July 2014- The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

We hope you had a rollicking Fourth of July and that the rest of your summer is pleasant and safe.  We hate to intrude with business, but we again offer our report of legal developments in the auto sales and finance world.

Take a look below at what we’ve come up with this month with our collection of selected legislative and regulatory highlights.  We also recap 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 might be particularly important or interesting to dealers.

Why do we include items from other states? 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 claims might soon appear in your state.

Note that this column does not offer legal advice. Always check 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

Do you need information on the basics of auto leasing?  Would you like a free overview of how car leasing works?  If so, go to www.federalreserve.gov and click on “Consumer Information.”  Then look at the left side of the screen and click on “Leasing.”  That will take you to a Federal Reserve Board booklet called “The Keys to Vehicle Leasing.”  The booklet is intended as a consumer education tool, but we think it does a good job of covering the basics for dealers seeking to learn about leasing.


Federal Developments 

Operation Steer Clear Tackles Housing Finance.  In an action that is similar to those the FTC has brought against car dealers in Operation Steer Clear, on June 10, the FTC announced that a Pennsylvania-based home builder that offers home financing has settled charges that it deceived consumers by advertising low-cost mortgages while hiding fees and not disclosing vital information about the true cost of the mortgages. Using the catch phrase “Zip, Zero, Nada,” Heritage Homes Group claimed in ads on websites, and in newspapers, flyers, and direct mail, that consumers could finance their homes without a down payment or closing costs. In fact, they were required to pay a “good faith deposit,” settlement costs, and an annual fee, according to the complaint.  Do your ads make “no cash required” claims when that isn’t accurate?

White Paper on Proxies?  On June 18, in a hearing before the House Financial Services Committee, CFPB Director Cordray announced that later this summer the Bureau will issue a white paper on how it uses the proxy method to determine the presence of discrimination in the indirect auto lending market.  He stated that the CFPB discussed at length in a recent webinar with the Federal Reserve its use of U.S. Census data and the Bayesian Improved Surname Geocoding proxy method to determine whether minorities are paying higher rates for auto credit, and that the CFPB and the Federal Reserve were largely in agreement on the methodology employed by the CFPB.

FTC Goes After Convenience Fees.  The FTC has announced that a debt collection company, RTB Enterprises, Inc., and Raymond T. Blair, its president and sole shareholder, have agreed to a federal court order prohibiting them from using allegedly deceptive tactics they have been employing to bully English and Spanish-speaking consumers into paying debts and unnecessary fees.  The FTC claims the defendants violated the FTC Act and the Fair Debt Collection Practices Act by using false and deceptive methods to collect more than $1.3 million in so-called “convenience fees” and “transaction fees” from consumers who authorized payments by telephone. The defendants allegedly trained their collectors to deceive consumers into believing that payments were not accepted by U.S. mail and that the fees were unavoidable. In some instances, the fees were added to consumers’ accounts without their knowledge or consent, the FTC charged.  The FTC also alleged that the defendants’ collectors deceived consumers by falsely claiming to speak for attorneys, falsely threatening to sue consumers who did not pay, and using deceptive schemes to coerce consumers into paying or providing their personal information.  The order imposes a $4 million penalty, which will be partly suspended based on inability to pay once Blair surrenders assets totaling $100,000. The order prohibits Blair and his company from repeating any of the practices alleged in the complaint, and requires them to truthfully disclose information about any fees they charge, and the steps consumers can take to avoid paying.



Lienholder and Repossession Agent Liable for Damages to Truck Repossessed in Violation of Automatic Stay: A car repair facility with a lien on a truck hired an agent to repossess the truck after the truck owner filed for bankruptcy. A few days after the repossession, the lienholder informed the repo agent that the truck was subject to the automatic stay in the bankruptcy case. The repo agent refused to return the truck until its fees were paid. While the truck was in the repo agent’s possession, it was damaged. The truck owner sued the lienholder and the repo agent for violating the automatic stay and the federal and Texas Fair Debt Collection Practices Acts. The bankruptcy court found that the lienholder and the repo agent were jointly and severally liable for all damages and attorneys’ fees that occurred after the date the repo agent learned of the bankruptcy. The court also concluded that the repo agent violated the FDCPA by refusing to return the truck while knowing its refusal violated the automatic stay and by keeping the truck for four months after being instructed to return it. The court also found that the truck owner was entitled to punitive damages. See In re Ramirez, 2014 Bankr. LEXIS 2012 (Bankr. S.D. Tex. May 6, 2014).

