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.

HC/4845-7966-8124

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.