them leave to move to transfer the case to an appropriate jurisdiction.

Alabama’s long-arm statute permits the exercise of personal jurisdiction if constitutionally permissible, and the U.S. Constitution requires a defendant to have sufficient minimum contacts with the forum state in order to satisfy due process. The court found that Wholesale Auto lacked sufficient minimum contacts with the state of Alabama. The Hands viewed Wholesale Auto’s advertisement for the Jeep on autotrader.com, the parties communicated by phone between Alabama and Tennessee after the Hands contacted Wholesale Auto about the Jeep, and the Hands traveled to Tennessee to buy the vehicle.

The court concluded that the fact that Wholesale Auto called the Hands twice in Alabama and allegedly made fraudulent statements during those calls was insufficient to establish personal jurisdiction over Wholesale Auto because the Hands initiated the contact, consummated the transaction in Tennessee, and were only injured in Alabama by bringing the car to that state.

Hand v. Wholesale Auto Shop, LLC, 2018 U.S. Dist. LEXIS 2138 (N.D. Ala. January 5, 2018)

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


Tom (thudson) is Of Counsel and Nikki (nmunro) 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. (2/18). HC/4816-3298-5692v1.

NC LATE FEES

Just a reminder, the NC General Assembly passed a law last year changing the maximum late fee in NC to $15.00. The text of the new law follows. Unfortunately, any Retail Installment Sales contracts that you have used in the past that still state the maximum late fee is “$6.00 or 5% of the past due payment, whichever is less” must be honored, so you cannot charge those customers more than the contractual late fee. Make sure your software has been updated to show the new maximum late fee of $15.00, and if you buy contracts it is time to buy the updated version!

AN ACT TO MODERNIZE NORTH CAROLINA’S CONSUMER CREDIT INSTALLMENT SALE CONTRACT DEFAULT CHARGE IN ORDER TO LEVEL THE PLAYING FIELD WITH OUT‑OF‑STATE BUSINESSES.

The General Assembly of North Carolina enacts:

SECTION 1. G.S. 25A‑29 reads as rewritten:
“§ 25A‑29. Default charges.
(a) If any installment is past due for 10 days or more according to the original terms of the consumer credit installment sale contract, a default charge may be made in an amount not to exceed five percent (5%) of the installment past due or six dollars ($6.00), whichever is the lesser. of fifteen dollars ($15.00). A default charge may be imposed only one time for each default.
(b) If a default charge is deducted from a payment made on the contract and such the deduction results in a subsequent default on a subsequent payment, no default charge may be imposed for such the default.
(c) If a default charge has been once imposed with respect to a particular default in payment, no default charge shall be imposed with respect to any future payments which would not have been in default except for the previous default.
(d) A default charge for any particular default shall be deemed to have been waived by the seller unless, within 45 days following the default, (i) the charge is collected or (ii) written notice of the charge is sent to the buyer.”

SECTION 2. This act is effective when it becomes law and applies to charges imposed on or after that date.
In the General Assembly read three times and ratified this the 12th day of June, 2017.

s/ Philip E. Berger
President Pro Tempore of the Senate

s/ Tim Moore
Speaker of the House of Representatives

This bill having been presented to the Governor for signature on the 13th day of June, 2017 and the Governor having failed to approve it within the time prescribed by law, the same is hereby declared to have become a law. This 26th day of June, 2017.

s/ Karen Jenkins
Enrolling Clerk