The Carlawyer

The NMIADA is happy to bring It's members a monthly news blog from the Carlayer. This page will bring you up to date about legislation that can affect your business.


                                                                                 The CARLAWYER©

                                                              By Thomas B. Hudson and Nicole Frush Munro
Here’s our monthly article on legal developments in the auto sales, finance and lease world. This month’s report is skimpy.  Perhaps the Consumer Financial Protection Bureau is hunkering down a bit to avoid the attentions of its detractors in Congress and the Trump administration, but maybe it’s just a slow month.  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 own lawyer to learn how what we report might apply to you, or if you have questions.

                                                           This Month’s CARLAWYER© Compliance Tip

State attorneys general have targeted car dealers in a number of recent, highly-publicized enforcement actions.  Has the AG in your state been active?  How can you find out?  That’s easy – just task your compliance officer with the chore of checking the AG’s website weekly, looking over the previous week’s press releases, and reporting to top management what he or she finds.  If your AG’s going after dealers, those press releases will tell you so, and will identify the sorts of conduct the AG is challenging.

                                                                             Federal Developments
FTC Moves on the Privacy Front.
  On August 29, the FTC announced that TaxSlayer, LLC, an online tax preparation service, agreed to settle charges that it violated the Gramm-Leach-Bliley Act’s Safeguards Rule, which requires financial institutions to implement safeguards to protect the security, confidentiality, and integrity of customer information, and the Privacy Rule, which requires financial institutions (this includes car dealers selling cars on credit) to deliver privacy notices to customers.  The FTC alleged that TaxSlayer violated the Safeguards Rule by failing to develop a written comprehensive security program until November 2015, to conduct a risk assessment to identify reasonably foreseeable internal and external risks to security, and to implement information security safeguards that would help prevent a cyberattack. 

The FTC also alleged that the company violated the Privacy Rule by failing to provide its customers with a clear and conspicuous initial privacy notice and to deliver it in a way that ensured that customers received it.  The FTC alleged that malicious hackers were able to gain full access to nearly 9,000 TaxSlayer accounts between October 2015 and December 2015.  According to the FTC’s complaint, the hackers used the information they accessed to engage in tax identity theft, which allowed them to obtain tax refunds by filing fraudulent tax returns.

Guidance on Phone-Pay Fees.  On July 31, the CFPB issued Compliance Bulletin 2017-01: Phone Pay Fees, warning that certain practices with respect to phone pay fees could result in violating the Dodd-Frank Act’s prohibition against unfair, deceptive, or abusive acts or practices (UDAAP) or violating the Fair Debt Collection Practices Act.  The CFPB identified the following conduct that presents the risk of constituting a UDAAP:

·         failing to disclose the prices of all available phone pay fees when different phone pay options carry materially different fees;

·         misrepresenting the available payment options or that a fee is required to pay by phone; 

·         failing to disclose that a phone pay fee would be added to a consumer’s payment, creating the misimpression that there was no service fee; and

·         lack of employee monitoring or service provider oversight, which may lead to misrepresentations or failure to disclose available options and fees. 

With respect to the FDCPA, the CFPB warns that a person who meets the definition of “debt collector” must ensure that phone pay fees are either expressly authorized by the agreement creating the debt or permitted by law in order to avoid violating Section 808(1) of the FDCPA.  The CFPB also expressed concern that employee and service provider production incentive programs could create incentives to steer borrowers to more costly payment options or to avoid disclosures, resulting in a UDAAP. 

The CFPB expects companies to review their practices in connection with phone pay fees to assess potential risk of committing UDAAPs or violating the FDCPA.  The CFPB suggests that companies consider doing the following: 

·         review applicable state and federal laws, including the FDCPA, to confirm whether entities are permitted to charge phone pay fees; 

·         review underlying debt agreements to determine whether such fees are authorized by the contract; 

·         review internal and service providers’ policies and procedures on phone pay fees, including call scripts and employee training materials, and revise policies and procedures to address           any concerns identified during the review, as appropriate; 

·         review whether information on phone pay fees is shared in account disclosures, loan agreements, periodic statements, payment coupon books, on the company’s website, over the             phone, or through other mechanisms; 

·         incorporate pay-by-phone issues in regular monitoring or audits of calls with consumers; 

·         review consumer complaints regarding phone pay fees; 

·         perform regular reviews of service providers as to their pertinent practices; and 

·         review that the entity has a corrective action program to address any violations identified and to reimburse consumers when appropriate.

