Nov. 2014 – The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

Halloween’s behind us now, but we still have lots of scary stuff going on.  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

Do you sell so-called “ancillary products” such as GAP, service contracts, and “etch”?  If you do sell ancillary products, do you charge all buyers the same price for them, or do some buyers pay more than others?  If your prices vary, are you running the risk that such variation might be alleged to be discriminatory?  Think about having a discussion on the topic with your lawyer.

Federal Development

Has the Federal Government Saved You Money?  On October 20, the Consumer Financial Protection Bureau finalized a rule, effective on October 28, that allows a financial institution, under certain circumstances, to post its annual privacy notices online instead of mailing a paper copy to each customer. The measure will save money for BHPH dealers and their related finance companies, as well as for other businesses required to send the policies annually, provided they can take advantage of it.  The Gramm-Leach-Bliley Act generally requires that institutions provide their customers with initial and annual notices regarding their privacy policies. These notices must describe whether and how the institution shares consumers’ nonpublic personal information. If institutions share this information with unaffiliated third parties, the institutions must give notice to their customers of their right to opt out of sharing and tell them how to do so. The final rule would let an institution use the alternative delivery method if: (1) the institution does not share the customer’s nonpublic personal information with nonaffiliated third parties in a manner that triggers GLBA opt-out rights; (2) the institution does not include in its annual privacy notice an affiliate sharing opt-out notice under section 603(d)(2)(A)(iii) of the Fair Credit Reporting Act; (3) the institution’s annual privacy notice is not the only notice provided to satisfy the requirements of section 624 of the FCRA and Regulation V’s Affiliate Marketing Rule; (4) the information included in the privacy notice has not changed since the customer received the previous notice; and (5) the institution uses the model disclosure form from the GLBA’s implementing Regulation P. If an institution uses the alternative method, it would have to tell customers that the annual privacy notice has not changed and is available online and in paper upon request by the customer. This could be done on another notice or on a disclosure the institution issues under any other provision of law, such as a monthly billing statement.

Get-Out-of-Jail-Free Cards?  On October 10, the CFPB requested comment on its proposed policy regarding No-Action Letters. The proposed policy is intended to reduce the regulatory uncertainty that may exist for certain new consumer financial products or services and to facilitate access and innovation for such products and services. Upon request by a company that has developed a new financial product or service that clearly provides a substantial benefit to consumers, the proposed policy would allow Bureau staff to send a No-Action Letter to the company stating that the Bureau staff has no present intention to recommend initiation of supervisory or enforcement action against the company regarding particular aspects of its product or service. An applicant for a No-Action Letter would need to explain what regulatory uncertainty exists and how that uncertainty interferes with the development of its financial product or service. A No-Action Letter may be limited as to time, volume of transactions, or otherwise and may be subject to potential renewal. No-Action Letters would be non-binding on the Bureau and would not bind courts or other actors who might challenge a recipient’s product or service, such as regulators or parties in litigation. Comments on the proposed policy must be received by December 15, 2014.

State Enforcement Actions

The New Jersey Department of Law and Public Safety, Division of Consumer Affairs, recently reached a settlement with a used car dealership that allegedly violated the Consumer Fraud Act and regulations concerning vehicle advertising practices, sales, and the used car lemon law by failing to disclose the prior use of vehicles as rental vehicles, failing to disclose past damage of vehicles, continuing to advertise vehicles after they had been sold, failing to honor advertised and negotiated prices of used vehicles, and delaying the return of traded-in vehicles and/or deposits after the consumer cancelled the sales contract. Under the settlement, the dealership will pay $100,513 in civil penalties and will reimburse the state $29,487 for its attorneys’ fees and investigative costs. The dealership will also hire a compliance monitor to ensure that its practices comply with state consumer protection laws and regulations.


Dealer’s In-House Financing Company that Attempted to Collect Past-Due Down Payment on Vehicle Not “Debt Collector” under FDCPA’s Affiliate Exemption: A consumer bought a car from a dealer and financed the purchase with the dealer. The parties disputed whether the buyer actually made the required down payment. On behalf of the dealer’s in-house finance company, a law firm sent a letter to the buyer regarding an alleged $2,000 past due down payment. About a month later, the chief manager of the in-house financing company and president of the dealership sent another letter to try to collect the down payment. The buyer sued the dealer, its in-house financing company, and the law firm for violating the Fair Debt Collection Practices Act and Minnesota law. Both parties moved for summary judgment. The federal trial court dismissed the FDCPA claims against the law firm. With respect to the FDCPA claims against the in-house finance company, the finance company argued that it was acting as a creditor and not a debt collector. The court found that even if the in-house finance company was a “debt collector” under the Act acting on the dealer’s behalf, it would be exempt from the FDCPA under Section 1692a(6)(B)’s “affiliate exemption” because it was affiliated with the dealer. See Golden v. Prosser, 2014 U.S. Dist. LEXIS 128423 (D. Minn. September 15, 2014).

