By Thomas B. Hudson and Nicole F. Munro
Here’s our monthly article on legal developments in the auto sales, finance and lease world. This month, we’re reporting on activities of the Consumer Financial Protection Bureau and the courts. As usual, this month’s article features our “Case of the Month.”
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
Advertising and selling cars online has become commonplace. It is also common that sometimes the buyers and dealers in these online transactions are located in different states. What is less common is that a dealer, before undertaking these sales, has had the advertising and sales process reviewed by counsel. The “Case of the Month,” below, involves a Tennessee dealer who was sued in Alabama, after an Alabama buyer bought a car from the Tennessee seller. The dealer had the Alabama lawsuit dismissed, but gave the buyers permission to transfer the case to the appropriate jurisdiction. The case illustrates the perils of online transactions. Have you had your online advertising and sales processes reviewed by counsel?
Struggle for Control of the CFPB. On January 10, 2018, the U.S. District Court for the District of Columbia denied CFPB Deputy Director Leandra English’s request for a preliminary injunction to block President Trump’s appointment of Mick Mulvaney as acting CFPB director. The court ruled that English is not likely to succeed on the merits of her claim that, by operation of the Dodd-Frank Act, she is the rightful acting CFPB director. English was also unable to show that a denial of the injunction would cause her or the agency to suffer irreparable harm.
As background: On November 24, 2017, Richard Cordray appointed English, his chief of staff, as deputy director and then resigned. Pursuant to a section of the Dodd-Frank Act that says the deputy director serves as the acting director when the director is unavailable, English claimed the title of acting director upon Cordray’s resignation. A few hours later, President Trump – using his authority under the Federal Vacancies Act to fill vacant positions that require Senate confirmation with another appointee who has already been confirmed by the Senate for another position – appointed Mulvaney, the director of the Office of Management and Budget, as the CFPB’s acting director until a permanent director is confirmed by the Senate, setting up a conflict with Cordray’s appointee.
English sued Mulvaney and the president, asking the court to restrain Mulvaney from heading the CFPB until a permanent director can be nominated and confirmed. In late November, the judge denied English’s initial request for a temporary restraining order.
Kiss the Payday Rule Goodbye? On January 16, 2018, the CFPB issued the following statement on its Payday, Vehicle Title, and Certain High-Cost Installment Loans final rule (“Payday Rule”): “January 16, 2018, is the effective date of the [Payday Rule]. The Bureau intends to engage in a rulemaking process so that the Bureau may reconsider the Payday Rule. Although most provisions of the Payday Rule do not require compliance until August 19, 2019, the effective date marks codification of the Payday Rule in the Code of Federal Regulations. [The] effective date also establishes April 16, 2018, as the deadline to submit an application for preliminary approval to become a registered information system (“RIS”) under the Payday Rule. However, the Bureau may waive this deadline pursuant to 12 C.F.R. 1041.11(c)(3)(iii). Recognizing that this preliminary application deadline might cause some entities to engage in work in preparing an application to become a RIS, the Bureau will entertain waiver requests from any potential applicant.”
A New Boss, With New Marching Orders. On January 23, 2018, the CFPB’s Acting Director Mulvaney wrote a memo to staff discussing how, under new leadership, the CFPB is shifting its governing philosophy in regard to carrying out its mandate under the Dodd-Frank Act. While Mulvaney affirmed the need to protect consumers and stated that the CFPB will enforce consumer financial protection laws vigorously, he noted that the CFPB will no longer “push the envelope” of the law in order to “send a message” to regulated entities. Mulvaney rejected his predecessor’s “good guy” versus “bad guy” language and promised to execute the CFPB’s mandate “with humility and prudence.”
Mulvaney indicated that the CFPB will be conducting a review of all activities in which it is engaged. More specifically, Mulvaney stated that the CFPB will be: (1) bringing enforcement actions where “quantifiable and unavoidable harm to the consumer” exists; (2) focusing on formal rulemaking instead of “regulation by enforcement;” and (3) prioritizing areas of focus based on consumer complaints (noting, specifically, that nearly a third of CY 2016 complaints related to debt collection, compared to 0.9% for prepaid cards and 2% for payday lending).
Finally, Mulvaney stated that the CFPB will engage in quantitative analysis to “consider the potential costs and benefits to consumers and covered persons” when determining whether to intervene in given situations.
Information, Please. On January 24, 2018, the CFPB issued a “Request for Information,” seeking feedback on all aspects of the CFPB’s civil investigative demand process to determine if any changes are necessary. The CFPB issues CIDs to entities and persons whom the CFPB has reason to believe have information relevant to a violation of the laws the CFPB enforces.
Recipients of a CID are required to produce the requested information to the Bureau, which uses that information to further its investigations of potential violations of federal consumer financial laws. Through the RFI, the CFPB is seeking information on how processes related to CIDs may be updated, streamlined, or revised to better achieve the CFPB’s statutory and regulatory objectives, while minimizing burdens on recipients, and how to align the CFPB’s CID processes with those of other agencies.
The CFPB believes that entities that have received one or more CID, lawyers who represent these entities, and members of the public are likely to have useful information and perspectives that will help inform the CFPB’s review of its CID processes. Comments are due by March 27, 2018.
The RFI on CIDs comes on the heels of the CFPB’s January 17, 2018, announcement that it is issuing a call for evidence to ensure the CFPB is fulfilling its proper and appropriate functions to best protect consumers. The CFPB will be publishing in the Federal Register a series of similar RFIs, seeking comment on enforcement, supervision, rulemaking, market monitoring, and education activities. These RFIs will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.
Case of the Month
This month’s case involves a dealer’s Internet advertising and sales activities. Here’s what happened.
Ashley and Derek Hand sued Wholesale Auto Shop, LLC, a Tennessee corporation with its principal place of business in Tennessee, for selling them a Jeep Wrangler with an odometer reading of 66,692 but with actual mileage of 252,603 miles. The Hands claimed that Wholesale Auto violated, among other laws, the Motor Vehicle Information and Cost Savings Act and the Alabama Deceptive Trade Practices Act.
After Wholesale Auto failed to answer the complaint, the Hands moved for a default judgment. The federal trial court asked the Hands to submit a supplemental brief addressing the issue of whether the court had personal jurisdiction over Wholesale Auto. After the Hands submitted the brief, the court denied the Hands’ motion for lack of personal jurisdiction, but granted them leave to move to transfer the case to an appropriate jurisdiction.
Alabama’s long-arm statute permits the exercise of personal jurisdiction if constitutionally permissible, and the U.S. Constitution requires a defendant to have sufficient minimum contacts with the forum state in order to satisfy due process. The court found that Wholesale Auto lacked sufficient minimum contacts with the state of Alabama. The Hands viewed Wholesale Auto’s advertisement for the Jeep on autotrader.com, the parties communicated by phone between Alabama and Tennessee after the Hands contacted Wholesale Auto about the Jeep, and the Hands traveled to Tennessee to buy the vehicle.
The court concluded that the fact that Wholesale Auto called the Hands twice in Alabama and allegedly made fraudulent statements during those calls was insufficient to establish personal jurisdiction over Wholesale Auto because the Hands initiated the contact, consummated the transaction in Tennessee, and were only injured in Alabama by bringing the car to that state.
Hand v. Wholesale Auto Shop, LLC, 2018 U.S. Dist. LEXIS 2138 (N.D. Ala. January 5, 2018)
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 the CEO of CounselorLibrary.com, LLC and the 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 2018, all rights reserved. Single publication rights only, to the Association. (2/18). HC/4816-3298-5692v1.