By Thomas B. Hudson and Nicole Frush Munro

Here’s our monthly collection of selected legislative and regulatory highlights, and a recap of some of the many auto sale and financing lawsuits we follow each month.  Remember - what we report here is not even close to being every recent development. We select those we think should be important or interesting to car dealers. Note that this column does not offer legal advice.  You should consult your dealership lawyer with any legal questions.

We include items from other states.  Why?  We want you to be able to see new legal developments and trends.  Also, another state’s laws might be a lot like your state’s laws – if AGs or plaintiffs’ lawyers are pursuing particular types of claims, those laws and claims might soon appear in your state.  As always, though, there is no substitute for checking with your own lawyer before you rely on anything we report or if you have any questions.

Federal Law

The federal news this month comes from the Federal Trade Commission and the Consumer Financial Protection Bureau.

Nonbank Supervision.  On May 24, the CFPB proposed a rule establishing procedures for its supervision of “nonbanks” engaged in activities that pose risks to consumers. Under the Dodd-Frank Act, the CFPB has the authority to supervise any nonbank (the term includes car dealers) that it has reasonable cause to determine is posing a risk to consumers based on complaints or other information it receives. This authority is in addition to overseeing nonbanks, regardless of size, in certain specific markets (mortgage companies, payday lenders, and private education lenders) and in addition to the CFPB’s authority to supervise “larger participants” in other markets. The proposed rule sets out procedures to notify a nonbank that it is being considered for supervision, gives the nonbank a reasonable opportunity to respond and creates a mechanism for nonbanks to file a petition to terminate supervision authority after two years. Comments on the proposed rule are due by July 24, 2012.

Holder Rule Advisory Opinion.  On May 10, the FTC released an advisory opinion affirming consumers' rights under the FTC's Trade Regulation Rule Concerning Preservation of Consumers' Claims and Defenses (commonly called the “Holder Rule”). The Holder Rule requires the notice in your retail installment contract that says, “Notice: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF.  RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.”  The advisory opinion was in response to a letter from consumer advocacy groups that requested that the FTC affirm that the Holder Rule does not limit a consumer’s right to seek an affirmative recovery against assignees in certain situations. The FTC affirmed that the Holder Rule does not limit a consumer's right to recover money he or she has already paid under a contract to circumstances where the consumer can legally rescind the transaction or where the goods or services sold to the consumer are worthless. The FTC states that the Rule’s language is unambiguous and that the Rule places no limits on a consumer's right to an affirmative recovery of payments already made. The FTC addressed the matter because some courts have imposed limitations on a consumer's ability to obtain an affirmative recovery under the Holder Rule.

Advertising Online?  Check This.  The FTC hosted a public workshop on May 30, 2012 to consider the need for new guidance on advertising and privacy disclosures in today’s online and mobile environments. The workshop addressed disclosure challenges in social media and mobile marketing that have emerged since the FTC first issued its online advertising disclosure guidelines, known as “Dot Com Disclosures,” 12 years ago. The workshop also addressed mobile privacy disclosures and how they can be short, effective, and accessible to consumers on small screens. The workshop was webcast and no doubt will be available on the FTC’s website.  If you are into social media marketing, you will want to check it out.

State Enforcement Actions

On May 11, the Massachusetts Attorney General Martha Coakley’s office announced a consent judgment with a family of car dealerships to resolve allegations that the dealerships used deceptive marketing tactics by placing advertisements online and in print publications that misrepresented the actual vehicle prices. The AG also alleged that dealership employees asked consumers to sign incomplete documents with the understanding that they would be completed using the negotiated vehicle price, but later entered information which called for a higher price. Employees also allegedly charged consumers fees for unwanted or undisclosed warranties and services. The consent judgment orders the dealership to pay $125,000 in consumer restitution, $85,000 in civil penalties, and $15,000 for attorneys’ fees and costs.  Ouch!


Attorney’s Fees Not Available to Prevailing Party Under Rees-Levering Act Where Suit Alleged Violation of Unfair Competition Law Based on Rees-Levering Violation: An individual sued the holder of his retail installment sale contract for a violation of California’s Unfair Competition Law based on a violation of the California’s Rees-Levering Automobile Sales Finance Act. The U.S. District Court for the Southern District of California granted summary judgment for the creditor, and the creditor moved for an award of attorney’s fees pursuant to the RISC or, alternatively, pursuant to Rees-Levering. The court denied the motion. The court found that attorney’s fees were not warranted under the RISC because the attorney’s fee provision in the RISC was not legible in the record. The court added that attorney’s fees under Rees-Levering were not allowed in this case, where the “‘Rees-Levering violation is merely a predicate to a UCL claim [because] the public policy underlying the UCL must prevail over the reciprocal fee provision of Rees-Levering.’” See Wright v. General Motors Acceptance Corporation, 2012 U.S. Dist. LEXIS 57363 (S.D. Cal. April 23, 2012).

