By Nicole F. Munro and Thomas B. Hudson
A late Happy Groundhog Day 2020! Punxsutawney Phil could not find his shadow, so we’re in for an early spring. Or so the legend goes. We’ll see.
Here’s our monthly article on selected legal developments we think might interest the auto sales, finance, and leasing world. This month, the action involves the Consumer Financial Protection Bureau and the Federal Trade Commission. As usual, our article features the “Case of the Month” and our “Compliance Tip”.
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.
What Does “Abusive” Mean, Anyway? On January 24, the CFPB issued a policy statement to provide clarification on how it will apply the Dodd-Frank Act “abusiveness” standard in supervision and enforcement matters. The DFA prohibits a provider of consumer financial products or services from engaging in unfair, deceptive, or abusive acts or practices.
The statement is intended to address uncertainty about the scope and meaning of the term “abusiveness” under the Act. The CFPB will apply the following principles during supervision and enforcement matters immediately. First, the CFPB intends to focus on citing conduct as abusive in supervision or challenging conduct as abusive in enforcement if the Bureau concludes that the harms to consumers from the conduct outweigh the benefits to consumers.
Second, the CFPB will generally avoid challenging conduct as abusive that relies on all or nearly all of the same facts that the Bureau alleges are unfair or deceptive. Where the CFPB nevertheless decides to include an alleged abusiveness violation, it intends to plead such claims in a manner designed to clearly demonstrate the nexus between the cited facts and the Bureau’s legal analysis of the claim. In its supervision activity, the CFPB similarly intends to provide more clarity as to the specific factual basis for determining that a covered person has violated the abusiveness standard.
Third, the CFPB generally does not intend to seek certain types of monetary relief for abusiveness violations where the covered person was making a good-faith effort to comply with the abusiveness standard.
FTC Ups the Ante. The FTC has adjusted the maximum civil penalty dollar amounts for violations of 16 provisions of federal law. Commission Rule § 1.98 sets forth the applicable civil penalty amounts for violations of certain laws enforced by the FTC, while the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 directs agencies to implement annual inflation adjustments based on a prescribed formula. As directed by the FCPIAA, the FTC has issued adjustments to increase certain maximum civil penalty amounts to address inflation since its prior 2019 adjustment. The FTC Act does not provide for civil penalties for unfair or deceptive acts and practices unless the defendant is already under an administrative order or has actual knowledge that the FTC has determined a specific practice to be UDAP in a prior litigated order.
The maximum civil penalty amounts for violations of the FTC Act’s sections on UDAP have increased as follows: (1) Section 5(l) of the FTC Act, 15 U.S.C. 45(l) – violation of a cease & desist order – has increased from $42,530 to $43,280; (2) Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. 45(m)(1)(A) – violation of a Trade Regulation Rule or any rule or law that can be enforced as one (such as Regulation B or the Fair Debt Collection Practices Act) – has increased from $42,530 to $43,280; (3) Section 5(m)(1)(B) of the FTC Act, 15 U.S.C. 45(m)(1)(B) – violation of UDAP where the FTC had previously determined there to be an FTC Act violation during administrative litigation, if the FTC can show the defendant had actual notice of the violation – has increased from $42,530 to $43,280. The maximum civil penalty amount for violations of Section 621(a)(2) of the FCRA, 15 U.S.C. 1681s(a)(2) – knowing violation of the FCRA – has increased from $3,993 to $4,063.
CFPB Forms Taskforce. On January 9, the CFPB announced four members for its new Taskforce on Federal Consumer Financial Law. The taskforce will examine the current legal and regulatory environment facing consumers and financial services providers and report to Director Kraninger its recommendations for ways to improve and strengthen consumer financial laws and regulations.
The taskforce will “produce new research and legal analysis of consumer financial laws in the United States, focusing specifically on harmonizing, modernizing, and updating the federal consumer financial laws – and their implementing regulations – and identifying gaps in knowledge that should be addressed through research, ways to improve consumer understanding of markets and products, and potential conflicts or inconsistencies in existing regulations and guidance.”
