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

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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.