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.

The CARLAWYER© By Thomas B. Hudson and Nicole Frush Munro

It’s nearly the dog days of summer, but 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

Does your compliance officer (don’t tell us you don’t have one) regularly visit the web sites of the CFPB, the FTC, your state’s Attorney General and your state’s motor vehicle and consumer protection agencies to see what they are up to? That’s a good (and inexpensive) way to head off legal problems before they get started. If that’s not on the schedule, it should be. Better yet, get alerts sent to your compliance officer. You don’t have to “”like” the CFPB or the FTC to follow them on Facebook, twitter, or to subscribe to receive alerts.

Federal Developments

CFPB Targets Payday Lenders, May Hit Dealers and Finance Companies. The CFPB proposed a rule aimed at payday lending. The rule would require lenders to take steps to make sure consumers have the ability to repay their loans, and would cut off repeated debit attempts that rack up fees. These proposed rules would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-end loans. The CFPB’s definition of covered loans is broad enough to encompass some typical auto finance activities, so dealers and finance companies should seriously consider participating in the comment process.

CFPB Announces Auto Financing Aids. On June 9, the CFPB released an “auto loan shopping sheet,” a step-by-step guide, and additional online resources as part of a new “Know Before You Owe” initiative to help consumers shop for auto financing. The Bureau claims that the shopping sheet helps consumers see the total cost of auto financing and make apples-to-apples comparisons among financing products. The “Know Before You Owe” initiative walks consumers through each step of the auto finance process to help them decide how much they can afford to borrow and what options are right for them. The CFPB says its shopping sheet allows consumers to understand the total cost of financing (not just the monthly payment), comparison shop, and watch out for financing features and add-ons that could lead to costly surprises down the road. The Know Before You Owe auto financing initiative can be found at: , and the shopping sheet can be found at:

CFPB Eyes Car Financing. On June 27, the CFPB released a report entitled “Consumer Voices on Automobile Financing,” which examines how consumers navigate the process of financing a vehicle. The report is based on findings from consumer focus group research conducted by the Bureau and consumer complaint data submitted to the Bureau. The Bureau reportedly found that while many consumers extensively research the types of vehicles they want to buy, most do not take as much time to research available financing options. Also, the Bureau’s analysis of the complaint data shows consumers sometimes had difficulty understanding financing features during loan negotiations. (The Bureau insists on erroneously referring to all auto financing transactions as “loans.”) According to the Bureau, the complaint data also highlighted consumer problems with the sales process for extended warranties and other add-ons, and few consumers reported focusing on the total cost of financing when they negotiated their financing contracts.

More CFPB Complaint Data. On June 28, the CFPBreleased its monthly complaint report, which highlights trends in the complaint data the Bureau receives through its Consumer Complaint Database. The monthly 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 June report focuses on complaints related to vehicle financing and leases, installment loans, title loans, and pawn loans, and highlights complaints from consumers residing in Arkansas.

The FTC Ups the Ante. The FTC announced on June 29 that it has approved final amendments to its rules that adjust the maximum civil penalty dollar amounts for violations of specific laws the FTC enforces, as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The Act directs agencies to implement a “catch-up” inflation adjustment based on a prescribed formula. The maximum civil penalty amount, effective August 1, has increased from $16,000 to $40,000 for a number of violations.

Case of the Month

Security Interest Perfected More than 30 Days after Debtor Took Possession of Car and within 90 Days of Debtor’s Bankruptcy Filing Avoided as Preferential Transfer: An individual and his company bought a car on December 29, 2014. The individual applied for a certificate of title on January 30, and the title, listing the lienholder, was issued on February 17. The individual and his wife filed a Chapter 7 bankruptcy petition on April 16, and the Chapter 7 trustee filed an adversary proceeding seeking to avoid the lien as a preferential transfer. The federal bankruptcy court granted judgment for the trustee. The court noted that the only element at issue in the case was whether the transfer of a security interest in the car was for or on account of an antecedent debt owed by the individual before the transfer was made. Section 547(e)(2)(A) of the Bankruptcy Code provides that if a transfer is perfected more than 30 days after the transfer takes effect between the transferor and the transferee, the transfer is deemed made at the time the transfer is perfected. The court found that the transfer was not perfected within 30 days of the date the individual signed the retail installment contract and took possession of the car and, therefore, the transfer of the security interest was on account of an antecedent debt. Finally, the court rejected the lienholder’s argument that the “new value” defense applied. That defense provides an exception to the finding of a preferential transfer for a transfer that creates a security interest in property acquired by the debtor for new value if the security interest is perfected on or before 30 days after the debtor receives possession of the property. Because the security interest was perfected, at the earliest, 32 days after the individual took possession of the car, the court found that the defense did not apply. You can bet that the bank that bought the finance contract at issue in this case will be demanding that the dealer make good on the bank’s losses. See In re Resler (Reynard v. Bank of America, N.A.), 2016 Bankr. LEXIS 2187 (Bankr. D. Idaho June 3, 2016).

