December 2015 – The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

Hello again!  This month, we feature developments from the Consumer Financial Protection Bureau and the Federal Trade Commission we thought might interest 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 industry.

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

Did you know that the federal disclosure rules are very specific about how dealers handle “deferred down payments” (also called “pickup payments”)?  Many dealers who accept deferred down payments do so by using so-called “side notes” or postdated checks.  These arrangements usually don’t comply with the federal rules, raise other unpleasant legal issues and leave dealers on the hook for class action liability risks.  If your lawyer hasn’t blessed your pickup payment disclosures and practices, tack that chore onto the end of your to-do list.

Federal Developments

Reforming the CFPB?  On November 18, the U.S. House of Representatives approved H.R. 1737, titled the “Reforming CFPB Indirect Auto Finance Act,” by a vote of 332-96.  The bill, supported by all 244 Republicans and 88 of the 184 Democrats voting, nullifies CFPB Bulletin 2013-02, dealing with dealer participation, and requires the CFPB to satisfy certain procedural steps before issuing future guidance related to indirect auto financing.

House Committee Fires a Shot Over the CFPB’s Bow.  On November 24, the U.S. House Financial Services Committee chaired by Rep. Jeb Hensarling of Texas, released a report titled, “Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending.”  The 54-page report is a broadside attack on the Bureau’s attempt to regulate auto financing practices of dealers exempt from its jurisdiction.

No Change in TILA and CLA Coverage Amounts.  Many dealers are unaware that the federal disclosure laws don’t apply to some of their transactions.  On November 25, the CFPB and the FRB announced that they are not adjusting the dollar thresholds under the Truth in Lending Act and the Consumer Leasing Act for exempt consumer credit and lease transactions. The Dodd-Frank Act provides that the dollar amount thresholds for TILA and the CLA must be adjusted annually by any annual percentage increase in the consumer price index. Because the consumer price index showed a decrease as of June 1, 2015, there will be no 2016 adjustment. Therefore, the protections of TILA and the CLA generally will apply to consumer credit transactions (other than private education loans and loans secured by real property, such as mortgages) and consumer leases of $54,600 or less in 2016 – the same thresholds for 2015.

The FTC Asks for “Holder Rule” Comments.  On November 25, the FTC announced that it is seeking public comment on the efficiency, costs, benefits, and impact of the Holder Rule, which protects the rights of consumers who make a purchase using credit obtained through a merchant.  The Rule, formally called the “Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses,” protects consumers when merchants, such as car dealers, sell consumers’ credit contracts to banks, finance companies or others. Specifically, it preserves a consumer’s right to assert the same legal claims and defenses he or she would have against the seller who originally provided the credit against anyone who buys the credit contract. Under the Rule, a consumer can cite a seller’s misconduct to defend against a creditor’s lawsuit for money owed under the contract, or to seek a refund of money paid under the contract.


Arbitration Agreement Included in English Version, but not Spanish Version, of Sales Contract is Unenforceable:  When a buyer bought a car, the negotiations occurred primarily in Spanish.  The buyer signed a conditional sales contract and security agreement.  The dealership gave him copies of the contract in English and Spanish.  The English version included an arbitration provision, but the Spanish version did not.  The dealership also gave him a copy of a GAP contract in English, but not in Spanish.  The buyer sued the assignee of the contract based on the failure to provide a Spanish translation of the GAP contract.  The assignee moved to compel arbitration.  The buyer argued that there was no agreement to arbitrate because the Spanish version of the contract did not include an arbitration provision and the words “arbitration” or “alternative dispute resolution” never came up during negotiations.  The trial court denied the assignee’s motion to compel arbitration.  The California Court of Appeal affirmed.  The appellate court reasoned that by providing the buyer a translation that did not even reference arbitration, the dealership deprived him of a reasonable opportunity to learn the character and essential terms of the arbitration agreement he signed.  See Ramos v. Westlake Services LLC, 2015 Cal. App. Unpub. LEXIS 7839 (Cal. App. October 30, 2015).

Defendant Required to Pay Damages for Failing to Return Car after Dealer Rescinded Sale to Protected Individual:  A protected individual who was not legally able to contract bought a car from a dealership.  The individual’s wife and conservator instructed him to return the car, which he did a few days after the purchase, although he later reclaimed the car.  After receiving a bill for the monthly car payment, the wife informed the dealership of her status as conservator and of her husband’s inability to contract.  The dealership rescinded the contract and demanded return of the car by May 15.  The car was finally returned in December, with 12,000 miles on it.  The dealership sued the wife for unjust enrichment for the car’s depreciation and her unjust retention and use of the car, and the trial court awarded damages to the dealership.  The Court of Appeals of Michigan affirmed.  The wife argued that her retention of the vehicle was not unjust under the circumstances and that the dealership acted with unclean hands by selling the car to a protected individual.  The appellate court found that even though the dealership was at fault for selling the vehicle, it remediated that problem.  As a result, the wife was not justified in refusing to return the car or make payment after the dealership rescinded the sale.  Furthermore, the appellate court found that to the extent the dealership acted with unclean hands, it did so only until it rescinded the contract.  Because the trial court only awarded damages for the period after the dealership rescinded the contract, the appellate court found that the wife did not have a claim that the dealership acted with unclean hands during that period.  See In re Nickel (Suburban Toyota, LLC v. Nickel), 2015 Mich. App. LEXIS 2045 (Mich. App. November 3, 2015).

Closing Fee Charged by SC Dealers Must be Directly Related to Expenses Incurred in Closing Vehicle Sale:  A car buyer filed a class action against a dealership for violating the South Carolina Dealers Act by charging its customers closing fees that were not calculated to reimburse the dealership for actual closing costs.  A jury found for the buyer in the amount of $1,445,786, representing the closing fees the dealership collected from customers during the 4-year period preceding the filing of the suit.  In post-trial rulings, the trial court denied the dealership’s motions to overturn or reduce the jury’s verdict, granted the buyer’s motion to double the actual damages award, as required by the Dealers Act, and to award attorneys’ fees and costs, and denied the buyer’s motion for prejudgment interest.  The Supreme Court of South Carolina affirmed.  The dealership argued that its compliance with the state’s Closing Fee Statute by paying an annual registration fee to the Department of Consumer Affairs, including the closing fee in the advertised price of the vehicle, disclosing the fee on the sales contract, and displaying the fee in a conspicuous place in the dealership absolved it of liability.  The high court disagreed, noting that the dealership’s procedural compliance with the statute merely enabled it to charge a closing fee but did not absolve it from its responsibility to accurately assess the amount of the fee it charged.  Moreover, the high court found that a dealership that decides to charge a closing fee “must account for the costs that comprise this fee” – costs that are “directly related to the expenses incurred in closing the sale of a motor vehicle.”  In addition, the high court determined that the buyer’s voluntary payment of a $299 closing fee did not bar her from asserting her claim where the court determined that she lacked full knowledge of the costs that went into the determination of the amount of the fee.  See Freeman v. J.L.H. Investments, LP, 2015 S.C. LEXIS 367 (S.D. November 4, 2015).

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 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  Copyright 2015, all rights reserved.  Single publication rights only, to the Association. (11/15). HC# 4813-2078-0842.

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