By Thomas B. Hudson and Nicole Frush Munro
Here’s our monthly collection of selected legislative and regulatory highlights, and a recap of some of the many auto sale and financing lawsuits we follow each month. Remember – what we report here does not capture every recent development. We select those we think should be important or interesting to car dealers. Note that this column does not offer legal advice.
We include items from other states. Why? We want you to be able to see 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 laws and claims might soon appear in your state.
As always, though, there is no substitute for checking with your own lawyer to learn how what we report might apply to you, or if you have any questions.
This Month’s CARLAWYER© Compliance Tip
Did you get a great idea from your last 20-group meeting? Perhaps one of the members of your group described an ad campaign, a sales technique or a pricing idea that you had not considered. Before you call your staff together to implement that great idea, remember that practices that are legal in one state can be illegal in other states. A quick call to your lawyer to make sure that the referring dealer’s “best practice” isn’t a felony in your state will keep you out of mischief.
Buy-here, pay-here dealers should pay particular attention to recent federal efforts to curb abuses in the debt collection arena. The Feds’ enforcement actions signal the sorts of collection practices they find objectionable.
Payday Lenders Sanctioned. On July 22, the Federal Trade Commission announced that it reached a partial settlement with the principal defendants in its case against a payday lending operation, AMG Services, Inc., which alleged that the defendants violated federal law by threatening borrowers during collection calls, requiring borrowers to agree in advance to electronic withdrawals from their bank accounts as a condition of obtaining credit, and deceiving borrowers about the cost of their loans by charging undisclosed and inflated fees.
Third-Party Debt Collectors Penalized. On July 9, the FTC announced that it settled charges against Texas-based Expert Global Solutions and its subsidiaries for allegedly harassing consumers by placing debt collection calls that violated the Fair Debt Collection Practices Act and the FTC Act. The defendants also allegedly continued collection efforts after consumers disputed the validity or the amount of the debt without verifying the debt. The $3.2 million settlement is the largest civil penalty ever obtained by the FTC against a third-party debt collector.
How Well Do You Know the “Do-Not-Call” Rules? On June 27, the FTC announced that Mortgage Investors Corporation will pay a $7.5 million civil penalty, the largest fine the FTC has ever collected, to settle allegations of violations of the Do Not Call provisions of the Telemarketing Sales Rule. The case is the first action brought to enforce the Mortgage Acts and Practices Advertising Rule, which allows the FTC to collect civil penalties for deceptive mortgage advertisements. Mortgage Investors allegedly called more than 5.4 million numbers listed on the National Do Not Call Registry to offer home loan refinancing services to servicemembers and failed to remove consumers from its call list when the consumers asked it to do so. The company also allegedly misrepresented the terms of loan products it offered during its telemarketing calls and misled consumers about its affiliation with the Department of Veterans Affairs. In addition to the settlement with Mortgage Investors, the FTC announced settlements with several other companies that allegedly made illegal pre-recorded calls offering debt relief services.
CFPB Fires Debt Collection Warning Shots. On July 10, the CFPB published two bulletins advising companies about unlawful debt collection conduct. The first bulletin described certain acts or practices related to debt collection that could, depending on the facts and circumstances, be considered unfair, deceptive, or abusive under the Dodd-Frank Act. The bulletin provided examples of such UDAAPs, but noted that the examples were not exhaustive. The CFPB may closely review any covered person or service provider’s consumer debt collection efforts for potential violations of federal consumer financial laws. Some of the examples of UDAAPs listed in the bulletin are: collecting or assessing a debt and/or any additional amounts in connection with a debt (including interest, fees, and charges) not expressly authorized by the agreement creating the debt or permitted by law; failing to post payments timely or properly or to credit a consumer’s account with payments that the consumer submitted on time and then charging late fees to that consumer; taking possession of property without the legal right to do so; revealing the consumer’s debt, without the consumer’s consent, to the consumer’s employer and/or co-workers; falsely representing the character, amount, or legal status of the debt; misrepresenting that a debt collection communication is from an attorney; and misrepresenting whether information about a payment or non-payment would be furnished to a credit reporting agency. The CFPB’s second bulletin warned companies to avoid deceptive statements concerning the impact of paying a debt on a consumer’s credit score, credit report, or creditworthiness and highlights examples of potentially deceptive claims debt collectors may be making to consumers about their credit report and credit scores. The CFPB also published five action letters for consumers to use when corresponding with debt collectors and announced that it is now accepting complaints from consumers experiencing debt collection problems.
Merger Clause in Financing Agreement Did Not Void Contemporaneously Signed Arbitration Agreement: A car buyer sued the dealership where she bought her car after it informed her that she was no longer part of a promotional program in which customers could buy a new vehicle for less than $100 a month and then return the vehicle to the dealership within 10 to 12 months in exchange for a new vehicle at the same monthly rate. The dealership moved to compel arbitration based on an arbitration agreement the buyer signed. The trial court found that the arbitration agreement was unenforceable because the installment contract, signed at the same time as the arbitration agreement, did not refer to or incorporate the arbitration agreement, and the installment contract included a merger clause stating that it contained the parties’ entire agreement as to financing. The Supreme Court of Missouri reversed the trial court’s finding and remanded, stating that contemporaneously signed documents must be construed together and harmonized if possible. The supreme court noted that the merger clause merged prior oral agreements and prior oral or written commitments “to loan money, extend credit or to forbear from enforcing repayment of a debt including promises to extend or renew such debt.” Because the arbitration agreement was a dispute resolution agreement, not an additional financing document, the supreme court determined that the arbitration agreement was not voided by the merger clause and, therefore, was enforceable. See Johnson v. JF Enterprises, LLC, 2013 Mo. LEXIS 31 (Mo. June 11, 2013).
