The CARLAWYER©

By Nicole F. Munro and Thomas B. Hudson

After last month’s next-to-nothing report, things in and around the nation’s capital perked up a bit 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 Trade Commission, the Consumer Financial Protection Bureau, the National Highway Traffic Safety Administration 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

CFPB Releases Report on Trends in Consumer Bankruptcy. On September 25, the CFPB released its quarterly consumer credit trends report on consumer bankruptcy. The report describes how the volume and types of consumer bankruptcy filings have changed from 2001 to 2018 and the impact of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, and the 2007 recession.

CFPB and FTC to Host Workshop on Accuracy in Consumer Reporting. The CFPB and the FTC will host a public workshop on December 10 to discuss issues affecting the accuracy of both traditional consumer credit reports and employment and tenant background screening reports.

CFPB to Continue Publication of Consumer Complaint Database and Make Enhancements. On September 18, the CFPB announced that it will continue the publication of consumer complaints, data fields, and consumers’ narrative descriptions of their complaints through its Consumer Complaint Database, while also making several enhancements to the database.

FTC Comments on CFPB’s Proposed Debt Collection Rules. On September 18, the FTC submitted comments on the CFPB’s proposed debt collection rules. The FTC’s comments address the agency’s legal authority in the debt collection marketplace, describe its law enforcement, policy, and education efforts to protect consumers from unlawful debt collection practices, and address several topics covered by the proposed rule, including improvements to required validation notices; restrictions related to time-barred debts; passive debt collection; prohibitions on the sale, transfer, or placement of certain debts; collection of debts involving people who are deceased; restrictions on the times and places at which debt collectors may communicate with consumers; restrictions on the types of mediums (e.g., phone number, email, text messaging) through which debt collectors may communicate with consumers; restrictions on the disclosure of information about debts to third parties; and telephone call frequency limits. Required reading for buy-here, pay-here dealers.

NHTSA Establishes Standards for Electronic Odometer Disclosures. On September 17, NHTSA issued a final rule establishing standards under which states may allow electronic disclosures of vehicle odometer readings. Among other changes, the final rule will also require odometer disclosures until vehicles are 20 years old, beginning with the 2010 model year. Previously, sellers of vehicles 10 model years old or older at the time of sale were exempt from the odometer disclosure requirement.

CFPB Releases Latest Supervisory Highlights. On September 13, the CFPB released its Supervisory Highlights, covering examinations (generally completed between December 2018 and March 2019) of activities related to the sale of guaranteed asset protection products, credit card origination and account servicing, consumer debt collection, furnishing of consumer information to consumer reporting agencies, and mortgage origination. Among other findings, examiners found one or more instances of creditors selling guaranteed asset protection products to consumers who would not benefit from the products because the loan-to-value ratio associated with the consumers’ vehicle financings was low. Examiners also found that one or more debt collectors sought interest not authorized by the underlying contracts between the debt collectors and the creditors. In addition, examiners found deficiencies in furnisher compliance with the Fair Credit Reporting Act, including failing to timely complete dispute investigations, failing to provide results of dispute investigations to consumer reporting agencies, failing to timely correct and update previously furnished information, failing to provide timely notice to consumer reporting agencies that information is disputed by a consumer, and failing to implement reasonable written policies and procedures regarding the accuracy and integrity of account information furnished to consumer reporting agencies.

CFPB Settles with Debt Collector. On August 28, the CFPB announced a settlement with Asset Recovery Associates, Inc., a debt collection company. The settlement resolves allegations that ARA violated the Fair Debt Collection Practices Act and the Consumer Financial Protection Act of 2010 by threatening to sue or arrest consumers even though it did not intend to take such action, falsely representing to consumers that company employees were attorneys, threatening to garnish consumers’ wages or place liens on their homes even though it did not intend to do so, and representing that consumers’ credit reports would be negatively affected if they did not pay, even though ARA does not report consumer debts to credit reporting agencies. Under the settlement terms, ARA will pay at least $36,800 in restitution to affected consumers and a $200,000 civil money penalty to the Bureau. The consent order also prohibits ARA from continuing to engage in this conduct and requires ARA to record calls with consumers to help ensure collectors do not make false statements in the future.

FTC Settles with School Operator over Use of Lead Generators. On August 27, the FTC announced a settlement with the operator of several post-secondary and vocational schools for using lead generators that employed false and deceptive tactics. The FTC alleged that the lead generators falsely represented to consumers that the schools were affiliated with or recommended by the military, used deceptive tactics to induce consumers to submit their personal information, falsely told consumers their information would not be shared, and called consumers registered on the National Do Not Call Registry, in violation of the Telemarketing Sales Rule. In addition to prohibiting misrepresentations about the defendant’s products or services, the settlement requires the operator to pay $30 million in consumer redress, review all materials that lead generators use to market its schools, investigate complaints about lead generators, and not use or purchase leads obtained deceptively or in violation of the TSR.