Federal Bill Would Ban Sales of Used Cars With Open Recalls.  U.S. Senators Blumenthal (D-CT) and Markey (D-MA) and U.S. Representative Schakowsky (D-IL) recently introduced legislation (H.R. 3449) to ensure that used vehicles containing recalled, unsafe parts are repaired before being sold or leased.  Dealers currently may sell or lease cars with outstanding recalls.  The Used Car Safety Recall Repair Act would require used car dealers to repair any outstanding safety recalls before selling or leasing used automobiles. 

Manufacturers and new car dealers are prohibited from selling vehicles containing recalled parts, but no current law prohibits used car dealers from selling or leasing vehicles with open recalls.  The sponsors say that the proposed legislation addresses the gap in consumer protection that confuses car buyers who believe they are buying a product with safety assurances.  The House bill is co-sponsored by Representatives Pallone, Jr. (D-NJ), Rush (D-IL), Butterfield (D-NC), and Matsui (D-CA).

FTC Offers Security Help.  The FTC released several blog posts as part of its “Stick with Security” initiative to educate businesses about the best practices to secure consumer data.  The FTC will publish a blog post every Friday for the next few months focusing on the 10 data security principles addressed in its “Start with Security” guide for businesses.  Based on information from the FTC’s investigations and enforcement actions and questions from businesses, the blog posts will use a series of hypotheticals to illustrate the steps companies can take to safeguard sensitive data in their possession.


                                                                                  Case of the Month
Sharay Freeman went to A Better Way Wholesale Autos to buy a used car.  She signed a retail purchase order, which set forth a cash purchase price of $10,995, a VIN etch service fee of $198, a dealer conveyance fee of $598, sales tax of 6.35 percent, an unspecified amount for registration of the vehicle, which she reasonably expected to be under $150, and a deposit of $2,500. 

 Although the purchase order stated “No Refund of Deposit,” a salesman allegedly told Freeman that the deposit would be returned if A Better Way could not obtain financing for her.  Using an online calculator and these figures, Freeman determined that her monthly payments would be about $320, which she could afford. 

  Freeman provided a $2,500 deposit, and A Better Way tried to secure financing.  Freeman did not approve of the financing terms obtained by A Better Way, so she asked for her deposit back.  The terms included ancillary products and services that Freeman did not want, and the payments were more than she could afford.  A Better Way refused to give her deposit back and attempted to arrange new financing.  Under the new terms, the sale price of the car was more than previously advertised, and the number of payments increased. 

  Freeman declined the new financing as well and sued A Better Way, claiming that it violated the Connecticut Unfair Trade Practices Act and engaged in fraudulent misrepresentation.  The trial court ruled in favor of Freeman, awarding her both compensatory and punitive damages, and A Better Way appealed. 

  The Appellate Court of Connecticut affirmed the trial court’s decision.  In finding that A Better Way violated the CUTPA, the appellate court noted that A Better Way expressly represented the cost of the vehicle, that there would be additional costs for sales tax, conveyance fees, a VIN etch fee, registration, and unspecified finance charges, and that Freeman’s deposit would be returned if financing could not be obtained.  The appellate court concluded that these representations implied that there would be no other mandatory charges and that a legal rate of interest would be charged and were made for the purpose of inducing Freeman to pay a substantial cash deposit.  Freeman reasonably interpreted these representations to mean that her deposit would be refunded if financing could not be obtained for the vehicle at a legal rate of interest for the advertised price and only those additional charges that had been disclosed.  A Better Way failed to explain that the deposit would be nonrefundable if it offered any financing on any terms, including terms that required Freeman to purchase services she did not want or to pay more than the advertised price.

As further support for its finding of unfairness, the appellate court found that A Better Way violated the public policy of the Truth in Lending Act by failing to disclose the financing terms to Freeman before requiring a substantial nonrefundable deposit and violated Connecticut advertising regulations by failing to sell the car for the price advertised.  The appellate court also found that A Better Way acted unethically by requiring Freeman to either forfeit her deposit or accept financing terms that included unwanted products and services or a higher price for the car than what was advertised. 

  Finally, the appellate court found that A Better Way’s conduct harmed consumers and competitors by drawing in customers with substantially lower prices than other dealers and then requiring customers to buy extras to ensure that A Better Way still makes a profit.  Freeman v. A Better Way Wholesale Autos, 2017 Conn. App. LEXIS 287 (Conn. App. July 18, 2017)


So there’s this month’s roundup!  Stay legal, and we’ll see you next month.


Tom ( and Nikki ( 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  Copyright 2015, all rights reserved.  Single publication rights only, to the Association. (7/15).  HC# 4816-7599-4150.



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