Lienholder Not Entitled to Deficiency Absent Evidence that it Mailed Notices to Vehicle Owner: A finance company repossessed a vehicle for nonpayment and sued the vehicle owners for a deficiency. The trial court dismissed the case, finding that the finance company had not complied with Iowa’s right-to-cure and intent-to-sell notice requirements. The Court of Appeals of Iowa affirmed. The appellate court acknowledged that the finance company did not call as a witness the employee responsible for mailing the notices, only loan officers who merely speculated that the notices were mailed. With only the assumption that the notices had been mailed, the appellate court affirmed the trial court’s conclusion that the finance company failed to satisfy its burden of proof that it acted in a commercially reasonable manner in sending the notices. See Citizens Finance Co. v. Bickford, 2014 Iowa App. LEXIS 534 (Iowa App. May 14, 2014).

Breach of Implied Warranty Claim Requires Allegations that Defect Compromised Vehicle’s Safety, Rendered It Inoperable, or Drastically Reduced Its Mileage Range: A buyer bought a used car that the salesperson told her had been subject to a Certified Quality Inspection and was in great condition. She claimed the car was advertised as being “CarMax Quality Certified.” Although she found a generic list of inspected components in the car’s glove box, she claimed that the results of the inspection had been destroyed before her purchase. After numerous problems with the car, she sued the seller for violations of the Consumer Legal Remedies Act, the Unfair Competition Law, and the implied warranty of merchantability under the California Song-Beverly Consumer Warranty Act and for fraud. The seller moved to dismiss the complaint, and the court granted the motion. With regard to the breach of implied warranty claim, the court found that the relevant standard is whether any alleged defect compromised the vehicle’s safety, rendered it inoperable, or drastically reduced its mileage range. The court found that the buyer did not allege any facts that would satisfy that standard, but merely listed a number of defects without “sufficient factual specificity [as to] the degree to which these defects implicate the vehicle’s fitness or operability.” With regard to the CLRA, UCL, and fraud claims alleging affirmative misrepresentations regarding the quality of the car and its inspection and certification and fraudulent omissions concerning the vehicle’s defects and the results of its inspection, the court found that the buyer did not state these claims with sufficient particularity necessary to survive dismissal. See Chulick-Perez v. CarMax Auto Superstores California, LLC, 2014 U.S. Dist. LEXIS 70749 (E.D. Cal. May 20, 2014).

Express Demand for Inspection or Repair Not Required under Lemon Law if Vehicle Was Made Available for Repair: Two days after buying a new car, the buyers returned to the dealership to sign papers relating to the sale. They told the service manager that the transmission made a loud clunking noise the prior day. The service manager did not drive or inspect the vehicle but told the buyers to notify him if the problem reoccurred. The buyers took the vehicle in for transmission repairs three more times. The buyers sued the car’s manufacturer for breach of the Wisconsin Lemon Law, alleging that the vehicle was subject to repair four times. The manufacturer moved for a directed verdict, arguing that the vehicle was made available for repair only three times, not four, because the first time the buyers only mentioned the problem and did not demand an inspection or repair. The trial court found that the Wisconsin Lemon Law statute does not require an express demand for repair and denied the motion. The jury then entered a judgment for the buyers. The Wisconsin Court of Appeals affirmed, finding that the Wisconsin Lemon Law does not require the consumer to make an express demand for inspection or repair to make the vehicle available for repair. Because, during the first visit, the vehicle was physically available to the service department, it was available for repair. See Barth v. Ford Motor Company, 2014 Wisc. App. LEXIS 445 (Wis. App. June 4, 2014).

So there’s this month’s roundup! Stay legal, and we’ll see you next month.


Tom (thudson@hudco.com) and Nikki (nmunro@hudco.com) are partners in the law firm of Hudson Cook, LLC. Tom has written 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 for the auto finance and leasing industry. Nikki is a contributing author to the F&I Legal Desk Book and frequently writes for Spot DeliverySpot Delivery, CARLAW and the books are produced by CounselorLibrary.com LLC. For information, visit www.counselorlibrary.com. Copyright CounselorLibrary.com 2014, all rights reserved. Single publication rights only, to the Association. (7/14) HC# 4839-7543-5804.

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