By Thomas B. Hudson and Nicole Frush Munro
This isn’t Halloween “Trick or Treat,” although you might be forgiven if you are feeling tricked by Washington these days. Here’s 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, the Federal Trade Commission, and the Department of Justice, as well as our “Case of the 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
Get Those Deal Jackets in Order! Do your deal jackets look like the rats have taken up residence in them? Do you have a checklist of the documents that belong and don’t belong in your deal jackets? Do you audit the content of your deal jackets to make sure that your document order and retention policies are being followed? Do those documents appear in the same order in every deal jacket? Have you asked your lawyer which documents you must retain and which you can omit from the deal jacket? And, finally, maybe you should give those documents a good read to ensure that the documents in your deal jacket are consistent and reflect your actual business practices.
Warranty Disclosure Rules Modernized. On September 6, the FTC announced a final rule, effective October 17, 2016, amending the rules on Disclosure of Written Consumer Product Warranty Terms and Conditions (“Disclosure Rule”) and Pre-Sale Availability of Written Warranty Terms (“Pre-Sale Availability Rule”) to give effect to the E-Warranty Act, which allows warranty terms to be given to consumers online, under some circumstances. The Disclosure Rule provides disclosure requirements for written warranties on consumer products costing more than $15, specifies the aspects of warranty coverage that must be disclosed in written warranties and the language required for certain disclosures, and requires simple language in a single document. The warrantor must disclose any limits on the duration of implied warranties “on the face of the warranty.” The final amendments to the Disclosure Rule specify that, for a warranty posted on a website or displayed electronically, disclosures required to appear “on the face of the warranty” must be in close proximity to where the warranty term text begins. The Pre-Sale Availability Rule describes the methods by which warrantors and sellers must provide warranty terms to consumers before a sale. The final amendments to the Pre-Sale Availability Rule allow warrantors to post warranty terms on websites if they also provide a non-Internet-based method for consumers to obtain the terms and satisfy certain other conditions, and allow certain sellers to display warranty terms pre-sale in an electronic format if the warrantor has chosen to display its warranty terms online.
FTC Eyeballs Disposal Rule. On September 12, the FTC, as part of its systematic review of all its regulations and guides, issued a notice seeking public comment on its Disposal of Consumer Report Information and Records Rule (“Disposal Rule”). The Disposal Rule requires that persons subject to the Commission’s jurisdiction who maintain or otherwise possess consumer information for a business purpose properly dispose of such information by taking reasonable measures to protect against unauthorized access to or use of the information in connection with its disposal. The FTC seeks comment on the economic impact and benefits of the Rule, possible conflicts with state, local, or other federal laws, and its effect on any technological or other industry changes. The FTC also seeks comment on whether the definition of “consumer information” should be expanded to include aggregate information or information that can be reasonably linked to an individual. Comments are due by November 21, 2016.
FTC Studying Consumer Car Buying Experiences. On September 14, the FTC issued a second Federal Register notice seeking public comments on a proposed “qualitative survey” it plans to conduct to obtain information from consumers about their experiences in selecting, purchasing, and financing vehicles from dealerships. The survey will also involve reviewing consumers’ purchase and finance documents. The survey is intended to inform the FTC about current consumer protection issues that may exist and that could be addressed through FTC action, including enforcement initiatives, rulemaking, or education.
CFPB Sues Title Lenders. On September 21, the CFPB announced that it filed administrative lawsuits against five Arizona-based vehicle title lenders for failing to disclose the APR for title loans in their online advertisements, in violation of the Truth in Lending Act. The CFPB alleged that the companies advertised a periodic interest rate, but did not state the corresponding APR. The CFPB is seeking civil money penalties and administrative orders requiring the companies to correct their practices.
CFPB Fines Title Lender. On September 26, the CFPB announced that it reached a consent order with TMX Finance LLC, the parent company to several vehicle title loan subsidiaries, including TitleMax. The CFPB alleged that TMX misled consumers about potential loan costs if the consumers renewed their title loans multiple times, instead of repaying them in 30 days. Specifically, it alleged that, while negotiating 30-day single-payment title loans, TMX employees offered consumers a “monthly option” for making loan payments. Employees also offered consumers a “Voluntary Payback Guide” that showed how to repay the loan with smaller payments over a longer period of time. The Bureau charged that the employees and the guide did not explain the total cost to the consumer if he or she repeatedly renewed the loan over a certain period. In addition, some TMX employees allegedly revealed sensitive information about consumers’ past-due debts while visiting consumers’ homes, references, and places of employment in attempts to collect the debts. Under the consent order, TMX is required to pay a $9 million civil penalty.
Case of the Month
Dealership Was “Creditor” Required to Provide ECOA Adverse Action Notice. A dealership sold a car to a buyer, who made a $1,248 down payment and signed a retail installment sale contract for the remaining amount owed. After the dealership assigned the RISC, the dealership requested that the buyer return to the dealership. When she did, the dealership demanded that she make an additional $1,500 down payment. Because the buyer was unable to do so, the dealership revoked the RISC and kept the car. The buyer sued the dealership for violating the Equal Credit Opportunity Act, and the trial court granted the buyer’s motion for summary judgment. The appellate court affirmed. The dealership argued that the trial court erred in finding that it was a “creditor” required to provide the buyer an adverse action notice. The appellate court disagreed, finding that because the dealership regularly sets the terms of its financing agreements and routinely restructures deals, it is a “creditor” under the ECOA, even though it acts as a middleman between car buyers and the assignees of their RISCs. See Tyson v. Sterling Rental, Inc., 2016 U.S. App. LEXIS 16258 (6th Cir. (E.D. Mich.) September 2, 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. (10/16). HC# 4840-2928-1080 v.1.