The CARLAWYER© August 2017

By Thomas B. Hudson and Nicole F. Munro

Here’s our monthly article on legal developments in the auto sales, finance and lease world.  The big news this month is the release by the Consumer Financial Protection Bureau of its final rule on arbitration.  As usual, this month’s article features our “Case of the Month” as well as several CFPB actions.

Why do we include items from other states? We want to show you 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 lawyer to learn how what we report might apply to you, or if you have questions.

This Month’s CARLAWYER© Compliance Tip

This one’s easy.  Note the announcement of the CFPB’s new arbitration rule, discussed immediately below.  If the documents your dealership uses in its transactions with customers include arbitration provisions, those provisions are going to require a legal review in time to meet the March, 2018 deadline.  You can’t start that process too soon!

Federal Developments

Arbitration Alert!  On July 10, the CFPB issued a new rule banning companies from using mandatory arbitration clauses that prohibit consumers from seeking class relief. The rule also requires covered providers of certain consumer financial products and services that are involved in an arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB and also to submit specified court records. The Dodd-Frank Act required the CFPB to study the use of mandatory arbitration clauses in consumer financial markets and authorized the CFPB to issue regulations in the public interest, for the protection of consumers, and based on findings consistent with the CFPB’s study. The CFPB’s study, released in March 2015, showed that credit card issuers representing more than half of all credit card debt, and banks representing 44 percent of insured deposits, use mandatory arbitration clauses. Yet, three out of four consumers the CFPB surveyed did not know whether their credit card agreement had an arbitration clause. The study did not address how findings regarding credit cards applied to other financial products and services. In October 2015, the CFPB published an outline of the proposals under consideration and convened a Small Business Review Panel to gather feedback from small companies. Besides consulting with small business representatives, the CFPB sought comments from the public, consumer groups, industry, and other interested parties before continuing with the rulemaking. In May 2016, the CFPB issued a proposed rule and asked for public comment, receiving more than 110,000 comments. The final rule’s effective date is September 18, 2017. The rule requires mandatory compliance for pre-dispute arbitration agreements entered into on or after March 19, 2018.

 Rules, Rules and More Rules.  On July 20 the CFPB issued its Spring 2017 rulemaking agenda.  In addition to the arbitration rule, the agenda lists proposed activities related to payday, auto title, and similar lending products, debt collection, overdraft programs on checking accounts, larger participant and non-depository lender registration, prepaid financial products and modernizing, streamlining, and clarifying consumer financial regulations.  The Bureau will also carry out its Dodd-Frank Act mandate to assess the effectiveness of significant rules five years after they are implemented, including seeking public comment, and will begin the first in a series of reviews of existing regulations that the CFPB inherited from other agencies through the transfer of authorities under the Dodd-Frank Act. Finally, the Bureau announced that it recently formed an internal task force to coordinate and deepen its focus on concerns about regulatory burdens and projects to identify and reduce unwarranted regulatory burdens consistent with its objectives under section 1021 of the Dodd-Frank Act.

Did We Make the Top Five?  On July 6, the CFPB issued a release outlining the top five complaints it was receiving regarding financial products and services.  The top five, you ask?

  1. Debt collection: Facing a debt you don’t owe (27 % of complaints)
  2. Mortgages: Problems when you’re unable to pay (23%)
  3. Credit reporting: Incorrect information on your credit report (17%)
  4. Credit card: Billing disputes with your credit card company (10%)
  5. Bank account or service: Account management questions (10%)

If our math is correct, that’s 87% of the complaints the CFPB has fielded.  You’ll note that auto financing and leasing didn’t make top billing.

Case of the Month

 Car Buyer’s Fraud Claim Failed Absent Evidence of Buyer’s Damages: A buyer bought a used car for $21,641 and obtained a “clean” title to the car from the New York State DMV. He drove the car 43,000 miles during the two years he owned it. When he tried to renew the car’s registration, the DMV told him it could not renew the registration due to a salvage notation in the vehicle history. The DMV issued him a salvage title. The buyer told the dealership where he bought the car about the salvage title and traded in the used car for a new one. The dealership assessed the trade-in value of the used car at $14,700. The buyer sued the dealership for damages of $18,355, the amount he had paid the dealership to date, for, among other things, violations of New Jersey’s Consumer Fraud Act. The buyer claimed that the dealership hid the fact that the used car was a salvage vehicle. The trial court granted the dealership’s motion for summary judgment. The Superior Court of New Jersey, Appellate Division, affirmed. Under the CFA, a plaintiff must show he suffered either an out-of-pocket loss or a loss in value due to the defendant’s unlawful conduct. As the appellate court explained, the buyer sought a full refund of the car’s purchase price, which was not the correct measure of damages. The correct measure of damages was the difference in value between the car as represented to the buyer and the car as it was in fact. However, the buyer did not demonstrate that the car was worth less when the dealership sold it to him than the amount he paid for it. According to the appellate court, the buyer also did not demonstrate that the dealership valued the car incorrectly as a trade-in, especially because the buyer drove it 43,000 miles. Because the buyer did not demonstrate he suffered any loss either when he bought the car or when he traded it in, his CFA claim failed. See Lee v. Hudson Toyota, 2017 N.J. Super. Unpub. LEXIS 1621 (N.J. Super. App. Div. July 5, 2017).

So there’s this month’s roundup!  Stay legal, and we’ll see you next month.


Tom ( is Of Counsel and Nikki ( is a partner 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 © 2017, all rights reserved. Single publication rights only, to the Association. (8/17). HC# 4852-4229-5116

Comments are closed.