By Thomas B. Hudson and Nicole Frush Munro
Summer went fast, didn’t it? Like the rest of us, courts tend to slow down in the summer as lawyers and judges take their vacations, so this month’s offerings are a bit slim. Still, we found some interesting stuff. Here’s our latest report of legal developments in the auto sales and finance world.
Take a look below at this month’s 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 to show you 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
Have you named a compliance officer yet? With all the increased emphasis on compliance in the F&I process, it’s high time you did. And hiring’s just the first step. Unless you can find someone who actually has compliance training (and good luck with that), you’ll need to arrange for training. After training, the compliance officer will need to build a compliance program. We’ve written several articles on how to go about doing that – if you want a copy of the articles, just email us.
CFPB Hits the Road. The CFPB will be holding a field hearing on auto finance on September 18, 2014 in Indianapolis, Indiana. The hearing will feature remarks from Director Cordray, as well as testimony from consumer groups, industry representatives, and members of the public. The event is open to the public, but RSVP is required to attend. A livestream of the event will also be available. We think it is likely that the Bureau’s release of its “larger participant rule” for auto finance companies will be timed to coincide with the event.
Finance Company Tagged for Providing Inaccurate Information. On August 20, the CFPB announced that it ordered First Investors Financial Services Group Inc., a mostly subprime auto finance company, to pay a fine of $2.75 million for allegedly providing inaccurate information about its customers to credit reporting agencies. The CFPB found that when FIFS discovered that it was furnishing inaccurate information to the credit reporting agencies, it notified the vendor, but did nothing more. According to the CFPB, FIFS did not fix the flaws in the computer system that was providing the inaccurate information or take any steps to correct the inaccurate information it had furnished. The CFPB alleged that FIFS continued to use the flawed system for years after discovering the problem. FIFS allegedly provided inaccurate information about consumers’ payments, overstated the amount by which consumers were past due on their accounts, inaccurately reported the date of first delinquency, inflated the number of times consumers were delinquent on their accounts, and reported that consumers’ vehicles were repossessed when they were actually voluntarily surrendered to the lienholders.
CFPB Tackles Servicemember Abuses. On August 14, the CFPB announced that it obtained a consent order with USA Discounters, Ltd., a company that operates a chain of retail stores near military bases and offers financing for purchases. USA allegedly tricked thousands of servicemembers into paying fees for legal protections servicemembers already had and for certain services that the company failed to provide. Specifically, servicemembers making purchases from USA were required to pay a $5 fee for a company called SCRA Specialists LLC to be their representative with respect to their rights under the Servicemembers Civil Relief Act. USA portrayed SCRA Specialists as an independent representative that would be available to receive notices of lawsuits filed by USA, inform USA of a change in a servicemembers’ address, and verify servicemembers’ military status. The CFPB alleged that SCRA Specialists’ services were unfairly and deceptively marketed by USA and that many of the services were never actually performed. Under the settlement, USA will provide over $350,000 in restitution to servicemembers who paid the $5 SCRA Specialists fee and will pay a $50,000 penalty to the CFPB’s Civil Penalty Fund.
Dealership’s Reporting of Car It Sold to Buyer as Stolen Could Constitute Adverse Action under Equal Credit Opportunity Act: A woman bought a car from the dealership where she worked. After a dispute arose as to whether she had paid the entire down payment, the dealership bought the contract back from the finance company and filed a police report for theft of the vehicle. The buyer sued the dealership and its owner for violating the Equal Credit Opportunity Act by failing to provide her with a notice of adverse action. The federal trial court refused to dismiss the complaint. First, the court found that there was a genuine issue of material fact as to whether the dealership was a creditor under ECOA since the dealership extended credit to the buyer and then assigned the contract to a finance company. Next, the court found that a genuine issue of material fact existed as to whether the dealership took adverse action against the buyer because, according to the court, in order to report the vehicle as stolen, the dealership would have had to revoke or modify the extension of credit, which would constitute adverse action. The court also found that a genuine issue of material fact existed as to whether the dealership gave oral notice of adverse action to the buyer. See Simmons v. Expo Enterprises, Inc., 2014 U.S. Dist. LEXIS 97777 (M.D. La. July 18, 2014).
Courts Address Jurisdiction over Out-of-State Car Dealers: Two cases we report on this month discuss the issue of a court’s jurisdiction over out-of-state car dealers. In one case, a New Jersey resident bought a convertible from a California dealer. He viewed the car in California, signed documents in California, and wired the purchase price to the dealership in California. Later, he sued the dealership and its owner for fraudulent representations in federal court in New Jersey. The court dismissed the complaint for lack of personal jurisdiction. The court found that the defendants’ only contacts with New Jersey were that the dealership contacted the buyer in New Jersey by phone and/or email and provided photographs to him via the Internet. The court found that such limited communications were insufficient to confer specific jurisdiction over the defendants. As for general jurisdiction, the court found that print advertisements in national publications do not constitute “continuous and systematic” contacts and that “a passive website that does little more than make information available to those who are interested in it is not grounds for the exercise of personal jurisdiction.” See Corigliano v. Classic Motor Inc., 2014 U.S. Dist. LEXIS 97556 (D.N.J. July 17, 2014). In the other case, a Nebraska resident bought a Mustang after seeing the car on the website of a North Carolina company. After a series of emails and phone calls, the buyer bought the car for purposes of presenting the vehicle at auto shows in Nebraska. The buyer never travelled to North Carolina to see the car; instead, the seller arranged for a shipper to deliver the car to Nebraska. After determining that the car was not show quality, the buyer sued in Nebraska. The Nebraska trial court awarded a default judgment to the buyer, and, as required by North Carolina law, he filed a “Docketing of Foreign Judgment” in a North Carolina trial court to enforce the judgment. The North Carolina trial court found that the seller did not have sufficient minimum contacts with Nebraska necessary for a Nebraska court to have personal jurisdiction. A North Carolina appellate court reversed. While the seller’s actions were insufficient for general jurisdiction, appeals court found that the conduct was sufficient for a Nebraska court to exercise specific jurisdiction. The appellate court noted that although no one from the selling company physically entered Nebraska, it intentionally directed actions towards Nebraska by advertising on websites accessible to Nebraskans, negotiating with the buyer over several days, receiving the buyer’s payment from Nebraska, and shipping the car to Nebraska. See Meyer v. Race City Classics, Inc., 2014 N.C. App. LEXIS 810 (N.C. App. July 29, 2014).
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 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 Delivery. Spot 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. (9/14) HC# 4814-2726-4798.