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


Tom (thudson) and Nikki (nmunro) 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. (7/16). HC# 4823-2513-7204.

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.

South Carolina Revises Motor Vehicle Closing Fee Statute

South Carolina Revises Motor Vehicle Closing Fee Statute and Imposes July 3, 2016 Re-Filing Deadline for Dealers

On June 2, 2016, the South Carolina legislature ratified HB 4548, which amends the South Carolina Consumer Protection Code’s motor vehicle closing fee statute. The new statute gives the South Carolina Department of Consumer Affairs (the “Department”) express authority to determine whether a motor vehicle dealer’s closing fee is reasonable. Fees of $225 or less are automatically deemed reasonable. Fees above $225 must be submitted to the Department for evaluation under the criteria set forth in the statute. Note that dealers are still required to provide written notice to the Department annually of the maximum closing fee the dealer intends to charge, include the closing fee in the advertised price of the vehicle, and display the closing fee in a conspicuous location in the dealership.

The new requirements became effective June 3, 2016. However, dealers that have already made their annual closing fee filing with the Department have until July 3, 2016, to refile their maximum closing fee in accordance with the new statute. On June 6, 2016, the Department released a memo stating that it is in the process of revising its closing fee forms. The revised forms will be available on the Department’s website by this Friday, June 10.

2016 SC HB 4548

SC Department of Consumer Affairs Memorandum

 

Thomas B. Hudson, Esq.
Editor in Chief, CARLAW
CounselorLibrary.com LLC
Direct Dial: 410-865-5411
Toll Free: 877-464-8326 ext.5411
Fax: 410-684-2001
E-Mail: thudson@hudco.com

Who’s behind your compliance?

May 2016 – The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

Nikki’s Orioles and Tom’s Nationals are looking pretty strong this year.  An I-95 World Series, maybe?  Unfortunately, we aren’t at a game.  We’ve traded in our cracker jacks, peanuts, and a 7thinning stretch for article writing on compliance issues.  Here, we’ll again pass 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 recaps of some of the auto sale and financing lawsuits we follow each 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

We picked up a lot of online chatter this month about dealers who prepare and have the buyer sign two retail installment sales contracts for a deal so that if the finance companies reject the first one, the dealer can have a substitute ready to re-submit without going through that pesky re-contracting process.  That practice is bad for so many reasons that we won’t try to elaborate.  If your dealership does this, stop immediately until you have vetted your practices with a knowledgeable attorney.

Federal Developments

FTC Targets VW Ads.  On March 29, the FTC charged that Volkswagen Group of America, Inc. deceived consumers with an advertising campaign promoting its supposedly “clean diesel” VWs and Audis, which, the FTC has alleged, Volkswagen fitted with illegal emission defeat devices designed to mask high emissions during government emission tests. The FTC is seeking a court order requiring VGA to compensate consumers who bought or leased affected VWs between late 2008 and late 2015, and an injunction to prevent the company engaging in such acts again.

And Not Just VW’s Ads.  On April 18, the FTC issued an enforcement policy statement on deceptively formatted advertisements, including advertising and promotional messages integrated into and presented as non-commercial content.  The statement lists principles of general applicability on which the FTC will rely in determining whether an ad format is deceptive, in violation of Section 5 of the FTC Act.  The statement summarizes the principles underlying the FTC’s enforcement actions, advisory opinions, and other guidance addressing various forms of deceptively formatted ads.  The FTC will find an ad deceptive if it misleads reasonable consumers as to its nature or source, and such misleading impression is likely to affect consumers’ decisions or conduct regarding the advertised product or the ad.   Hint – check out your website!

As We Bid a Fond Farewell to Arbitration . . . The CFPB held a field hearing on arbitration in Albuquerque, New Mexico on May 5.  The hearing featured remarks from CFPB Director Richard Cordray, and testimony from consumer groups, industry representatives, and members of the public. As expected, the CFPB used the hearing to launch a proposed rule banning class waivers in contracts for consumer financial services that contain mandatory, pre-dispute arbitration clauses.

