By Thomas B. Hudson and Nicole Frush Munro
We’re back with 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 particularly important or interesting to car dealers.
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.
Note that this column does not offer legal advice. 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
Some of the documents that you use in your business and that you provide to your customers contain address, phone numbers and website information for your dealership or for other companies, like, for instance, the company you name in your arbitration agreement to conduct arbitration proceedings. That information appears in the documents for a reason – usually to provide contact information to your customers, so it’s important that it be accurate. Companies change addresses, phone numbers and websites occasionally, and when they do, you are providing your customer with bad information. Your documents are reprinted from time to time. When that reprinting occurs, have someone check all such information to make sure it hasn’t changed.
Another Credit Discrimination Enforcement Action. The CFPB and the Federal Trade Commission are not the only federal agencies targeting illegal credit discrimination by car dealers. On September 6, the U.S. Justice Department announced a $125,000 settlement with Union Auto Sales, Inc., a dealership that formerly did business in Los Angeles, resolving allegations that it charged higher interest rate markups on financing to non-Asian customers, many of whom were Hispanic, than to similarly-situated Asian customers. Under the consent decree, if Union Auto Sales or its principal shareholder re-enter the business of car financing within the 2-year duration of the consent decree, they will implement clear guidelines for setting dealer markup and pricing and establish appropriate fair lending training for their employees and officers.
Arbitration Agreement that Barred State Statutory Remedies and Allowed Dealer to Pursue Repossession Deemed Unconscionable: Vehicle buyers sued their sellers for charging illegal documentation fees. The sellers moved to compel arbitration in accordance with arbitration agreements in their buyer’s orders and/or retail installment sales contracts. The trial court granted the motion, and the Court of Appeals of South Carolina affirmed in part and reversed in part. The appellate court found that the arbitration agreement in one plaintiff’s buyer’s order was unconscionable and void for two reasons. First, the agreement barred certain statutory remedies under the South Carolina Unfair Trade Practices Act and the South Carolina Regulation of Manufacturers, Distributors and Dealers Act, which had been deemed unconscionable by the South Carolina Supreme Court. Second, the agreement allowed the seller to pursue repossession, foreclosure, and set-off rights without regard to pending arbitration claims, while the plaintiff’s sole remedy was arbitration. See York v. Dodgeland of Columbia, 2013 S.C. App. LEXIS 212 (S.C. App. September 4, 2013).
Plaintiffs who Accepted Arbitrators’ Decisions Not Entitled to Attorneys’ Fees under Federal or New Jersey Warranty Laws: Two individuals filed informal disputes against a vehicle manufacturer after encountering recurring problems with their vehicles. The arbitrators concluded that both individuals were entitled to a repurchase of their vehicles, and the individuals accepted the decisions. Although the informal dispute resolution procedure, established pursuant to the Magnuson-Moss Warranty Act, does not provide for an award of attorneys’ fees, the individuals claimed that they were entitled to fees under the MMWA or the New Jersey Lemon Law. The trial court granted summary judgment for the manufacturer, and the Superior Court of New Jersey, Appellate Division, affirmed. The appellate court rejected the plaintiffs’ argument that an informal dispute resolution procedure adopted under the MMWA is required to include a fee-shifting component for successful consumers and also rejected their argument that attorneys’ fees under the Lemon Law may be recovered by a consumer who elects to accept relief awarded through an informal dispute resolution procedure. See Fedor v. Nissan of North America, Inc., 2013 N.J. Super. LEXIS 129 (N.J. Super. App. Div. August 23, 2013).
Buyers of Defective Vehicle Have Private Right of Action for Seller’s Failure to Display or Provide Buyer’s Guide: When looking at a used car, the buyers were told by a dealership employee that the car was “a good car in excellent condition” and would not cause “any problems for a few years because it has low mileage.” A Buyer’s Guide was not displayed on the car and was not provided to the buyers when they bought the car. The car’s service engine light came on within a half hour of purchase. About a month after purchase, the flashers and hazard lights began working intermittently, the brakes made noise when applied, and the car made a grinding noise when the front wheel was turned to the left. The buyers took the car back to the dealer twice, but it could not be repaired. The buyers then returned the car to the dealership, but the dealership refused to refund the purchase price. The buyers sued the dealership for, among other things, violating the Used Car Rule by failing to display and provide a copy of the Buyer’s Guide. The dealership argued that the Used Car Rule does not provide a private cause of action. The Connecticut Superior Court disagreed, finding that a party could bring a private claim for violating the Used Car Rule because the rule is promulgated under the Magnuson-Moss Warranty Act, which provides a private right of action. See Nasser v. Wiz Leasing, Inc., 2013 Conn. Super. LEXIS 1801 (Conn. Super. August 12, 2013).
So there’s this month’s roundup! Stay legal, and we’ll see you next month.
Tom (email@example.com) and Nikki (firstname.lastname@example.org) 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. (10/9/13) HC# 4844-5707-5990.