Beneficiary of Deceased Obligor on RISC has Standing to Pursue Claims Against Servicer of Contract Under North Carolina Debt Collection Act: A couple bought a manufactured home and signed a retail installment sale contract in connection with the purchase. After the couple died, a relative received a partial interest in the home pursuant to their will. The beneficiary and his wife subsequently used the home as their principal residence. The servicer communicated with the beneficiary and his wife many times after they began living in the home to discuss alleged overdue payments under the RISC. The servicer eventually sued them, seeking to recover the home based on the alleged default. The beneficiary and his wife counterclaimed, alleging claims under the North Carolina Debt Collection Act and the Fair Debt Collection Practices Act. The trial court dismissed the counterclaims and awarded the servicer possession of the home. The trial court concluded that the beneficiary and his wife were not “consumers” under the NCDCA and, therefore, did not have standing to sue. The Court of Appeals of North Carolina reversed the trial court’s decision. Under Section 75-50(1) of the Act, a “consumer” is “any natural person who has incurred a debt or alleged debt for personal, family, household or agricultural purposes.” Section 75-50(2) defines a “debt” as “any obligation owed or due or alleged to be owed or due from a consumer.” The appellate court found that Section 75-50(1) treats individuals who have incurred both actual and alleged debts as “consumers.” According to the court, when Section 75-50(1)’s reference to an “alleged debt” is considered in conjunction with the fact that the definition of “debt” in Section 75-50(2) includes both “obligation[s] owed or due or alleged to be owed or due from a consumer,” “it is clear that the General Assembly contemplated that the protections available under the North Carolina Debt Collection Act would be available to both those who actually owed the debt that the debt collector was seeking to collect and those whom the debt collector claimed to owe the debt even if the debtor denied the existence of the underlying obligation.” Because the beneficiary and his wife alleged that the servicer sought to collect the amount owed under the original contract from them and asserted that they were liable for that obligation, the appellate court concluded that the beneficiary and his wife sufficiently alleged that they were “consumers” under the Act. See Green Tree Servicing LLC v. Locklear, 2014 N.C. App. LEXIS 1032 (N.C. App. October 7, 2014).

Dealership’s Practice of Backdating Renegotiated Credit Agreements May Violate California’s Automobile Sales Finance Act: A dealership sold the credit sale agreements it originated in connection with vehicle sales to commercial creditors. Occasionally, the dealer was unable to sell an agreement and renegotiated the transaction with the consumer in order to create a salable agreement. The dealership dated the renegotiated agreements with the same date as the original contract. Consumers who agreed to enter into renegotiated agreements signed not only a new agreement but also an “Acknowledgement of Rescinded Contract,” which also was backdated to the date of the original contract. Each acknowledgement stated that the original contract had been canceled and neither party owed any obligations under it. Several consumers filed a class action against the dealership alleging, among other things, that its backdating practice violated California’s Automobile Sales Finance Act. Specifically, the consumers claimed that the dealership provided inaccurate disclosures under the Act, and, therefore, the renegotiated agreements were unenforceable. The trial court found for the dealership, but the Court of Appeal of California reversed the trial court’s decision in part. The appellate court explained that the Act required the dealership to make specific disclosures regarding the credit sale, including all disclosures required under the Truth in Lending Act’s Regulation Z. The appellate court further explained that Regulation Z requires the disclosure of the annual percentage rate, which must be calculated using the consummation date as the beginning of the transaction term. Regulation Z provides that a transaction is consummated when the consumer becomes contractually obligated on the transaction under state law. The appellate court observed that the APR would be different if the dealership used the original contract date rather than the later renegotiated agreement date to calculate it. The trial court determined that a vehicle sale under California’s Vehicle Code is deemed completed and consummated when the buyer of the vehicle has paid the purchase price or has signed a purchase contract or security agreement and has taken physical possession or delivery of the vehicle. The appellate court found that the trial court erred by using the vehicle sale date as the Regulation Z consummation date rather than the date the consumer becomes contractually obligated on the credit transaction. The appellate court noted that other courts have found that, where a consumer enters into a second credit contract with a dealer relating to a vehicle sale, the consummation date of the credit transaction associated with the second contract is generally the date of the second contract. Notwithstanding the trial court’s error, the appellate court found that the plaintiffs were not necessarily entitled to judgment because the annual percentage rate may not need to be redisclosed in certain refinancings and for certain renegotiated agreements. The disclosed rate may fall within Regulation Z’s tolerances and would be deemed accurate. The appellate court concluded that the only potential violation under the Act was an inaccurately disclosed APR. But the appellate court rejected the plaintiffs’ claim that an inaccurately calculated APR would render the agreements unenforceable. The appellate court stated that it is not apparent that the Act provides any remedy for an inaccurately disclosed APR because the Act does not provide for statutory damages and provides for recovery of actual damages only for specific violations not relevant to the consumers’ claims. See Raceway Ford Cases, 2014 Cal. App. LEXIS 842 (Cal. App. September 16, 2014).

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


Tom ( and Nikki ( are partners in the law firm of Hudson Cook, LLP.  Tom has written 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 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, visit  Copyright 2014, all rights reserved.  Single publication rights only, to the Association. (11/14) HC# 4834-9894-5056.

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