By Thomas B. Hudson and Nicole F. Munro
Here’s our monthly article on legal developments in the auto sales, finance and lease world. Last month’s report was skimpy, and this one isn’t much better. The Consumer Financial Protection Bureau is still fairly quiet, at least on the enforcement side, but continues to be active on the supervisory side. That makes sense, since supervision is a lower profile activity less likely to draw fire from Congressional Republicans and other CFPB critics. In any event, this month’s article features our “Case of the Month,” activity from the CFPB and the Office of the Comptroller of the Currency.
Why do we include items from other states? We want to show you 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 lawyer to learn how what we report might apply to you, or if you have questions.
This Month’s CARLAWYER© Compliance Tip
We usually don’t repeat tips from previous articles, but in light of the “Case of the Month” discussed below, here’s one we have offered before – make sure that your computers/printers are entering information on your retail installment contracts, buyers’ orders and leases in exactly the correct place. Misalignment of data entry can create compliance violations, and these sorts of compliance violations – ones that apply to every deal you do – make for dangerous class actions. It is often the case that “close” just won’t cut it. If you have any question about whether your alignment is close enough, talk to your lawyer.
BHPH Dealers, Take Note. On June 8, CFPB director Richard Cordray provided some clarity on the status of the CFPB’s debt collector rulemaking by announcing that the CFPB will carve certain “right consumer, right amount” rules out of the debt collector rulemaking and instead address such rules in a separate rulemaking for first-party creditors. In its July 2016 Outline of Proposals under Consideration for debt collectors, the CFPB included a number of proposals that would affect the information shared between creditors and debt buyers or third-party debt collectors and would impose specific, ongoing obligations on debt collectors to ensure that they are collecting the right amount from the right consumer. Director Cordray explained that the CFPB has found that these “right consumer, right amount” rules would benefit from input from all market participants (especially creditors, because they create the information about the debt upon which debt collectors rely). Therefore, Cordray said, the CFPB plans to focus its debt collector rulemaking on rules that will affect debt collection practices and require disclosures. Cordray anticipates the CFPB will be able to “move forward more quickly” on the debt collector rulemaking by carving out rules that could affect creditors and taking up “right consumer, right amount” rules in a separate rulemaking for first-party creditors.
Third Party FAQs? On June 7, the OCC issued frequently asked questions to supplement OCC Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance,” which was originally issued October 30, 2013. OCC Bulletin 2013-29 provides guidance to national banks and federal savings associations for assessing and managing risks associated with third-party relationships. The FAQs provide further explanation of the guidance outlined in an earlier OCC Bulletin. “Why should dealers care about these FAQs?” you ask? The answer is that dealers sell their retail installment contracts and leases to national banks and federal savings associations, and the dealers are the sorts of third parties that the OCC is worried about.
Case of the Month
Check Mark in General Vicinity of Vendor’s Single Interest Insurance Checkbox Not Sufficient to Disclose Premium and Exclude It from Finance Charge: After buying a car from a dealership, the buyer sued the dealership for violating the Truth in Lending Act by failing to accurately disclose the finance charge. The buyer argued that the dealership should have disclosed a premium for vendor’s single interest insurance as part of the finance charge, instead of as part of the amount financed. The trial court granted summary judgment for the buyer, and the federal appeals court affirmed. The dealership argued that it provided the buyer with sufficient notice under TILA to exclude the premium from the finance charge. The financing agreement contained a VSI provision with a checkbox, and that provision stated that VSI insurance was required, the premium amount, and that the buyer could choose her insurance company. However, the appellate court found that the dealership did not comply with the TILA notice requirement because the VSI provision was not properly checked. While there was an “XX” indicator in the general vicinity of the VSI provision, it was not close enough for a reasonable jury to conclude that the box was checked. Further, even if there was ambiguity about whether the box was checked, it could not constitute a “clear and specific” disclosure, as required by TILA. The court disregarded the dealership’s argument that the provision provided notice that VSI insurance was required, even if the box was unchecked. See Franco v. A Better Way Wholesale Autos, Inc., 2017 U.S. App. LEXIS 8689 (2d Cir. (D. Conn.) May 18, 2017).
So there’s this month’s roundup! Stay legal, and we’ll see you next month.
Tom (email@example.com) is Of Counsel and Nikki (firstname.lastname@example.org) is a partner 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. © CounselorLibrary.com 2017, all rights reserved. Single publication rights only, to the Association. (7/17). HC# 4827-7675-0667