The CARLAWYER© 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

Are your employees calling your customers and potential customers on the phone? Perhaps including cell phones? Are they sending text messages or making any other sort of electronic contact? If so, make sure that you, and they, know the federal and state rules for these sorts of communications. Dealers who don’t follow the rules are exposing themselves to significant potential liability. So learn the rules and teach them to your employees when the employees are hired, and periodically after that. Finally, this is an active area of the law, and the rules can change, so find a way to stay on top of developments.

Federal Law

The Letters Fly in Washington. Since our last column, a war of letters dealing with various matters related to car financing erupted in Washington, D.C. On October 20, a bipartisan group of 22 Senators wrote to Consumer Financial Protection Bureau Director Richard Cordray to urge him to be more responsive to congressional questions dealing with the CFPB’s antidiscrimination disparate impact initiatives, and in particular seeking information about the CFPB’s proxy methodology for identifying the race and gender of credit applicants and the tolerances that the CFPB will apply in enforcement actions. Director Cordray replied to the Senators on November, more or less explaining the CFPB’s proxy methodology and stating that the Bureau addresses tolerances on a case-by-case basis.

On October 23, Senator Edward J. Markey (D-Mass.) sent a letter to the Federal Trade Commission requesting that the FTC examine whether dealers are using unfair or deceptive financing practices. Specifically, Senator Markey wants an investigation into dealer markups of interest rates and alleged “yo-yo schemes,” in which the dealer allows the customer to drive home with a vehicle without finalizing the financing and then requires the customer to return to the dealership to renegotiate the sale and ultimately pay more than initially agreed upon or surrender the car. The letter notes that, under the Dodd-Frank Act and the FTC Act, the FTC has the power to issue regulations to protect consumers from unfair car financing practices. The Senator acknowledged that the FTC held a series of roundtables in 2011 addressing the sale, financing, and leasing of motor vehicles and requested information on actions the FTC has taken, or plans to take, to address the issues uncovered during those roundtable sessions and through the comment period. The Senator states that the FTC has taken some enforcement action against deceptive dealer advertising, but urges the FTC to take additional “public steps to curb other unfair or deceptive practices by car dealers.” Senator Markey asks that the FTC respond to his letter by November 14, 2013.

State Action

One of the widely-anticipated results of the Dodd-Frank Act was to permit state Attorneys General to enforce federal laws. An example of such an enforcement action may be developing in Delaware. On October 3, Delaware Attorney General Beau Biden announced that his office has sent letters to numerous financial institutions asking for, among other things: (1) documentation of any internal review conducted to determine whether there has been compliance with the Servicemembers Civil Relief Act; (2) all written policies, procedures, and practices in place to verify compliance with the SCRA; (3) the total number of customer files reviewed for SCRA compliance; (4) documentation concerning any SCRA violations identified during reviews; (5) documentation of steps taken to prevent future SCRA violations; and (6) all materials used to train employees regarding compliance with the SCRA. Biden also sent letters to the chairmen of the U.S. House and Senate’s veterans affairs committees, urging them to change federal law to allow state attorneys general to prosecute SCRA violations.


Husband of Buyer of Vehicle Lacked Standing to Enforce Contract Despite Liability for Debt Under State’s Community Property Laws: A married couple bought a Winnebago in California, but only the wife signed the retail installment sale contract. A dispute arose over whether two monthly payments had been made, and the assignee of the contract sued the wife for breach of contract. The state court entered a default judgment against her. The couple then sued the assignee, alleging negligence, breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing in connection with the assignee’s attempt to collect the debt. The assignee moved for summary judgment, claiming that the husband lacked standing to sue because he did not sign the retail installment sales contract. The husband contended that he could bring the claims because he owed the debt based on California’s community property laws. The federal trial found that, under California law, the husband was liable for the debt, but was still not a party to the contract, and could not sue to enforce it and could not sue for any damages caused by the assignee in its attempts to collect the debt. The court noted that even if the husband was able to prove standing, the claims nevertheless failed. See Klahn v. Santander Consumer USA, Inc., 2013 U.S. Dist. LEXIS 134600 (D. Or. September 19, 2013).

Ohio Consumer Sales Practices Claim Failed Where Consumer Did Not Demonstrate that Car Previously Owned by Rental Car Company Was Used as Rental: A buyer bought a car after test-driving it and being told by a dealership employee that the Carfax report was “clean.” However, the Carfax report provided to the buyer indicated that the car had been operated as a rental car. The Buyer’s Agreement executed by the parties included a box to check if the car was previously used as a rental. The box was not checked. The buyer ceased making payments after a few months and sued the dealership and the assignee of the retail installment sale contract under the Ohio Consumer Sales Practices Act. The trial court found for the dealership, and the buyer appealed. The CSPA contains a non-exhaustive list of deceptive acts or practices, including failure to disclose that a sold or leased vehicle was previously used as rental vehicle. The Court of Appeals of Ohio affirmed, finding that while the buyer demonstrated that the car had been previously owned by a rental car company, he had not shown that the car had been previously used as rental vehicle. See Ferrise v. Spitzer Motors of Mansfield, 2013 Ohio App. LEXIS 4627 (Ohio App. September 27, 2013).

Buyer Entitled to Revoke Acceptance of Motor Home and Recover Purchase Price from Manufacturer: Before taking possession of a motor home, the buyer required the dealer to make repairs and sought reassurances from the motor home’s manufacturer. Despite those assurances, the motor home continued to experience problems. When the manufacturer refused the buyer’s attempts to revoke acceptance of the motor home, the buyer sued, and the trial court entered judgment for her, finding that she would not have completed the purchase and taken possession of the motor home without receiving the manufacturer’s assurances. Finding that the manufacturer had interjected itself into the sales process and had direct dealings with the buyer to ensure the completion of the purchase, the Supreme Court of Nevada found that privity (pointy-headed lawyer talk for contact sufficient to allow a party to enforce another’s promise) existed between the buyer and the manufacturer, entitling the buyer to revoke acceptance and recover the purchase price from the manufacturer. See Newmar Corporation v. McCrary, 2013 Nev. LEXIS 82 (Nev. October 3, 2013).

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, LLC. Tom is the author of several books, available at 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 LLC. For information, call 410-865-5411 or visit Copyright 2013, all rights reserved. Single publication rights only, to the Association. (11/13) HC# 4842-4608-5398.

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