Case of the Month

Usually our Case of the Month involves a reported opinion in a civil lawsuit by or against a dealer. Sometimes, though, we report on enforcement actions by federal or state authorities. This month, it’s one of the latter, and the enforcement action is by a federal regulator we don’t often see in the car sale and financing arena.

This time, the Fair Housing Testing Program conducted by the Department of Justice led to a lawsuit against a Maryland independent dealer. The suit alleged that defendant Guaranteed Auto Sales along with its owner and manager, defendants Kelly Ann West and Robert Chesgreen, respectively, violated the federal Equal Credit Opportunity Act by offering different credit terms based on race to those seeking to buy and finance used vehicles in Glen Burnie, Md.

DoJ said the suit is based on the results of testing the department’s Fair Housing Testing Program, in which individuals pose as prospective car buyers to gather information about possible discriminatory practices.

The complaint, filed in federal court in Maryland, alleges that the defendants engaged in a pattern or practice of discrimination by offering less favorable auto-finance terms to African American testers than white testers. Most significantly, officials said the complaint alleges that employees of Guaranteed Auto Sales told African American testers that they needed larger down payments than white testers for the same used cars, and told African American testers that they were required to fund their down payments in one lump sum, while they gave white testers an option of paying in two installments.

“Using race as a factor in determining credit terms, including the amount of down payment that a customer must pay, is despicable and illegal,” said Assistant Attorney General Eric Dreiband for the Civil Rights Division.

Keep in mind that these charges by the DoJ are just that – charges – and that the allegations still must be proven.

A couple of points: We’ve heard of regulators employing mystery shoppers to make discrimination cases, but so far had seen little evidence of the practice. If, however, anything remotely like these activities is going on at your dealership, you need to consider whether that next “up” might well be a DoJ staffer (or, maybe worse, an Action News reporter with a hidden camera and mic).

This Month’s CARLAWYER©Compliance Tip

Every time your dealership sells a vehicle using a retail installment contract, it is entering into a transaction governed by the Uniform Commercial Code. Parts of the UCC apply to sales (Article 2 of the UCC) and secured transactions (Article 9). These UCC provisions apply even when they are not expressly set forth in the agreement between your dealership and your vehicle buyer. Most UCC provisions can be varied by agreement between the parties, but others cannot. Do you know the basics of how the UCC affects your transactions and the rights of your dealership and your buyers? A brief outline memo to your Compliance Officer from your lawyer explaining the UCC’s role in car sales and financing would be money well spent. We don’t recommend do-it-yourself legal work, but if you are allergic to spending money on legal fees, check with Mr. Google – there are several “The UCC for Dummies”-type books available.

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


Nikki (nmunro) is a Partner in the law firm of Hudson Cook, LLP., Editor in Chief of thudson) 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.

HC/4849-9195-1784.1

ATTENTION SC DEALERS

SC DMV now has the Titling Class for Auto Dealers available online. This class is required in order to apply for your EVR account. You will have to have an EVR account in order to issue the new traceable temp tags. The new temp tag system goes into effect May 15. You have the option of issuing the current paper temp tags until November 10, but make sure you sign up well in advance of November 10 since it may take you several weeks to get an account. The vendor we recommend is CVR.
This link will take you to the online class:
http://scdmvonline.com/Business-Customers/Dealers/Titling-Class-for-Auto-Dealers

Kat Messenger
Carolina Dealer Training

This email message and any attachments contain information which may be privileged and confidential. If you are not the intended recipient or have received this transmission in error, please notify the sender immediately and destroy all electronic and hard copies of the communication, including attachments. Any disclosure, copying, distribution or use of this information is strictly prohibited. Please consider the environment before printing this e-mail.

The CARLAWYER©

By Thomas B. Hudson and Nicole F. Munro

Happy New Year! Here’s our monthly article on legal developments in the auto sales, finance and leasing world. This month, the action involves the Consumer Financial Protection Bureau 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

Do you belong to a state dealer association? Does that dealer association have a code of conduct or code of ethics, and do you proudly display a copy of it on your dealership’s wall, out in the showroom where your customers can see it? If so, you might want to step over to the wall and read it. That statement of how your dealership does business can come back to haunt you if you are only “talking the talk,” but not “walking the walk.” Take a hard look at it and contemplate on how well your dealership is keeping its promises.

