January 2016 – The CARLAWYER©

By Thomas B. Hudson and Nicole Frush Munro

Happy New Year! We start this year the same way we finished last year, by featuring developments from the Consumer Financial Protection Bureau, the Federal Trade Commission and Congress we thought might interest 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 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

What is the name of your compliance officer? Your privacy officer? Your red flags administrator? Can you produce a copy of your policies and procedures, training, and audit materials that make up your compliance management system? Can you produce records of board involvement in and adoption of the CMS? Do you have a privacy notice and written safeguarding procedures? Where is your written red flags program? How about a furnisher policy? If your response to these questions is a deer-in-the-headlights look, you’d better resolve to make 2016 the year you get serious about compliance!

Federal Developments

What Do Consumers Think of Dealers? On December 29, the FTC issued a notice seeking public comment on a proposed survey of consumers to learn about their experiences buying and financing vehicles at dealerships. The FTC invites comments on whether the proposed survey, which will include consumer interviews and receipt of consumers’ purchase and finance documents, is necessary and useful, the accuracy of estimates of the burden on consumers to be surveyed, ways to enhance the quality of the information to be collected, and ways to minimize the burden of collecting information.

Do You Engage in Native Advertising? On December 22, the FTC issued a policy statement concerning online advertising and promotional messages that are deceptively formatted to look like surrounding non-advertising content. The policy statement notes that online advertising known as “native advertising” or “sponsored content,” which may be indistinguishable from news, feature articles, product reviews, editorial, and other regular content, has become more prevalent. The policy statement sets forth the general principles the FTC considers in determining whether a particular advertising format is deceptive and violates the FTC Act, and reaffirms the FTC’s view that “advertising and promotional messages not identifiable as advertising to consumers are deceptive if they mislead consumers into believing they are independent, impartial, or not from the sponsoring advertiser itself.” The policy statement explains that if the source of an advertisement or promotional message is clear, consumers can make informed decisions about whether to interact with the advertising, the weight to give the information conveyed in the advertisement, and the credibility of the advertisement. The FTC also released a guide for businesses on native advertising to help companies comply with the policy statement.

Do You Engage in In-Person Collections? On December 16, the CFPB issued a Compliance Bulletin to provide guidance to creditors, debt buyers, and third-party collectors about compliance with certain sections of the Dodd-Frank Act and the Fair Debt Collection Practices Act when collecting debts from consumers. Specifically, the bulletin notes that in-person debt collection visits to a consumer’s workplace or home may violate these statutes. In a recent enforcement action, the CFPB alleged that the disclosure or risk of disclosure of debts to third parties during in-person collection visits, as well as going to a consumer’s place of employment when the creditor knew or should have known that personal visitors were not permitted or that going to the consumer’s place of employment was inconvenient to the consumer, was unfair, in violation of the Dodd-Frank Act. The CFPB has also found during recent examinations certain unfair acts or practices with respect to in-person collection visits at a consumer’s workplace. In addition, the CFPB notes in the bulletin that third-party debt collectors and others subject to the FDCPA who engage in in-person collection visits may violate a variety of FDCPA provisions.

Your Federal Government Makes Your Life Easier. Really! Section 75001 of the Fixing America’s Surface Transportation Act creates an exception to the Gramm-Leach-Bliley Act requirement that financial institutions deliver annual privacy notices to their customers spelling out how the institutions use and disclose their nonpublic personal information (“NPI”) and whether customers can limit the sharing of their NPI. Under the amendment, institutions will not have to send an annual privacy notice to their customers if: (1) the institution only shares NPI with nonaffiliated third parties in a way that does not require the institution to give customers the choice to opt out (i.e., information shared under the joint marketing exception or servicing exceptions); and (2) the institution has not changed its policies since its most recent annual privacy notice to consumers. If the institution changes its policies regarding the use and sharing of NPI in a way that requires it to offer customers the right to opt out, it must send the revised privacy notice to its customers before implementing the change. This change comes after a 2014 CFPB amendment to the GLB Privacy Rule allowing financial institutions to publish their annual privacy notices online rather than send them by mail, provided they satisfy several requirements.


