May 2015 – The CARLAWYER©

We are back with another month’s headaches for dealers.  This month, we feature developments primarily from the Consumer Financial Protection Bureau and the Federal Trade Commission.  We identified several developments we thought might interest to those in the auto sales, finance or leasing business.  Look below at our selected legislative and regulatory highlights.  We also recap some of the 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 questions.

This Month’s CARLAWYER© Compliance Tip

Do you carefully obey the laws and regulations that apply to your dealership?  Even the most careful dealer can run afoul of the regulators, even when the dealership is doing nothing wrong, when the dealer has no written compliance policies and procedures.  So document the fact that you are in compliance, and schedule a periodic review to update what you have created.  Finally, audit your dealership’s performance – is the dealership actually doing what its written policies and procedures say it is doing?

Federal Developments

We’re Talking About Debt Collection!  The FTC and the Office of the New York Attorney General will host a meeting on June 15, 2015 in Buffalo, New York to discuss consumer protection issues with the debt collection industry. This will be the first of several “Debt Collection Dialogues” the FTC will hold around the country. Representatives from the two agencies will discuss recent enforcement actions, consumer complaints about debt collection practices, and compliance issues. A representative from the Consumer Financial Protection Bureau will participate as well.

Cut That Out!  On April 8, the CFPB announced a lawsuit against several debt collection companies and their individual owners for allegedly threatening, harassing, and deceiving consumers in order to collect debt that the consumers did not actually owe or was not payable to those collecting it. The CFPB also brought charges against the telemarketing company that initiated millions of automated phone calls to consumers as part of the collection process and the payment processors that enabled the debt collectors to access consumers’ bank accounts, alleging that these parties knew about the alleged unlawful behavior.

A Lot About Allotments.  On April 20, the CFPB took action against Fort Knox National Company and its subsidiary, Military Assistance Company, for charging servicemembers millions of dollars in hidden fees. The military allotment processor did not clearly disclose various recurring fees, which could total $100 or more. Under a consent order, Fort Knox Company and MAC will pay about $3.1 million in relief to harmed servicemembers. The CFPB says Fort Knox National Company and Military Assistance Company enrolled servicemembers without adequately disclosing their fees, and then charged servicemembers without telling them.  Kentucky-based Fort Knox National Company, through its subsidiary, Military Assistance Company (also known as MAC), was one of the nation’s largest third-party processors of military allotments. With MAC, servicemembers would set up an allotment that transferred part of their pay into a pooled bank account controlled by MAC. Servicemembers would then pay MAC a monthly service charge – typically between $3 and $5 – to have MAC make monthly payments to a creditor out of the account. Sometimes, however, excess funds accumulated in the payment account, often without servicemembers’ knowledge. An excess, or “residual,” balance might occur, for example, where a debt that a servicemember owed was fully paid off but the servicemember had not yet stopped the automatic paycheck deductions.

The CFPB alleged that the company routinely charged recurring, undisclosed fees against these residual balances. Tens of thousands of servicemembers had money slowly drained from their accounts because they were not notified about the charges. And, since active allotments would replenish the money in the payment account, MAC continued to take fees in a way that servicemembers could not easily track. Under the terms of the consent order, Fort Knox and MAC are required to provide about $3.1 million in relief to harmed servicemembers. Servicemembers eligible for relief will be contacted by the CFPB.

Photo-op!  On April 27, the CFPB released its third “Snapshot of Complaints Received from Servicemembers, Veterans and their Families.” The report details the data and trends from complaints the CFPB has received from members of the military community since July 2011. Categories with the most complaints from the military community are debt collection, credit reporting, and student loans. The CFPB also released its third Fair Lending Report, detailing the Bureau’s efforts to address discrimination in connection with consumer financial products and services.