Court Certifies Class in Action Challenging Practice of Estimating Repossession Fee in Notice of Intent to Sell Collateral: A motorcycle buyer voluntarily surrendered the motorcycle to the secured creditor after he noticed various mechanical problems. The creditor sent the buyer a “Notice of Intent to Dispose of Repossessed Collateral,” which contained a balance owed, including an “Estimated Repossession Fee.” After the motorcycle was sold, the creditor sent the buyer a statement informing him of the deficiency balance due. The buyer entered into a payment plan but then defaulted. The buyer filed a class action lawsuit against the creditor for violations of California’s Rees-Levering Automobile Sales Finance Act and California’s Unfair Competition Law. He alleged that the Notice of Intent he and the putative class members received failed to provide required information, resulting in forfeiture of the creditor’s right to recover a deficiency balance. The U.S. District Court for the Eastern District of California certified a class. The court found that numerosity existed, noting that the size of the class was not affected by whether each class member’s vehicle was voluntarily surrendered as opposed to being repossessed because the Notice of Intent requirements applied to both circumstances. The court found that commonality was established over the questions of whether Rees-Levering applies to the creditor’s conduct and whether providing an “estimated value” for repossession services complies with that law. The court then held that the typicality element was also met because each of the putative class members received an “estimated” cost of repossession and the failure to provide a specific amount of the repossession fee was the identical type of injury suffered by all class members, no matter how close the estimate was to the actual value of those services. Finally, the court held that the class plaintiff and his counsel would fairly and adequately protect the interests of the class. The court found that questions of law or fact common to the members of the class predominated over any questions affecting only individual members, even though some class members’ loan documents contained an arbitration clause and class waiver and other class members’ documents did not. Finally, the court found that class litigation of common issues would reduce litigation costs and promote efficiency. See Mora v. Harley-Davidson Credit Corp., 2012 U.S. Dist. LEXIS 49636 (E.D. Cal. April 9, 2012).

Assignee of RISC Entitled to Repossess Vehicle Where Repair Shop Intended to Place Lien on Vehicle for Debtor’s Share of Repair Costs Authorized by Insurer: An individual bought a car that was later severely damaged in an accident. Her insurance company had the car repaired, but she did not pick up the car after the repairs due to a dispute with her insurer. The assignee of the car owner’s retail installment sales contract repossessed the car when it learned that the repair shop was threatening to place a lien on the title for the unpaid portion of the repairs and that the owner refused to pay because of the insurance dispute. After the repossession, both the car owner and the assignee filed complaints for declaratory judgment. The trial court found in favor of the assignee, explaining that the car owner’s failure to recover the vehicle from the repair shop allowed a lien to attach to the car, in violation of her contract. The Appellate Court of Illinois affirmed. The car owner argued that because she did not consent to the repairs, a lien could not attach to the car. The appellate court disagreed, noting that Illinois law provides that a lien attaches when work is commenced at the request of the reputed owner, authorized agent of the owner, or lawful possessor of the car. Because the car owner’s insurer arranged for the repairs and no one disputed that it was in lawful possession of the car, the appellate court found that the car owner’s consent was not necessary for the lien to attach. See Ries v. Fifth Third Bank, 2012 Ill. App. Unpub. LEXIS 897 (Ill. App. April 18, 2012).

Dealer Liable Under Vermont Consumer Fraud Act for Deficiencies in Title and Odometer Statement Despite Lack of Knowledge: A car dealership bought a used car at auction and received a clean document of title and odometer disclosure form to which the previous owner attested. The previous owner had also bought the car at auction where he received a salvage title to the car with unknown mileage. When the Vermont Department of Motor Vehicles issued the previous owner a new title, it erroneously issued a title that omitted information that the car had been salvaged and rebuilt. The dealership resold the car at auction. At resale, the odometer reading did not accurately reflect the car’s actual mileage, and the title did not reflect the fact that the car had been salvaged and rebuilt. When the buyer discovered this, he sued the dealership for violation of the Vermont Consumer Fraud Act. The trial court granted summary judgment for the buyer, and the Supreme Court of Vermont affirmed, holding that the VCFA does not require any degree of knowledge by the seller of the misrepresentation or omission in order to be held liable. The high court further held that the trial court did not abuse its discretion in refusing to consider the dealership’s evidence that the buyer bought the car “as is” where the dealership failed to include the relevant documents in its pleadings. See Gregory v. Poulin Auto Sales, Inc., 2012 Vt. LEXIS 28 (Vt. April 12, 2012).

Repossessing Creditor Must Establish that Sale Was Commercially Reasonable to Obtain Deficiency: After a creditor repossessed a vehicle for nonpayment and sold the vehicle, it sued the debtor for the deficiency balance. The trial court entered judgment in the creditor’s favor, but the Superior Court of New Jersey, Appellate Division, reversed. The appellate court found that a repossessing creditor must establish with evidence that the sale of the vehicle was commercially reasonable in order to obtain a deficiency. In this case, the creditor failed to present any such evidence and, thus, could not recover a deficiency. See Hann Financial Services Corp. v. DiPietro, 2012 N.J. Super. Unpub. LEXIS 844 (N.J. Super. App. Div. April 17, 2012).

So there you have it!  Stay legal, and we’ll see you next month.

Tom ( and Nikki ( are partners in the law firm of Hudson Cook, LLC.  Tom is the author of several books, available at  Tom is also the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW®, a monthly report of legal developments in all states for the auto finance and leasing industry.  Nikki is a contributing author to the F&I Legal Desk Book and frequently writes for Spot DeliverySpot Delivery, CARLAW and the books are produced by LLC.  For information, call 410-865-5411 or visit  Copyright 2011, all rights reserved.  Single publication rights only, to the Association. (6/12) HC# 4828-7585-3839.

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