Duty to Send Denial Letter within 30 Days of Receipt of Application Applies Only if Application is Complete: A homeowner sought a loan modification from a bank, submitting three credit applications. The bank orally notified her that her credit applications were incomplete because they were missing certain documents. The bank later sent her a denial letter for each of her credit applications, but the denial letters were sent more than 30 days after the bank received her credit applications. She sued the bank for violating the Equal Credit Opportunity Act, alleging that the bank violated Section 1691(d)(1) because it failed to provide written notice of denial of her credit applications within 30 days of receipt of the completed applications. The bank argued that it did not violate the ECOA because it never received a completed credit application and moved for partial summary judgment. The U.S. District Court for the District of Colorado concluded that a genuine issue of material fact existed as to whether the credit applications were complete. Although the homeowner submitted a declaration stating that she provided, on multiple occasions, all information the bank required to complete her credit applications, the bank offered a declaration by one of its employees that those credit applications were not complete. Second, the court found that creditors are required to use reasonable diligence in obtaining information they ordinarily require to evaluate a loan, and if the defendant has not used reasonable diligence in obtaining the information necessary to complete a plaintiff’s credit application, the court will not allow the defendant to use incompleteness to shield itself from ECOA liability. The court determined that a jury could find that the bank did not use reasonable diligence in obtaining the information necessary to complete the homeowner’s credit applications because the bank only called her to inform her of the incompleteness of her applications. Therefore, the court denied the bank’s motion for partial summary judgment. See King v. JP Morgan Chase Bank, 2013 U.S. Dist. LEXIS 93601 (D. Colo. July 3, 2013).
Illinois Court Lacked Jurisdiction over Out-of-State Dealership that Sold Car Advertised on AutoTrader.com to Illinois Purchaser: An Illinois company bought a car that was located in Florida and advertised on AutoTrader.com. The negotiations were conducted by e-mail. The bill of sale was prepared in Florida and sent by e-mail to the buyer in Illinois. The buyer then wired money to Florida from an Illinois bank. The buyer instructed the defendants to send the title for the car to a company in New York and prepare to send the car to Japan via air freight from a New York airport. The buyer sued the New Jersey car dealership that sold the car and its CEO, who was a resident of New Jersey and a licensed car dealer in both New Jersey and Florida, claiming that the car did not work and needed major engine repairs. The court dismissed the case for lack of personal jurisdiction. The court explained that it could not assert personal jurisdiction over the defendants because they did not purposefully avail themselves of the privilege of conducting business in Illinois, nor did the alleged injury arise from the defendants’ activities relating to Illinois. The court rejected the plaintiff’s argument that its claims arose out of the defendants’ contacts with Illinois because the defendants advertised on the nationwide website AutoTrader.com. The court explained that merely using the AutoTrader.com website did not establish that the defendants targeted buyers in Illinois. The court also found that exchanging e-mails with the buyer located in Illinois did not establish that the defendants targeted an Illinois buyer. The court explained that the defendants would not have foreseen that they would be sued in Illinois court. The parties did not anticipate that the car would enter Illinois, and the car never did enter Illinois. See The Yokohama Trading, Inc. v. C&K Auto Imports, Inc., 2013 U.S. Dist. LEXIS 87409 (N.D. Ill. June 21, 2013).
Car Buyer who Made Untimely Demand Not Entitled to Rescission and Refund: A used car buyer sued the dealership where he bought the car after he had mechanical problems with the car. The trial court granted summary judgment for the buyer on some of his claims and denied his motion on his other claims. The trial court also awarded the buyer $800 in statutory damages and approximately $18,000 in attorneys’ fees and costs. The buyer appealed, arguing that the trial court erred when it did not award him rescission and a refund of the full car price under R.C. 4505.181(B)(1). R.C. 4505.181(B)(1) provides, in part, that if a consumer buys a vehicle for which the dealer does not have a title certificate issued in the dealer’s name at the time of the sale, the consumer may rescind the transaction and is entitled to a refund of the full purchase price of the vehicle if the dealer fails, on or before the 40th day after the date of the sale, to obtain a title in the consumer’s name. The statute also requires the consumer to notify the dealer of his or her intent to rescind the contract no later than 60 days from the date the vehicle is titled in the consumer’s name. The trial court found that the buyer had waived his right to rescission of the transaction and a full refund because he did not act within the required time. The Court of Appeals of Ohio agreed, finding that the dealer provided title to the buyer 43 days after he bought the car. Although this was three days later than the statute allows, he did not demand rescission and a refund until six months later. Because he did not make his demand within 60 days of receiving title to the car, the appellate court affirmed. See Jones v. N&S Auto Sales, Inc., 2013 Ohio App. LEXIS 2405 (Ohio App. June 13, 2013).
So there’s this month’s roundup! Stay legal, and we’ll see you next month.
Tom (firstname.lastname@example.org) and Nikki (email@example.com) are partners in the law firm of Hudson Cook, LLC. Tom is the author of several books, available at www.counselorlibrary.com. Tom is also the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW®, a monthly report of legal developments in all states 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. Spot Delivery, CARLAW and the books are produced by CounselorLibrary.com LLC. For information, call 410-865-5411 or visit www.counselorlibrary.com. Copyright CounselorLibrary.com 2013, all rights reserved. Single publication rights only, to the Association. (8/6/13) HC# 4820-4049-7173.