The taskforce members are: Dr. J. Howard Beales, III, former Professor of Strategic Management and Public Policy at the George Washington University and former Director of the Bureau of Consumer Protection at the Federal Trade Commission; Dr. Thomas Durkin, Senior Economist (Retired) at the Federal Reserve Board; L. Jean Noonan, Partner at Hudson Cook, LLP, former General Counsel at the Farm Credit Administration, and former Associate Director of the Bureau of Consumer Protection’s Credit Practice at the Federal Trade Commission; and Todd J. Zywicki, Professor of Law at George Mason University Antonin Scalia Law School, Senior Fellow of the Cato Institute, and former Executive Director of the GMU Law and Economics Center.
Taking Action Against Pesky Consumers Who Post Unfavorable Online Reviews? Read This. On January 7, the FTC announced a $120,000 settlement with Mortgage Solutions FCS, Inc., a mortgage broker, and its owner to resolve allegations that the company publicly disclosed its customers’ personal information in response to the customers’ critical online Yelp reviews of the company’s services. The company allegedly responded to customers who posted negative reviews by disclosing their credit histories, debt-to-income ratios, taxes, health, sources of incomes, family relationships, and other personal information, as well as first and last names.
The FTC alleged that the company used consumer reports for an impermissible purpose in violation of the Fair Credit Reporting Act, failed to develop and implement an information security program and failed to test such a program in violation of the Safeguards Rule, provided customers with inaccurate privacy notices and engaged in impermissible disclosure of nonpublic personal information in violation of Regulation P, and committed unfair and deceptive acts or practices in violation of the FTC Act.
Case of the Month
Dealer Whose Lease Agreement Included Lease Acquisition Fee Along with Vehicle’s Agreed Upon Value Did Not Raise Lease Price of Vehicle or Fail to Include Lease Acquisition Fee in Advertised Price, in Violation of Ohio Law. A vehicle lessee sued his lessor, alleging various causes of action related to the $595 lease acquisition fee he was charged in addition to the agreed upon value of $29,300 in the lease agreement. The trial court dismissed the lessee’s complaint, and the Court of Appeals of Ohio affirmed.
The Ohio Administrative Code provides that it is a deceptive or unfair practice for a dealer to raise or attempt to raise the actual purchase price of a vehicle to a specific consumer or to advertise any price for a vehicle unless the price includes all costs to the consumer except tax, title and registration fees, and a documentary service charge. The lessee claimed that the lessor raised the vehicle’s lease price by inserting the lease acquisition fee in its preprinted form lease agreement and/or failed to include the lease acquisition fee in the advertised price included in the lease agreement.
The appellate court found that the lease agreement included the advertised price, which consisted of the agreed upon value of $29,300 and the lease acquisition fee of $595. The appellate court noted that this case is not one in which “suspect fees were surreptitiously added to the payment that [the lessee] agreed to pay” or in which “[the lessee] claims … that he was orally advised of a price other than that set forth in the Lease Agreement that did not include the lease-acquisition fee or that he saw a television commercial that advertised the lease price for an amount that did not include this fee.”
See Hatfield v. Preston Chevrolet-Cadillac, Inc., 2019 Ohio App. LEXIS 4796 (Ohio App. November 18, 2019).
This Month’s CARLAWYER© Compliance Tip
The Hatfield case decision on acquisition fees came out in favor of the dealer. That’s always good news, but the consumer’s challenge of the fees should send up a warning flag. The question of whether a dealer may charge such a fee in a lease or retail installment sale transaction and, if so, how it must be disclosed, is one of the thorniest legal problems facing dealers. It’s a question that involves both federal and state law, and one that involves several issues. What’s more, the treatment of these fees may differ depending on whether the deal is a lease or a retail installment sale. If your dealership imposes such fees and has not had a recent thoroughgoing legal review of its practices, it’s lawyer time again.
So, there’s this month’s article. See you next month!
Nikki (email@example.com) is a Partner in the law firm of Hudson Cook, LLP., Editor in Chief of CounselorLibrary.com’s CARLAW®, a contributing author to the F&I Legal Desk Book and a frequent writer for Spot Delivery,® a monthly legal newsletter for auto dealers Tom (firstname.lastname@example.org) is Of Counsel to the firm, has written several books and is a frequent writer for Spot Delivery®. He is the Senior Editor of CARLAW®. For information, visit www.counselorlibrary.com. © CounselorLibrary.com 2020, all rights reserved. Single publication rights only, to the Association.