By Thomas B. Hudson and Nicole Frush Munro
Nikki’s Orioles and Tom’s Nationals are looking pretty strong this year. An I-95 World Series, maybe? Unfortunately, we aren’t at a game. We’ve traded in our cracker jacks, peanuts, and a 7th inning stretch for article writing on compliance issues. Here, we’ll again pass on what we’ve recently learned about 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 recaps of 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
We picked up a lot of online chatter this month about dealers who prepare and have the buyer sign two retail installment sales contracts for a deal so that if the finance companies reject the first one, the dealer can have a substitute ready to re-submit without going through that pesky re-contracting process. That practice is bad for so many reasons that we won’t try to elaborate. If your dealership does this, stop immediately until you have vetted your practices with a knowledgeable attorney.
FTC Targets VW Ads. On March 29, the FTC charged that Volkswagen Group of America, Inc. deceived consumers with an advertising campaign promoting its supposedly “clean diesel” VWs and Audis, which, the FTC has alleged, Volkswagen fitted with illegal emission defeat devices designed to mask high emissions during government emission tests. The FTC is seeking a court order requiring VGA to compensate consumers who bought or leased affected VWs between late 2008 and late 2015, and an injunction to prevent the company engaging in such acts again.
And Not Just VW’s Ads. On April 18, the FTC issued an enforcement policy statement on deceptively formatted advertisements, including advertising and promotional messages integrated into and presented as non-commercial content. The statement lists principles of general applicability on which the FTC will rely in determining whether an ad format is deceptive, in violation of Section 5 of the FTC Act. The statement summarizes the principles underlying the FTC’s enforcement actions, advisory opinions, and other guidance addressing various forms of deceptively formatted ads. The FTC will find an ad deceptive if it misleads reasonable consumers as to its nature or source, and such misleading impression is likely to affect consumers’ decisions or conduct regarding the advertised product or the ad. Hint – check out your website!
As We Bid a Fond Farewell to Arbitration . . . The CFPB held a field hearing on arbitration in Albuquerque, New Mexico on May 5. The hearing featured remarks from CFPB Director Richard Cordray, and testimony from consumer groups, industry representatives, and members of the public. As expected, the CFPB used the hearing to launch a proposed rule banning class waivers in contracts for consumer financial services that contain mandatory, pre-dispute arbitration clauses.
CFPB Targets Debt Collectors. On April 25, the CFPB announced that it obtained consent orders against Pressler & Pressler, LLP, a debt collection law firm, and New Century Financial Services, Inc., a debt buyer, for unfair and deceptive collection practices, in violation of the Fair Debt Collection Practices Act and the Dodd-Frank Act. Specifically, the CFPB alleged that the defendants filed collection lawsuits against consumers without sufficiently verifying the validity of the debts, did not properly respond to consumer disputes of the debts, and relied on an automated claim-preparation system and non-attorney support staff to determine which consumers to sue. The orders require the firm to pay a penalty of $1 million and New Century to pay a penalty of $1.5 million to the Bureau’s Civil Penalty Fund.
TILA Claim Not Mooted by Tender of Check Equal to Plaintiffs’ Claimed Damages that Plaintiffs Returned: Car buyers sued the dealership where they bought their car, alleging violations of the federal Truth in Lending Act and the Maryland Consumer Protection Act, as well as fraud. The dealership sent them a cashier’s check equal to the sum of their down payment plus interest. The plaintiffs declined to accept the check. The dealership moved to dismiss for lack of subject-matter jurisdiction, arguing that its payment to the buyers mooted their TILA claim and eliminated the court’s subject-matter jurisdiction. The court found that the unconditional tender equal to the buyers’ claimed damages provided the buyers complete relief under TILA. However, because the buyers returned the check, the court could not find that the payment mooted the TILA claim. Accordingly, the court denied the motion to dismiss, but stated that if the dealership reissues an unconditional cashier’s check equal to the amount of the down payment plus interest, it may re-file its motion, and the court will then dismiss the TILA and MCPA claims as moot. The court noted that the tender would not, however, moot the plaintiffs’ fraud claim. See Price v. Berman’s Automotive Inc., 2016 U.S. Dist. LEXIS 35807 (D. Md. March 21, 2016).
Dealership Liable to Used Car Buyers and Finance Company after Failing to Repair Problems Buyers Experienced within 60 Days after Purchase: Used car buyers noticed problems with their car immediately after purchase. Learning that the car had experienced a front-end collision that was causing the car’s mechanical problems, the buyers sought to revoke acceptance of the car. When the seller ignored their request, the buyers sued for violations of New York General Business Law Sections 349 and 198-b and the Magnuson-Moss Warranty Act and sued the assignee of their retail installment sale contract under the FTC Holder Rule. The assignee settled the buyers’ claim and filed a cross-claim against the seller for breach of contract. The buyers and the assignee moved for a default judgment. A magistrate judge granted both motions. The magistrate found that the buyers did not establish a claim for violation of Section 349, which prohibits deceptive acts or practices in the conduct of business, because they did not prove that the seller’s actions had a broader impact on consumers at large. The magistrate found that the buyers established a breach of warranty claim under Section 198 but not under the MMWA, which requires an amount-in-controversy of at least $50,000 that the buyers did not satisfy. The magistrate also found that the assignee proved its breach of contract claim against the seller for failure to defend and indemnify under its Dealer Agreement. See Chin v. Planet Motor Cars, Inc., 2016 U.S. Dist. LEXIS 47372 (E.D.N.Y. April 5, 2016).
Motor Home Seller Not Prevented from Disclaiming Warranties Where Service Contract It Sold Buyer Required it to Perform Only Diagnostic Services: A mobile home buyer signed a purchase agreement in which the seller stated that it disclaimed all warranties. The buyer bought a third-party service contract from the seller to cover the motor home. The service contract required the buyer to take the home to the seller to diagnose an issue, but allowed her to seek repairs from any repair facility. The buyer discovered defects in the motor home and asked the seller to make the required repairs. The buyer alleged that the repairs were inadequate, that the motor home had developed additional defects, and that the motor home was unsafe and unfit for use. The buyer sued the seller for breaching the warranty of merchantability, and the seller moved to dismiss. The federal trial court granted the motion. The buyer argued that the Magnuson-Moss Warranty Act prevented the seller from disclaiming the implied warranty of merchantability. The MMWA precludes warranty disclaimers if the seller “enters into” a service contract with a buyer within 90 days of the purchase. The buyer cited a 1991 case in which a dealer was found to be an agent for a service contract company to argue that the seller entered into a service contract with her. However, the court distinguished that case, explaining that the buyer was required to obtain repairs from that dealer, but in the present case, the buyer was required to bring the motor home to the seller for diagnosis but could obtain repairs anywhere. As a result, the seller could not be considered an agent of the service contract company and, therefore, did not enter into the contract with the buyer. As such, the seller was not prevented from disclaiming the warranty of merchantability. See Coyne v. Crossville BNRV Sales, LLC, 2016 U.S. Dist. LEXIS 40160 (E.D. Tenn. March 28, 2016).
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 2016, all rights reserved. Single publication rights only, to the Association. (5/16). HC# 4830-2565-6113.