August 2016 – The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

It’s after the All-Star break, and summer’s on the wane, with the thermometer seeming to reach new highs every day.  But despite the heat, 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, the Federal Trade Commission, and a group of state Attorneys General, 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

 How well does your dealership score on protecting the privacy of its customers?  Take a stroll around your operation and do a little detecting.  Can the conversation between a buyer and a salesman be overheard by others?  Are sales and financing documents left out on desks, in view of anyone walking by?  When your personnel leave their desks, do they secure protected customer information?  What does your dealership’s privacy policy say about how you are handling your customers’ protected information?  Is that description accurate?  If that description doesn’t match what you are seeing, it’s time to do a little compliance heavy lifting.  Oh, and don’t forget to require any third party vendor that has your customer’s protected information to safeguard it.

Federal Developments

 The Inside Scoop on CFPB Actions.  On June 30, the CFPB issued its Summer 2016, 12thedition, of Supervisory Highlights, covering its supervisory activities completed generally between January 2016 and April 2016.  In the report, the CFPB shares recent supervisory observations in the areas of vehicle financing, debt collection, mortgage origination, small-dollar lending, and fair lending.  In addition to public enforcement actions, the report reveals issues uncovered by the CFPB during its supervisory examinations that are resolved without public enforcement actions.  The non-public supervisory actions covered in the report include alleged illegal activity in the area of vehicle financing, resulting in restitution of approximately $24.5 million to consumers.  Highlighted violations related to auto finance include deceptive advertising of GAP products and CMS deficiencies, which allowed for violation of consumer financial services laws.  When examinations determine whether a supervised entity has violated a statute or regulation, the CFPB directs the entity to implement appropriate corrective measures, including remediation of consumer harm when appropriate. The report does not refer to specific institutions unless they were subject to public enforcement actions.  See

Shopping for a Car?  On July 8, the FTC released four 60-second videos intended to help consumers shop for cars.  The four videos offer information on how to identify deceptive car advertisements, buying a used car, financing a car, and understanding add-on products sold in connection with a car purchase. Everyone in your dealership should watch these videos to see what the regulators are telling car buyers.

AGs Scold Agencies.  On July 11, the attorneys general from 15 states sent a letter to members of Congress urging them to place limits on federal agencies that create and enforce regulations by strengthening the Administrative Procedure Act.  In the letter, likely aimed primarily at the CFPB, the AGs state that federal agencies are, with increasing frequency, (1) issuing guidance documents, interpretive rules, and policy statements that effectively bind regulated parties, but are not required to go through the APA’s notice and comment process; (2) adopting regulations without statutory authority; (3) failing to consider regulatory costs; and (4) failing to fully consider the effect of their regulations on states and state law.  The letter notes that the APA requires an agency to publish a notice of proposed rulemaking in the Federal Register and provide for a comment period in order for the public to inform the agency when a rulemaking is contrary to statutory authority, based on unsound reasoning, or lacks factual support.  The attorneys general express concern that federal agencies often avoid such compliance with the APA.  The letter explains that congressional action is needed to ensure that agencies engage in transparent rulemaking.

Servicemembers and Repossession.  On July 26, the Justice Department sued a Michigan-based credit union alleging that it violated the Servicemembers Civil Relief Act by repossessing vehicles owned by protected servicemembers without obtaining the necessary court orders.  The complaint also alleged that the credit union’s vehicle repossession procedures did not include a process to determine debtors’ military status before conducting repossessions.  The SCRA requires a court to review and approve any repossession if the servicemember obtained financing for a vehicle and made a payment before entering military service.

Debt Collection in the Spotlight.  The CFPB held a field hearing about debt collection on July 28, 2016 in Sacramento, California.  The hearing featured remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.  The CFPB simultaneously published a proposed rule to regulate third-party debt collectors, and indicated that another proposed rule to regulate creditors collecting their own debt would be forthcoming.

Case of the Month

Claims Based on Dealership’s Failure to Disclose Prior Damage to Car Not Conclusively Defeated by “As-Is” Clause: A buyer bought a used car from a dealership. The buyers guide sticker on the car’s window stated that the car was being sold “as-is.” During the negotiations, frame/unibody damage to the car was not disclosed to the buyer.  The salesperson told the buyer that the car was a “good car” and that she could trade it in for something bigger after about a year. Less than a year later, the buyer started looking for a larger car, but a different dealership would not accept her car as a trade-in because of the frame/unibody damage. The buyer sued the dealership where she bought the car for violating the Texas Deceptive Trade Practices Act by failing to disclose known information about the car to her and by committing an unconscionable action or course of action. The trial court granted the dealership’s motion for a directed verdict, finding that the as-is clause negated causation as a matter of law. The buyer appealed.

The appellate court referenced a Texas Supreme Court case holding that an as-is clause can conclusively negate the element of causation and defeat claims for DTPA violations, fraud, and negligence. However, the appellate court provided two exceptions to enforceability of an as-is clause: (1) fraudulent representation or concealment of information by the seller, and (2) where an as-is clause appears in a standard form contract that cannot be negotiated, particularly if the parties are not equally sophisticated. The appellate court concluded that both exceptions could apply. With regard to the second exception, the appellate court first found that the parties did not have equal bargaining positions. Second, the as-is clause was not clear because the average consumer could reasonably construe it to relate only to repairs. However, the buyer’s claims were not based on the dealership’s failure to repair her vehicle. Third, the appellate court found that because the as-is clause was a pre-printed, boilerplate provision required by law and appears on every used vehicle that is sold, the boilerplate nature of the as-is clause also weighed against its enforceability. With respect to the first exception, the appellate court concluded that the evidence raised a fact issue regarding whether the dealership’s fraudulent representation or concealment induced the buyer to buy the car. The appellate court found that the buyer provided sufficient evidence of fraudulent representation by alleging that the salesperson told her the car was a “good car” and that she would be able to bring it back after a year and trade it in for a different car. Because the buyer provided evidence that she could not trade it in after a year, she raised a fact issue as to whether the salesperson’s representations about the car were false. An issue of fact also existed as to whether the representations were material and whether the salesperson intended for the buyer to rely on the representations. Accordingly, the appellate court reversed the trial court’s judgment on the DTPA claims and remanded the case. See Bishop v. Creditplex Auto Sales, L.L.C., 2016 Tex. App. LEXIS 6719 (Tex. App. June 23, 2016).

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 theF&I Legal Desk Book and frequently writes for Spot Delivery. For information, visit Copyright 2016, all rights reserved. Single publication rights only, to the Association. (8/16). HC# 4810-5998-5973.

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