CFPB Targets Debt Collectors.  On April 25, the CFPB announced that it obtained consent orders against Pressler & Pressler, LLP, a debt collection law firm, and New Century Financial Services, Inc., a debt buyer, for unfair and deceptive collection practices, in violation of the Fair Debt Collection Practices Act and the Dodd-Frank Act.  Specifically, the CFPB alleged that the defendants filed collection lawsuits against consumers without sufficiently verifying the validity of the debts, did not properly respond to consumer disputes of the debts, and relied on an automated claim-preparation system and non-attorney support staff to determine which consumers to sue.  The orders require the firm to pay a penalty of $1 million and New Century to pay a penalty of $1.5 million to the Bureau’s Civil Penalty Fund.

Litigation

TILA Claim Not Mooted by Tender of Check Equal to Plaintiffs’ Claimed Damages that Plaintiffs Returned: Car buyers sued the dealership where they bought their car, alleging violations of the federal Truth in Lending Act and the Maryland Consumer Protection Act, as well as fraud. The dealership sent them a cashier’s check equal to the sum of their down payment plus interest. The plaintiffs declined to accept the check. The dealership moved to dismiss for lack of subject-matter jurisdiction, arguing that its payment to the buyers mooted their TILA claim and eliminated the court’s subject-matter jurisdiction. The court found that the unconditional tender equal to the buyers’ claimed damages provided the buyers complete relief under TILA. However, because the buyers returned the check, the court could not find that the payment mooted the TILA claim. Accordingly, the court denied the motion to dismiss, but stated that if the dealership reissues an unconditional cashier’s check equal to the amount of the down payment plus interest, it may re-file its motion, and the court will then dismiss the TILA and MCPA claims as moot. The court noted that the tender would not, however, moot the plaintiffs’ fraud claim. See Price v. Berman’s Automotive Inc., 2016 U.S. Dist. LEXIS 35807 (D. Md. March 21, 2016).

Dealership Liable to Used Car Buyers and Finance Company after Failing to Repair Problems Buyers Experienced within 60 Days after Purchase: Used car buyers noticed problems with their car immediately after purchase. Learning that the car had experienced a front-end collision that was causing the car’s mechanical problems, the buyers sought to revoke acceptance of the car. When the seller ignored their request, the buyers sued for violations of New York General Business Law Sections 349 and 198-b and the Magnuson-Moss Warranty Act and sued the assignee of their retail installment sale contract under the FTC Holder Rule. The assignee settled the buyers’ claim and filed a cross-claim against the seller for breach of contract. The buyers and the assignee moved for a default judgment. A magistrate judge granted both motions. The magistrate found that the buyers did not establish a claim for violation of Section 349, which prohibits deceptive acts or practices in the conduct of business, because they did not prove that the seller’s actions had a broader impact on consumers at large. The magistrate found that the buyers established a breach of warranty claim under Section 198 but not under the MMWA, which requires an amount-in-controversy of at least $50,000 that the buyers did not satisfy. The magistrate also found that the assignee proved its breach of contract claim against the seller for failure to defend and indemnify under its Dealer Agreement. See Chin v. Planet Motor Cars, Inc., 2016 U.S. Dist. LEXIS 47372 (E.D.N.Y. April 5, 2016).

Motor Home Seller Not Prevented from Disclaiming Warranties Where Service Contract It Sold Buyer Required it to Perform Only Diagnostic Services: A mobile home buyer signed a purchase agreement in which the seller stated that it disclaimed all warranties. The buyer bought a third-party service contract from the seller to cover the motor home. The service contract required the buyer to take the home to the seller to diagnose an issue, but allowed her to seek repairs from any repair facility. The buyer discovered defects in the motor home and asked the seller to make the required repairs. The buyer alleged that the repairs were inadequate, that the motor home had developed additional defects, and that the motor home was unsafe and unfit for use. The buyer sued the seller for breaching the warranty of merchantability, and the seller moved to dismiss. The federal trial court granted the motion. The buyer argued that the Magnuson-Moss Warranty Act prevented the seller from disclaiming the implied warranty of merchantability. The MMWA precludes warranty disclaimers if the seller “enters into” a service contract with a buyer within 90 days of the purchase. The buyer cited a 1991 case in which a dealer was found to be an agent for a service contract company to argue that the seller entered into a service contract with her. However, the court distinguished that case, explaining that the buyer was required to obtain repairs from that dealer, but in the present case, the buyer was required to bring the motor home to the seller for diagnosis but could obtain repairs anywhere. As a result, the seller could not be considered an agent of the service contract company and, therefore, did not enter into the contract with the buyer. As such, the seller was not prevented from disclaiming the warranty of merchantability. See Coyne v. Crossville BNRV Sales, LLC, 2016 U.S. Dist. LEXIS 40160 (E.D. Tenn. March 28, 2016).

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

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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. (5/16). HC# 4830-2565-6113.