By Nicole F. Munro and Thomas B. Hudson

Here’s our monthly article on selected legal developments in the auto sales, finance, and leasing world.  This month, the action involves the Federal Trade Commission and the Consumer Financial Protection Bureau.  As usual, our article features the “Case of the Month” and our “Compliance Tip”.

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.

Federal Developments

FTC Hosts PrivacyCon. On June 27, the FTC hosted PrivacyCon, which focused on the latest research and trends in consumer privacy and data security. The event involved four sessions of presentations and discussions on research submitted for the event. The first focused on research related to privacy policies, disclosures, and permissions and featured presentations on research examining such topics as the European Union General Data Protection Regulation’s impact on web privacy. The second explored research on consumer preferences, expectations, and behaviors, including a presentation on historical data on consumers’ understanding and attitudes about digital privacy and online tracking. The third focused on tracking and online advertising research, including a presentation examining paid and free apps. The last session focused on research related to vulnerabilities, leaks, and breach notifications. A webcast of the event is available on the FTC’s website.

CFPB Holds First Symposium Addressing Dodd-Frank’s Prohibition on Abusive Acts and Practices. On June 25, the CFPB held its first symposium addressing the Dodd-Frank Act’s prohibition on abusive acts and practices. The Dodd-Frank Act authorizes the Bureau to take enforcement, supervision, and rulemaking actions concerning unfair, deceptive, or abusive acts and practices. The Bureau notes that the meaning of “abusive” is less developed than the meaning of “unfair” and “deceptive,” which have been well defined by the FTC Act. The symposium provided a public forum for the CFPB and the public to hear various perspectives on the meaning of abusiveness. This first symposium had two panels of UDAAP experts. The first panel included a discussion with leading consumer protection academic experts on various policy issues relating to the abusive standard under Dodd-Frank. The second panel examined how the abusive standard has been used in practice and included leading legal experts in the field. The symposium also included remarks by Bureau Director Kathleen L. Kraninger and Deputy Director Brian Johnson.

CFPB Delays Compliance Date for Mandatory Underwriting Provisions of Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule. On June 17, the CFPB issued a final rule to delay the August 19, 2019, compliance date for the mandatory underwriting provisions of the CFPB’s 2017 rule governing Payday, Vehicle Title, and Certain High-Cost Installment Loans. Compliance with these provisions of the rule is delayed by 15 months, to November 19, 2020. The CFPB also made certain conforming changes and corrections to address several clerical and non-substantive errors it identified in the rule.

FTC Settles with Provider of DMS Software and Data Processing Services to Dealers. On June 12, the FTC announced a settlement with LightYear Dealer Technologies, LLC, d/b/a DealerBuilt, for violating the Gramm-Leach-Bliley Act’s Safeguards Rule and the FTC Act’s prohibition against unfair practices for failing to maintain adequate data security practices that led to a security breach of millions of consumers’ personal information.

FTC Updates CFPB on 2018 Enforcement Activities Related to Regs. Z, M, and E. On June 6, the FTC provided its annual letter to the CFPB concerning its 2018 enforcement activities related to compliance with Regulation Z (Truth in Lending Act), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Fund Transfer Act). The letter highlights, among other things, enforcement actions, rulemaking, and policy development related to vehicle financing and leasing, payday lending, and consumer electronics financing, as well as consumer protection issues related to servicemembers. With regard to vehicle financing and leasing, the letter highlighted the FTC’s continued efforts to combat deceptive dealer practices, as well as its continued work on a qualitative study of consumers’ experiences in buying and financing vehicles at dealerships.

Case of the Month

Two buyers bought cars from a dealership and signed conditional sales contracts. The dealership agreed to find financing for the buyers. The contracts provided that if the dealership could not obtain financing, it could cancel the contracts and retake the cars, but it must then return the down payments.

After the dealership was unable to obtain financing, it repossessed the cars, refused to return the buyers’ down payments, and challenged the buyers to sue. The buyers complained to the California Department of Motor Vehicles, which investigated the dealership and interviewed its owner. The investigator told the owner that he must return the down payments, but the owner refused.

The DMV held a disciplinary hearing to consider revocation of the dealership’s license for its refusal to return the down payments. The administrative law judge proposed an order by which the dealership must return the down payments to the buyers and have a probationary license for two years. The DMV adopted the proposed order.

The dealership petitioned the California Superior Court for a writ of administrative mandate to void the DMV’s order. The court declined the petition.

The California Court of Appeal affirmed the trial court’s decision to deny the dealership’s petition. The appellate court found substantial evidence that the dealership violated Section 2982.5(d) of the California Civil Code when it refused to return the down payments.

The appellate court explained that because the dealership agreed to arrange financing, the transactions were either bona fide credit sales or seller-assisted loans. The dealership argued that Section 2982.5(d) applied to seller-assisted loans, not credit sales, and that the transactions at issue were credit sales. The appellate court explained that in a bona fide credit sale, the seller intends to sell property on credit if the buyer obtains financing but to rescind the transaction if the buyer does not obtain financing. However, the dealership intended to abide by the terms of the sale contracts only if the buyers obtained financing; otherwise, it intended to keep the down payments despite the contracts’ terms.

The appellate court inferred the dealership’s intent for purposes of determining whether the transactions were seller-assisted loans from the dealership owner’s behavior, including his 14 years of experience in auto finance, his knowledge that the buyers were unlikely to sue, and his pattern of preying on vulnerable consumers. Because the appellate court found that the dealership intended to keep the down payments even if it could not obtain financing for the buyers, the court decided that the transactions were seller-assisted loans, not bona fide credit sales, and Section 2982.5(d) required the dealership to return the down payments.

Much of the court’s opinion in this case deals with the peculiarities of California law, but the takeaway here for dealers in other states is clear – just look at the Compliance Tip below.

Front Line Motor Cars v. Webb, 2019 Cal. App. LEXIS 430 (Cal. App. May 13, 2019).

This Month’s CARLAWYER© Compliance Tip

Unwinding a deal?  Re-contracting?  Both involve matters of state and federal law, and both are fraught with risk if not done properly.  Dealerships should have written procedures addressing these actions and should have those procedures reviewed and periodically updated by knowledgeable dealership compliance counsel.

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

Nikki ( is a Partner in the law firm of Hudson Cook, LLP., Editor in Chief of’s CARLAW®, a contributing author to the F&I Legal Desk Book and a frequent writer for Spot Delivery,® a monthly legal newsletter for auto dealers  Tom ( is Of Counsel to the firm, has written several books and is a frequent writer for Spot Delivery®.  He is the Senior Editor of CARLAW®.   For information, visit © 2019, all rights reserved. Single publication rights only, to the Association.


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