By Thomas B. Hudson and Nicole Frush Munro
August was a slow month in Washington, but we found a few interesting items for you. This month, we feature developments from the Consumer Financial Protection Bureau, the Federal Trade Commission and the Pennsylvania Attorney General we thought might interest to those in the auto sales, finance or leasing business. We also recap some of the auto sale and financing lawsuits we follow each month. Remember – we aren’t reporting every recent legal development, only those we think might be particularly important or interesting to dealers.
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
State attorneys general have their collective hair on fire about dealer advertising. Most of the advertising violations the AGs are prosecuting are for violations of some pretty basic rules. Do you know the federal and state advertising rules that apply to your dealership? If not, urge your state dealer association to put on a “Car Dealer Advertising Basics” seminar or webinar. Also, collect all the advertising rules into a manual, and have your lawyer confirm that you’ve found them all. Finally, schedule periodic reviews of the material you have gathered and periodic training of the employees responsible for your ads.
E-Closings in the F&I Office? On August 5, the CFPB published a report on its “Know Before You Owe” eClosing project which found that borrowers can benefit from electronic closings when navigating the mortgage closing process. Specifically, the results of the pilot indicate that those who closed their mortgage using an electronic platform are generally better off on measures of understanding, efficiency, and feeling empowered than borrowers who used just paper forms.
In April 2014 the CFPB released a report that outlined the major pain points associated with the closing process – the last step before consumers are contractually obligated to their loans. The report found that consumers felt like they did not have enough time to review the documents. Consumers also felt overwhelmed by the stack of complex paperwork. Finally, consumers complained about finding errors in the documents.
The CFPB identified electronic closings, also known as eClosings, as one solution to address some of these pain points. Electronic closings rely on technology for borrowers to view and sign closing documents electronically. The benefits can include faster delivery of the documents and embedded links to help consumers understand specific terms as they come across them.
The report, “Leveraging technology to empower mortgage consumers at closing” is available at: http://files.consumerfinance.gov/f/201508_cfpb_leveraging-technology-to-empower-mortgage-consumers-at-closing.pdf
The CFPB’s report focused on mortgage lending, but some of its findings and conclusions might well apply in the auto finance area, as well.
FTC Interested in Debt Collection. On August 6, the FTC announced the panels for its September 29 Dallas meeting on debt collection. The FTC will host a similar meeting in Atlanta on November 18. The FTC’s first such meeting with debt collection industry leaders and professionals was held in New York in June. The participants will discuss enforcement actions, consumer complaints, compliance issues, and industry best practices. Both events are free and open to the public.
News from the Complaint Department. On August 25, the CFPB released its second monthly complaint report, which highlights trends in the complaint data the Bureau receives through its Consumer Complaint Database. Car industry folks will have a hard time gleaning anything from the report dealing specifically with auto financing. 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. This month’s report focuses on credit reporting complaints and complaints from consumers in Los Angeles.
Pennsylvania AG Curbs “Free Range” Dealers. On July 30, the Pennsylvania Office of the Attorney General announced that it obtained settlements with three dealerships and one individual for advertising and selling used vehicles without a valid license. The attorney general’s office also alleged that the dealerships failed to use proper sales contracts and failed to disclose their business names and addresses or use the word “dealer” within their ads on Craigslist. One dealership also allegedly misrepresented the quality of its vehicles and failed to disclose in writing any verbal representations made to customers. The settlements are the result of a statewide task force that investigated used car dealerships.
Consumer Leasing Act Not Applicable to Lease to Individual and Non-Profit Organization: A non-profit organization and its chief executive officer leased a car from a dealership. Later, the CEO sued the assignee of his lease and the dealership’s sales manager for violating the Consumer Leasing Act. The assignee moved to dismiss the complaint, and the trial court granted the motion. The federal appellate court affirmed. The appellate court agreed with the trial court that the CLA, which does not apply to a lease to an organization, did not apply to the lease because there was no question that the non-profit was a co-lessee and that it was an organization under the CLA. The appellate court noted that the fact that the CEO was a natural person did not convert the lease into a consumer lease because when there is more than one lessee, all lessees must be natural persons in order for a lease to be a consumer lease. See Dixon v. Toyota Motor Credit Corporation, 2015 U.S. App. LEXIS 12732 (5th Cir. (E.D. La.) July 23, 2015).
Borrowers Not Entitled to Remedy for Violations of Maryland’s Repossession Notice Requirements Unless They Had Repaid More than Principal Amount: Two individuals bought cars under retail installment sale contracts governed by the Maryland Credit Grantor Closed End Credit Provisions. When they defaulted, the creditors repossessed the cars and sent them notices that their cars would be sold at public auction. After the sale of the cars, the creditors sent them notices that the cars were sold and that they owed deficiency balances. In response, the individuals sued the creditors, alleging violation of the CGCEC Provisions, among other claims. The trial court granted summary judgment for the creditors, finding that the individuals did not sustain any damages because they had unpaid principal balances remaining and the creditors had abandoned their claims for deficiency judgments. The federal appeals court affirmed. A creditor that violates the CGCEC Provisions may collect only the principal amount of the loan and not any interest, costs, fees, or other charges. In addition, a creditor that violates the repossession section, including the requirement to furnish a notice following repossession, is not entitled to a deficiency judgment. Relying on 2013 precedent, the appellate court recharacterized all of the individuals’ payments as payments toward principal and then subtracted that total and the sale proceeds from the original principal amount owed. The appellate court concluded that the individuals each still owed approximately $11,000 in principal and, thus, did not sustain any damages. See Gardner v. GMAC, Inc., 2015 U.S. App. LEXIS 13737 (4th Cir. (D. Md.) August 6, 2015).
Awarding Buyer Cost of Repairs for Defective Truck Sold “As Is” Contravened Dealer’s Right to Exclude Warranty: A couple bought a used truck. Deal documents provided that the truck was sold “as is – no warranty.” On their way home from the dealership, the buyers discovered that the truck was damaged and not roadworthy. They sued the seller under “civil tort law.” The trial court found that the seller committed a tort in selling the buyers a truck that was not roadworthy and that placed them, and other drivers, in danger. The court awarded the buyers damages in the amount of the costs they incurred to repair the truck, as well as their attorney’s fees. The Court of Appeals of Indiana reversed the trial court’s judgment. The appellate court determined that the buyers were not entitled to relief under a tort theory because the “economic loss rule” precludes tort liability for “pecuniary loss unaccompanied by any property damage or personal injury (other than damage to the product or service provided by the defendant).” Because the buyers failed to provide evidence of any personal injury or damage to any property other than the truck they bought, the appellate court determined that the economic loss rule applied and barred their recovery under a civil tort theory. The appellate court noted that Indiana law permits a dealer to expressly exclude implied warranties. The appellate court found that the seller had sold the truck “as is,” with no implied warranties, and therefore the buyers were not entitled to relief under a warranty claim. The appellate court determined that the trial court had effectively contravened the seller’s right to sell the truck “as is” by awarding the buyers the same relief in tort that was excluded by the agreement. See Griffin v. Martin, 2015 Ind. App. Unpub. LEXIS 787 (Ind. App. July 15, 2015).
So there’s this month’s roundup! Stay legal, and we’ll see you next month.
Tom (firstname.lastname@example.org) and Nikki (email@example.com) 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 2015, all rights reserved. Single publication rights only, to the Association. (9/15). HC# 4850-2079-6456.