U.S. Supreme Court Upholds Enforceability of Class Waivers in Arbitration Agreements: The U.S. Supreme Court reversed a California Court of Appeal’s refusal to enforce an arbitration agreement waiving the right to bring class arbitration claims. The arbitration agreement at issue included a class arbitration waiver specifying that the entire arbitration agreement was unenforceable if the “law of your state” made class arbitration waivers unenforceable. The agreement also declared that the Federal Arbitration Act (“FAA”) governed the arbitration provision. At the time the agreement was signed, California law made class arbitration waivers unenforceable as a result of the decision in Discover Bank v. Boehr. Thereafter, the Supreme Court held in AT&T Mobility LLC v. Concepcion that the FAA preempted California’s Discover Bank rule. The trial court denied the satellite service provider’s request to order the matter to arbitration. The California Court of Appeal affirmed. The state appellate court thought that California law would render class arbitration waivers unenforceable, so it held that the entire arbitration provision was unenforceable. The fact that the FAA preempted that California law did not change the result, the appellate court stated, because the parties were free to refer in the contract to California law as it would have been absent federal preemption. The appellate court reasoned that the phrase “law of your state” was both a specific provision that should govern more general provisions and an ambiguous provision that should be construed against the drafter. Therefore, the appellate court found, the parties had in fact included California law as it would have been without federal preemption. The Supreme Court ruled that because the FAA preempted the California Court of Appeal’s interpretation, that court must enforce the arbitration agreement. See DIRECTV, Inc. v. Imburgia, 2015 U.S. LEXIS 7999 (U.S. (Cal. App.) December 14, 2015).

Car Buyers Unsuccessful on Warranty and TILA Claims against Assignee of Finance Contract: Used car buyers sued the dealership where they bought the car and the assignee of their finance contract, claiming that the car suffered serious defects after purchase and repairs were unsuccessful. The assignee moved for summary judgment on the claims against it for breach of express and implied warranty, breach of contract, and violations of the Magnuson-Moss Warranty Act and the Truth in Lending Act. In addition, the assignee counterclaimed for breach of contract and requested that any damages against it be limited under the FTC’s Holder Rule. The buyers moved for summary judgment on the assignee’s breach of contract claim. The federal trial court granted summary judgment to the assignee on the breach of express warranty claim, finding that neither the dealership nor the assignee made an express warranty or adopted the manufacturer’s warranty, and they expressly disclaimed all warranties. The court similarly granted summary judgment to the assignee on the buyers’ implied warranty claim, rejecting the buyers’ claim that the disclaimer of implied warranties was inconspicuous and the language was ambiguous. The court found that the placement of the disclaimer on the back of the contract did not render the waiver inconspicuous where three places on the front of the contract refer to the back of the contract, the disclaimer is in bold type, and the heading is in all capital letters. Although the disclaimer stated that there were no implied warranties unless the seller enters into a service contract with the buyers, the court found that the fact that the buyers entered into a service contract with a different party did not render the disclaimer language ambiguous. For similar reasons, the court found that the buyers did not state a claim for an MMWA violation.

The MMWA prohibits a supplier from disclaiming an implied warranty if the supplier enters into a service contract with the buyer. Because the buyers’ service contract was not with the dealership, there was no MMWA violation. The buyers argued that the assignee was liable for the dealership’s TILA violation by secretly increasing the vehicle’s cash price. The court granted summary judgment to the assignee on this claim, noting that because any violation was not apparent on the face of the sale contract, the assignee could not be liable under Section 1641(a) of TILA. The court refused to grant summary judgment to either party on the breach of contract claim where there was a dispute of fact as to whether the car was defective. However, the court agreed with the assignee that both under the FTC Holder Rule and the contract, to the extent that the buyers are entitled to damages pursuant to a claim under the Holder Rule, they are limited in their recovery to only the $900 they paid pursuant to the contract. See Wait v. Roundtree Mobile, LLC, 2015 U.S. Dist. LEXIS 152555 (S.D. Ala. November 10, 2015).

Arbitration Agreement Signed in Connection with Original Financing Rescinded When Buyers Signed Alternate Financing Documents without Arbitration Agreement: Truck buyers signed a bill of sale, a spot delivery agreement, an agreement to arbitrate, and a retail installment sale contract. Two days later, the dealership told them that their original financing had fallen through, but it found alternate financing, so they had to return to re-sign paperwork. They executed a new bill of sale, spot delivery agreement, and retail installment sale contract but did not sign a new arbitration agreement. The buyers sued the dealership, and the dealership moved to compel arbitration. The federal trial court denied the motion. The buyers argued that the agreement to arbitrate was no longer in force because the original transaction had been rescinded, and they did not sign a new agreement to arbitrate in connection with the second transaction. The dealership argued that there was a single transaction because the buyers only had to re-sign certain documents due to a change in financing. The court found that there were two separate transactions – not only had the financing changed, but there was a different total sale price, and the buyers bought different insurance and warranty products. Because there were two separate transactions, the arbitration agreement the buyers initially signed did not remain in force, and they were not required to arbitrate their claims. See Mooneyham v. BRSI, LLC, 2015 U.S. Dist. LEXIS 154906 (W.D. Okla. November 17, 2015).

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


Tom (thudson@hudco.com) and Nikki (nmunro@hudco.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. (1/16). HC# 4852-1311-0828.

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