Arbitration Agreement Not Signed by Dealership Still Enforceable: In connection with her car purchase, the buyer signed an arbitration agreement that stated that it was between her and “the Dealer signing below and anyone to whom the Dealer assigns this Arbitration Agreement.” However, no one from the dealership signed the agreement. The buyer sued the dealership, the assignee of her retail installment sale contract, and others over alleged misrepresentations made to her about the car. The defendants moved to compel arbitration of the buyer’s claims, and the U.S. District Court for the Eastern District of New York granted the motion. The court noted that, under New York law, a valid arbitration agreement only requires proof that the parties intended to be bound by such an agreement. Further, the court stated, New York’s arbitration statute requires only a written agreement – not a signed, written agreement. Finally, the court found that the language in the agreement stating the parties to the arbitration agreement merely determined to whom the arbitration agreement applied, not whether it was effective. See Cho v. JS Autoworld 1 Ltd., 2015 U.S. Dist. LEXIS 46585 (E.D.N.Y. April 9, 2015).

Spot-Delivered Vehicle Deemed Property of Buyer’s Bankruptcy Estate: A car buyer took possession of a spot-delivered car eight days before filing for bankruptcy. The bankruptcy court determined that the buyer owned the car when she took possession that day, and the car therefore became part of her bankruptcy estate and was protected under the Bankruptcy Code from any recovery action by the dealership. The federal District Court affirmed. The parties’ bailment contract stated that completion of the sale was conditioned on the buyer obtaining financing and that the dealership retained an ownership interest in the car until the financing was obtained. The district court determined that, under Missouri law, regardless of whether a sale is conditioned on the buyer making payment and any language purporting to reserve an ownership interest in the seller, the buyer takes title as soon as delivery occurs. See In re Heien (AutoCenters St. Charles, LLC v. Heien), 2015 U.S. Dist. LEXIS 31747 (E.D. Mo. March16, 2015).

Dealership Must Give Adverse Action Notice after Attempting to Change Terms of Credit and Revoking Credit: A dealership sold a car to a buyer, who made a $1,248 down payment and signed a retail installment sale contract for the remaining amount owed. After the dealership assigned the contract, the dealership demanded that the buyer make an additional $1,500 down payment. Because she was unable to do so, the dealership revoked the RISC and kept the car. The buyer sued the dealership for violating, among other statutes, the Equal Credit Opportunity Act. The federal trial court granted the buyer’s motion for summary judgment. The buyer claimed the dealership violated the ECOA by failing to give her an adverse action notice when it attempted to change the terms of her RISC and revoked her credit. The court found that the dealership was a “creditor” required to provide an adverse action notice because it sets the terms of its financing agreements and routinely restructures deals. Because the dealership failed to send an adverse action notice to the buyer and admitted that it never issues adverse action notices, the court awarded the buyer actual damages of $1,248 and punitive damages of $10,000. See Tyson v. Sterling Rental, Inc., 2015 U.S. Dist. LEXIS 33132 (E.D. Mich. March 18, 2015).

Dealer’s TILA Insurance Coverage Does Not Cover State Law Claims: The owner of a dealership bought an insurance policy that provided for up to $300,000 in Truth in Lending errors and omissions coverage for amounts the dealership was required to pay as damages under Section 130 of the Truth in Lending Act for failure to comply with the Act. After a car buyer sued the dealership and its owner for various violations of California law in connection with her purchase of a used car, the dealership tendered the action to the insurance company, which denied the claim. The dealership’s owner sued for denial of coverage. The trial court dismissed the complaint, and the Court of Appeal of California affirmed. The dealership’s owner argued that even though the buyer’s complaint did not allege claims under TILA, the facts she alleged were sufficient to constitute a TILA claim, and he insisted that the insurance policy provided coverage for conduct, not for a specific cause of action. The appellate court disagreed, noting that the policy only provided limited coverage for TILA claims and not broad coverage for the state law claims that the buyer alleged in her complaint. See Luna v. Praetorian Insurance Company, 2015 Cal. App. Unpub. LEXIS 2260 (Cal. App. March 30, 2015).

So there’s this month’s roundup! Take your aspirin, 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 and is the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers.  He is Editor in Chief of CARLAW®, a monthly report of legal developments for the auto finance and leasing industry.  Nikki is a contributing author to theF&I Legal Desk Book and frequently writes for Spot Delivery. For information, visit  Copyright 2015, all rights reserved.  Single publication rights only, to the Association. (4/15).  HC# 4847-5588-1507.

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