June 2015 – The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

We are back with more headaches for dealers. This month, we feature developments from the Consumer Financial Protection Bureau and the Federal Trade Commission we thought might interest to those in the auto sales, finance or leasing business. We also recap some of the auto sale and financing lawsuits we follow each month. Remember – we aren’t reporting every recent legal development, only 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

Is your dealership located near a military base? Do you do business with servicemembers? If you do, do you have policies and procedures in place to assure that you are obeying the federal Servicemembers Civil Relief Act when you deal with servicemembers? And does your state have special legal protections for servicemembers that apply to your transactions? If you don’t have your compliance for these transactions down cold, pick up the phone, call the lawyer and get them in place. The CFPB has few things on its radar that it considers more important than protecting servicemembers.

Federal Developments

Guaranteed to be Good Reading. On May 22, the FTC announced that it completed its review of the interpretations, rules, and guides under the Magnuson-Moss Warranty Act and will keep them in their current form, with the exception of Part 700.10 of the interpretations. The revision clarifies that implied tying – warranty language that implies to a consumer that warranty coverage is conditioned on the use of select parts or service – is deceptive. Part 700.10 is also revised to state that, to the extent the MMWA’s service contract provisions apply to the insurance business, they are effective if they do not interfere with state laws regulating the business of insurance.

More Rules on the Way. On May 22, the CFPB published a semi-annual update to its rulemaking agenda, which includes, among other things, initiatives concerning the proposed regulation of title lending, debt collection, and arbitration clauses and a proposal to define “larger participants” in the auto financing market. The rulemaking agenda will be updated again in the fall.


Finance Company’s Lien on Car Not Avoidable in Bankruptcy Where Perfection Related Back to Date Title Application Was Executed: Buyers bought a car on February 14, 2014. The finance company mailed the title application to the Arizona Motor Vehicle Department on March 6. The department received the application on March 11 but did not process and endorse it until March 20. On May 8, the buyers filed a Chapter 7 bankruptcy petition. The Chapter 7 trustee sued the finance company to avoid its lien on the buyers’ car. The parties agreed that the trustee would be successful only if perfection occurred on March 20. The court granted the finance company’s summary judgment motion and denied the trustee’s summary judgment motion. The court noted that Arizona law was amended in 2013 to provide that if a title application is delivered to the DMV within 30 days after its execution, then perfection occurs as of the date of execution. Because the DMV received the buyers’ title application within 30 days of its execution – even though it did not process and endorse the application until nine days later – perfection occurred on the date the application was executed, and the finance company’s lien was not avoidable. See In re Hyden, 2015 Bankr. LEXIS 1546 (Bankr. D. Ariz. April 28, 2015).

Car Owners Stated Claims Against Creditor that Repossessed and Sold Vehicle: A creditor repossessed and sold a car for nonpayment and then sought payment of the deficiency. The car owners filed a class action, claiming that the creditor violated the Maryland Credit Grantor Closed End Credit Provisions (“CLEC”) in connection with the repossession and sale. The creditor moved to dismiss the complaint, and the federal trial court granted the motion in part and denied it in part. After rejecting the owners’ claims regarding their failure to receive the creditor’s notice of intent to repossess, the court addressed the owners’ claim that although the creditor stated in its redemption notice that their car would be sold at public auction, the car was actually sold at a private sale, and the creditor failed to provide an accounting required by the CLEC for private sales. The court found that the owners adequately alleged a claim under the CLEC where they stated that the auctioneer used by the creditor advertises that its sales are private, dealer-only sales. Finally, the owners claimed that the creditor did not sell the car in a commercially reasonable manner, as required by the CLEC, because it sold the car in West Virginia, where there is a smaller population than where they live 380 miles away in Maryland, and for half or less than half of its value. The court found that the owners stated a claim that the low sales price and sale in an improper location constituted a commercially unreasonable sale. See Wiley v. Regional Acceptance Corporation, 2015 U.S. Dist. LEXIS 59494 (D. Md. May 4, 2015).

Dealership’s Failure to Install Hand Controls on Vehicle for Test Drive by Person with Disabilities May Violate Federal and California Law: A paraplegic went to a car dealership to test drive a vehicle. He was denied the test drive because the dealership does not install hand controls on vehicles for persons with disabilities. The man sued the dealership for violating the Americans with Disabilities Act, the Unruh Civil Rights Act, and California’s Disabled Persons Act. The dealership moved to dismiss. The regulations implementing the ADA provide that a “public accommodation shall remove architectural barriers in existing facilities … where such removal is readily achievable, i.e., easily accomplishable and able to be carried out without much difficulty or expense.” The regulations also provide a list of items as examples of readily removable barriers, including “installing vehicle hand controls.” The U.S. District Court for the Southern District of California concluded that the man sufficiently alleged that installation of the controls is readily achievable. The ADA also states that reasonable modifications are required “unless the entity can demonstrate that making such modifications would fundamentally alter the nature of such goods, services, facilities, privileges, advantages, or accommodations.” The court concluded that the man also sufficiently alleged that installation of controls would not fundamentally alter the nature of the vehicles for sale at the dealership where he alleged that there are numerous hand control options that would cause no damage to the vehicle and would require modest training and implementation. Therefore, the court denied the motion to dismiss the ADA claim. Because a violation of the ADA would constitute a violation of the Unruh Act and the Disabled Persons Act, the court refused to dismiss those claims as well. See Schutza v. CarMax Auto Superstores California, LLC, 2015 U.S. Dist. LEXIS 48383 (S.D. Cal. April 13, 2015).

Dealership Not Required to Give Adverse Action Notice to Consumer upon Unwinding of Spot Delivery for Failure to Provide Tax Returns: A woman went to a dealership to buy a car. She completed a financing application, traded in her old vehicle, and paid a deposit for the new car. The dealership let her take the new car home even though the financing application was still pending. More than a week later, the dealership allegedly informed her that it needed a particular tax form so that the finance company could obtain her tax returns. She then learned that she had never filed the relevant returns. An employee at the dealership allegedly told her that without her returns, financing could be obtained only if her husband co-signed. She did not want to have her husband co-sign. She later returned the vehicle because the financing did not go through. About a week after that, the finance company sent her a letter informing her that it denied her application based in whole or in part on her credit report. The dealership returned her trade-in and refunded her deposit. The woman sued the dealership for violating the Fair Credit Reporting Act. The dealership moved for summary judgment. The federal trial court granted the motion. The woman alleged that the dealership violated the FCRA by failing to provide her with a notice of adverse action. Section 1681m of the FCRA provides for civil liability for “any person [that] takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report,” if the person fails to give the consumer notice of the adverse action. The dealership argued that its decision to require the woman to return the car was based on her failure to file tax returns, not on her credit report, and, therefore, it was not required to provide an adverse action notice. The court agreed. The court also added that there is no private cause of action for a violation of Section 1681m. See Sterling v. Ourisman Chevrolet of Bowie, Inc., 2015 U.S. Dist. LEXIS 60531 (D. Md. May 8, 2015).

So there’s this month’s roundup! Take your aspirin, 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, 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 the F&I Legal Desk Book and frequently writes for Spot Delivery. For information, visit www.counselorlibrary.com. Copyright CounselorLibrary.com 2015, all rights reserved. Single publication rights only, to the Association. (6/15). HC# 4812-1000-1444.

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