It’s nearly the dog days of summer, but we’re back, passing on what we’ve recently learned about legal developments in the auto sales, finance and lease world. This month, we feature developments from the Consumer Financial Protection Bureau and the Federal Trade Commission, as well as our “Case of the 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
Does your compliance officer (don’t tell us you don’t have one) regularly visit the web sites of the CFPB, the FTC, your state’s Attorney General and your state’s motor vehicle and consumer protection agencies to see what they are up to? That’s a good (and inexpensive) way to head off legal problems before they get started. If that’s not on the schedule, it should be. Better yet, get alerts sent to your compliance officer. You don’t have to “”like” the CFPB or the FTC to follow them on Facebook, twitter, or to subscribe to receive alerts.
CFPB Targets Payday Lenders, May Hit Dealers and Finance Companies. The CFPB proposed a rule aimed at payday lending. The rule would require lenders to take steps to make sure consumers have the ability to repay their loans, and would cut off repeated debit attempts that rack up fees. These proposed rules would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-end loans. The CFPB’s definition of covered loans is broad enough to encompass some typical auto finance activities, so dealers and finance companies should seriously consider participating in the comment process.
CFPB Announces Auto Financing Aids. On June 9, the CFPB released an “auto loan shopping sheet,” a step-by-step guide, and additional online resources as part of a new “Know Before You Owe” initiative to help consumers shop for auto financing. The Bureau claims that the shopping sheet helps consumers see the total cost of auto financing and make apples-to-apples comparisons among financing products. The “Know Before You Owe” initiative walks consumers through each step of the auto finance process to help them decide how much they can afford to borrow and what options are right for them. The CFPB says its shopping sheet allows consumers to understand the total cost of financing (not just the monthly payment), comparison shop, and watch out for financing features and add-ons that could lead to costly surprises down the road. The Know Before You Owe auto financing initiative can be found at: , and the shopping sheet can be found at:
CFPB Eyes Car Financing. On June 27, the CFPB released a report entitled “Consumer Voices on Automobile Financing,” which examines how consumers navigate the process of financing a vehicle. The report is based on findings from consumer focus group research conducted by the Bureau and consumer complaint data submitted to the Bureau. The Bureau reportedly found that while many consumers extensively research the types of vehicles they want to buy, most do not take as much time to research available financing options. Also, the Bureau’s analysis of the complaint data shows consumers sometimes had difficulty understanding financing features during loan negotiations. (The Bureau insists on erroneously referring to all auto financing transactions as “loans.”) According to the Bureau, the complaint data also highlighted consumer problems with the sales process for extended warranties and other add-ons, and few consumers reported focusing on the total cost of financing when they negotiated their financing contracts.
More CFPB Complaint Data. On June 28, the CFPBreleased its monthly complaint report, which highlights trends in the complaint data the Bureau receives through its Consumer Complaint Database. The monthly report includes complaint data specific to certain companies, overall complaint volume and complaint volume by state, and other trends in the data. Each month, the report spotlights complaints about a particular issue and complaints from a particular geographic location. The June report focuses on complaints related to vehicle financing and leases, installment loans, title loans, and pawn loans, and highlights complaints from consumers residing in Arkansas.
The FTC Ups the Ante. The FTC announced on June 29 that it has approved final amendments to its rules that adjust the maximum civil penalty dollar amounts for violations of specific laws the FTC enforces, as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The Act directs agencies to implement a “catch-up” inflation adjustment based on a prescribed formula. The maximum civil penalty amount, effective August 1, has increased from $16,000 to $40,000 for a number of violations.
Case of the Month
Security Interest Perfected More than 30 Days after Debtor Took Possession of Car and within 90 Days of Debtor’s Bankruptcy Filing Avoided as Preferential Transfer: An individual and his company bought a car on December 29, 2014. The individual applied for a certificate of title on January 30, and the title, listing the lienholder, was issued on February 17. The individual and his wife filed a Chapter 7 bankruptcy petition on April 16, and the Chapter 7 trustee filed an adversary proceeding seeking to avoid the lien as a preferential transfer. The federal bankruptcy court granted judgment for the trustee. The court noted that the only element at issue in the case was whether the transfer of a security interest in the car was for or on account of an antecedent debt owed by the individual before the transfer was made. Section 547(e)(2)(A) of the Bankruptcy Code provides that if a transfer is perfected more than 30 days after the transfer takes effect between the transferor and the transferee, the transfer is deemed made at the time the transfer is perfected. The court found that the transfer was not perfected within 30 days of the date the individual signed the retail installment contract and took possession of the car and, therefore, the transfer of the security interest was on account of an antecedent debt. Finally, the court rejected the lienholder’s argument that the “new value” defense applied. That defense provides an exception to the finding of a preferential transfer for a transfer that creates a security interest in property acquired by the debtor for new value if the security interest is perfected on or before 30 days after the debtor receives possession of the property. Because the security interest was perfected, at the earliest, 32 days after the individual took possession of the car, the court found that the defense did not apply. You can bet that the bank that bought the finance contract at issue in this case will be demanding that the dealer make good on the bank’s losses. See In re Resler (Reynard v. Bank of America, N.A.), 2016 Bankr. LEXIS 2187 (Bankr. D. Idaho June 3, 2016).
So there’s this month’s roundup! Stay legal, and we’ll see you next month.
Tom (thudson) and Nikki (nmunro) 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 2016, all rights reserved. Single publication rights only, to the Association. (7/16). HC# 4823-2513-7204.