Federal Developments

A New Sheriff is in Town. On December 6, the U.S. Senate, in a 50-49 party-line vote, confirmed Kathy Kraninger as the director of the Consumer Financial Protection Bureau, replacing acting director Mick Mulvaney. Kraninger previously worked as an associate director in the Office of Management and Budget. She will serve for a 5-year term.

What’s in a Name? Mick Mulvaney, who served as acting CFPB Director before Kraninger’s nomination and confirmation, had decreed a name change for the Consumer Financial Protection Bureau – he preferred the “Bureau of Consumer Financial Protection,” the name used in the Dodd-Frank Act. One of Kraninger’s first acts at the Bureau was to drop the name change initiative, so we’re back to calling the Bureau the CFPB again.

Were You Thinking the CFPB Had Quit Enforcing the Credit Laws? Think again. On December 6, the CFPB announced a settlement with State Farm Bank, FSB, for violating the Fair Credit Reporting Act, Regulation V, and the Consumer Financial Protection Act of 2010 in connection with its credit card lending and auto refinance loans. Specifically, the CFPB alleged that State Farm obtained consumer reports without a permissible purpose, including obtaining consumer reports for the wrong consumer, not the consumer who had applied for a credit product; furnished to credit reporting agencies information about consumers’ credit that the bank knew or had reasonable cause to believe was inaccurate, including furnishing account information for the wrong consumer, reporting current accounts as delinquent, and reporting inaccurate payment histories and past-due amounts; failed to promptly update and correct information furnished to CRAs; furnished information to CRAs without providing notice that the information was disputed by the consumer; and failed to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information provided to CRAs. The consent order requires State Farm to implement and maintain policies and procedures to address the alleged violations and to develop a compliance plan designed to ensure that its consumer credit reporting activities comply with federal law.

Wave That Red Flag! On December 4, the FTC, as part of its periodic review of current rules and guides, issued a request for comment on its Red Flags Rule, which requires financial institutions and some creditors to implement a written identity theft prevention program designed to detect the “red flags” of identity theft in their day-to-day operations, take steps to prevent identity theft, and mitigate its damage. Comments are due by February 11, 2019.

Report Card Time. On December 4, the CFPB issued its annual Fair Lending Report to Congress highlighting the CFPB’s fair lending activities in 2017. The report addresses, among other things, (1) the CFPB’s oversight and enforcement of federal laws intended to ensure the fair, equitable, and nondiscriminatory access to credit, including the Equal Credit Opportunity Act and the Home Mortgage Disclosure Act; (2) the CFPB’s coordination with other federal and state agencies to promote enforcement of federal fair lending laws; and (3) the CFPB’s fair lending education initiatives.

Case of the Month

Arbitration Agreement in Retail Installment Contract Covered Car Purchasers’ Defamation Claim Against Dealership Arising from Salesman’s Statements: After a dealership repossessed a car by mistake, the car owners sued the dealership for claims arising from the repossession and included a defamation claim based on the conduct of a dealership salesman. The car owners alleged that the salesman, who lived in the same condominium complex as the owners and many of their business customers, told other members of the condominium community that the vehicle was repossessed because the owners were in financial difficulty. The owners asserted that the dealership was vicariously liable for damages caused by the salesman’s defamatory statements. The RIC contained an arbitration clause that covered, among other things, any claim or dispute in tort that “arises out of or relates to” the credit application, purchase, or condition of the vehicle. The dealership moved to compel arbitration. The trial court ruled that the defamation claim was not covered by the arbitration clause, but the state appellate court reversed and remanded for entry of an order compelling arbitration of the defamation claim. The appellate court noted that the arbitration language expressly contemplated tort actions. The appellate court also determined that the addition of the words “relates to” broadened the scope of the arbitration provision to include all claims, including tort claims, having a “significant relationship” to the contract. The appellate court found that there was a significant relationship between the owners’ tort claim and the contract. The owners alleged that the defamation was based on statements allegedly made by the salesman within the scope of his employment. The appellate court found that those statements related to the owners’ purchase of the vehicle and their ability to afford it, which in turn related to the credit application and the RIC that controlled the purchase. See Countyline Auto Center, Inc. v. Kulinsky, 2018 Fla. App. LEXIS 16684 (Fla. App. November 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 2019, all rights reserved. Single publication rights only, to the Association. (1/19). HC 4815-6560-3460.

Kat Messenger
Carolina Dealer Training

This email message and any attachments contain information which may be privileged and confidential. If you are not the intended recipient or have received this transmission in error, please notify the sender immediately and destroy all electronic and hard copies of the communication, including attachments. Any disclosure, copying, distribution or use of this information is strictly prohibited. Please consider the environment before printing this e-mail.

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.