December 2016 – The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

We wish you and your families a very happy holiday and New Year.

Here’s our last 2016 report of 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.

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

 We saw yet another case this month involving a dealership whose computers were misaligned, causing the disclosures required by the Truth in Lending Act to appear where they didn’t belong.  If you are having these alignment problems, it would be a lot less expensive to have some reprograming done than to fight off a consumer’s complaint that your disclosures were faulty.

Federal Developments

 FTC Finally Issues Final Used Car Rule.  On November 10, the FTC announced final amendments to its Used Car Rule.  The FTC is revising the Buyers Guide by:

  • changing the description of an “As Is” sale;
  • placing boxes in the Buyers Guide that dealers can check to show whether a vehicle is covered by a third-party warranty and whether a service contract may be available;
  • providing a box dealers can check to show that an unexpired manufacturer’s warranty applies;
  • adding air bags and catalytic converters to the Buyers Guide’s list of major defects;
  • adding statements that direct consumers to obtain a vehicle history report, check for open recalls, visit for information on how to obtain a vehicle history report, and visit to check for open safety recalls;
  • adding a statement in Spanish to the English-language Buyers Guide advising Spanish-speaking consumers to ask for the Buyers Guide in Spanish if the dealer conducts the sale in Spanish; and
  • providing a Spanish translation of the statement that dealers may use to obtain a consumer’s acknowledgement of receipt of the Buyers Guide.

The amended rule permits dealers to use their remaining stock of Buyers Guides until January 27, 2018, a year after the effective date of the amended rule.

Time to Amend Your Pay Plan?  On November 28, the CFPB issued Compliance Bulletin 2016-03 warning supervised financial companies that sales and production incentive programs for employees and service providers may pose risks to consumers and lead to violations of federal consumer financial laws when such programs are not properly implemented and monitored.  The bulletin outlines existing CFPB guidance given in other contexts and highlights examples from the CFPB’s supervisory and enforcement experience in which incentives contributed to substantial consumer harm.  The bulletin also describes compliance management steps supervised entities should take to mitigate risks posed by incentive programs.

Where is the CFPB Going Next?  On November 28, the CFPB announced its fall 2016 statement of regulatory priorities.  Short-term priorities of particular interest to those in the auto sales and financing area: (1) the CFPB is considering a final arbitration rule for spring 2017; (2) there is no timetable for the small-dollar rule or the larger participant rule for installment lenders, both of which might have some unintended spill-over effects on auto finance; (3) the CFPB expects to convene a Small Business Regulatory Enforcement Fairness Act proceeding focusing on companies that collect their own debts; (4) the CFPB is analyzing the results of a survey of consumer experiences with debt collection and testing to determine what information would be useful for consumers to have about debt collection and their debts and how that information should be given to them; (5) the CFPB continues its research on section 1071, which requires financial institutions to report information about credit applications by women-owned, minority-owned, and small businesses (the CFPB states that it is in its early stages of implementing section 1071 and is currently focused on outreach and research to develop its understanding of the players, products, and practices in the business lending markets and of the potential ways to implement section 1071).  Long-term, the CFPB is looking at possible rulemaking for credit reporting and student loans. Of course, with the new administration, these priorities could change.

Which Credit and Lease Transactions are Covered?  On November 28, the CFPB and the FRB issued final rules on adjusting the thresholds for exempting certain consumer credit and lease transactions from the Truth in Lending Act and Consumer Leasing Act.  The Dodd-Frank Act provides that the TILA and CLA dollar amount thresholds must be adjusted annually by any annual percentage increase in the consumer price index.  The final rules say that if there is no annual percentage increase in the CPI, the CFPB and Board will not adjust the prior year’s thresholds.  The final rules also provide the agencies’ calculation method for adjustment in years after a year in which there is no annual percentage increase in the CPI.  Based on the CPI as of June 1, 2016, the exemption threshold remains at $54,600 through 2017.  Therefore, TILA and the CLA generally will apply to consumer credit transactions and consumer leases of $54,600 or less in 2017 – the same as the 2016 thresholds.

 Case of the Month

 Buyer Stated TILA Claim against Dealership and Finance Company for Failing to Disclose Additional Finance Charges Included in Inflated Sales Price: An individual went to a dealership and for $14,995 bought a used car with 103,724 miles on it and a history of front-end damage. The vehicle’s MSRP when it was new in 2007 was $14,295, and the NADA and Kelley Blue Book retail prices for the vehicle ranged from $5,000 to $6,000. The buyer agreed to an interest rate of approximately 24% in the retail installment sale contract. After the buyer experienced problems with the car that the dealership was unable to fix, she sued the dealership and the finance company to which her finance contract was assigned for violating the Truth in Lending Act, among other laws, by failing to disclose all financing charges. Specifically, she alleged that the sales price of the car was inflated to hide additional financing fees within the sales price. The defendants moved to dismiss. The Virginia federal trial court concluded that the buyer adequately alleged a claim that the defendants inflated the sales price of the car because it was financed, not purchased with cash. The court noted that the “excessive sales price in relation to the NADA and Kelley Blue Book value creates an inference that the dealership would not truly charge the same price to a cash customer, and thus failed to disclose the true extent of the financing charges.” Therefore, the court refused to dismiss the TILA claim against both defendants. See Harold v. TMC Enterprises, LLC, 2016 U.S. Dist. LEXIS 142928 (W.D. Va. October 17, 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 the F&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. (12/16). HC# 4811-0676-9469 v.1.

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