The CARLAWYER©

By Eric Johnson, Partner in the law firm of Hudson Cook, LLP, Editor in Chief of CounselorLibrary.com’s Spot Delivery®

Here’s our monthly article on selected legal developments we think might interest the auto sales, finance, and leasing world. This month, the developments involve the Federal Trade Commission, Consumer Financial Protection Bureau, Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Department of Housing and Urban Development, Department of Justice, and Federal Housing Finance Agency. As usual, our article features the “Case(s) 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.

FEDERAL DEVELOPMENTS

FTC Bans Marketing Company from

Auto Industry. On January 28, the FTC issued an opinion and final order in a case against a marketing company, Traffic Jam Events, LLC, and its owner, finding that the defendants falsely claimed in direct mail advertisements to be affiliated with a government COVID-19 stimulus program. The FTC also determined that the advertisements deceptively stated that consumers had won specific prizes, including large cash prizes, that they could collect if they visited certain car dealerships, which was not the case once they went to claim the prizes. Further, the FTC found that the defendants continued their unlawful conduct despite entering into three prior consent orders with state regulators. In addition to these violations of the FTC Act, the FTC also found that the defendants violated the Truth in Lending Act by failing to satisfy the Act’s disclosure requirements for advertising closed-end credit. The order bans the defendants from advertising, selling, or leasing automobiles for 20 years. The FTC’s order also prohibits them from misrepresenting any material fact while marketing any product or service of any kind, as well as from any further violations of TILA’s disclosure requirements.

CFPB Allows Public to Submit Petitions for Rulemaking. On February 16, to broaden access to the agency’s rulemaking process, the CFPB announced that members of the public can now submit petitions for rulemaking directly to the agency. The CFPB states that “[w]hile members of the public have long had the ability to comment on rules and other initiatives, many individuals and small businesses believe that they must hire former government officials, lawyers, or lobbyists in order to be heard by an agency.” The petitions for rulemaking will be posted on public dockets for review and comment.

Agencies Release Statement on Establishing Special Purpose Credit

Programs. On February 22, the FRB, FDIC, NCUA, OCC, CFPB, HUD, DOJ, and FHFA issued an interagency statement to remind creditors of the ability under the Equal Credit Opportunity Act and Regulation B to establish special purpose credit programs to meet the credit needs of specified classes of persons. The interagency statement calls attention to the special purpose credit options under ECOA and Reg. B. On December 21, 2020, the CFPB issued an advisory opinion on special purpose credit programs to clarify the content that a forprofit organization must include in a written plan that establishes and administers a special purpose credit program under Reg. B. In addition, the advisory opinion clarified the type of research and data that may be appropriate to inform a for-profit organization’s determination to establish a special purpose credit program to benefit a specified class of persons. On December 7, 2021, HUD released guidance concluding that special purpose credit programs instituted in conformity with the ECOA and Reg. B generally do not violate the Fair Housing Act. Accordingly, creditors may consider the use of special purpose credit programs across all types of credit covered by ECOA and Reg. B.

FTC Reports on 2021 ECOA Efforts. On February 23, the FTC provided its annual letter to the CFPB summarizing its enforcement actions, research and policy initiatives, and education efforts in 2021 related to the Equal Credit Opportunity Act.

CFPB Issues Blog Post on Auto

Financing. On February 24, in response to the increasing cost of automobiles and the potential for consumer debt related to auto financing to increase, the CFPB issued a blog post stating its intent to “focus on ensuring a fair, transparent, and competitive auto lending market.” In line with its goal to ensure affordable credit for auto purchases, the CFPB states: “Given the increase in loan amounts, the rising length of loan terms, and the uncertainty around the ongoing economic recovery, we will be closely monitoring lender practices and consumer outcomes. In particular, we continue to evaluate lending structures where lenders seem to rely on high interest rates and fees to profit even when consumers fail. We are also concerned about loan-to-value ratios in the auto loan market.” The CFPB also intends to monitor servicing and collection practices by auto finance companies, including a focus on servicemember protections and technologies used to assist the companies in repossessing vehicles. Finally, the CFPB states that it will focus on ensuring competition in the subprime auto financing market.

CFPB Is Concerned About Wrongful Repossessions. On February 28, the CFPB issued a Compliance Bulletin to remind vehicle-secured creditors and their servicers

of the Dodd-Frank Act’s prohibition on engaging in unfair, deceptive, or abusive acts or practices when repossessing consumers’ vehicles. Noting the recent strong demand for used vehicles, the CFPB stated that it is “concerned that these market conditions might create incentives for risky auto repossession practices, since repossessed automobiles can command higher prices when resold.” The CFPB is issuing the bulletin to mitigate the harms from these risks. The bulletin summarizes the UDAAP law and highlights relevant examples of conduct observed during supervisory examinations or enforcement investigations related to repossessions that the CFPB considered to be UDAAPs, including: (1) repossessing vehicles from car owners who made payments sufficient to bring the account current, who entered into a payment plan, or who made promises to pay by a certain date and the date had not passed when the repossession occurred; (2) repossessing vehicles from car owners when the servicer incorrectly noted that the account was delinquent, when servicer representatives failed to cancel repossession orders that had previously been communicated to repossession agents, or when repossession agents failed to confirm that the repossession order was still active prior to repossessing a vehicle; (3) repossessing vehicles subject to the automatic stay in a car owner’s bankruptcy case; (4) repossessing vehicles by failing to provide car owners with accurate information about the amount required to bring their account current; (5) applying payments in a different order than disclosed to car owners, resulting in repossession; (6) charging car owners for unnecessary forceplaced insurance, resulting in additional fees that push car owners into default and repossession; (7) refusing to return car owners’ personal property from repossessed vehicles unless car owners paid a fee; and (8) charging collateral protection insurance after repossession. In the bulletin, the CFPB recommends certain actions that can be taken to prevent such UDAAP violations when repossessing vehicles.

CASE(S) OF THE MONTH

Court Compelled Arbitration of Lessee’s Claims that Arose from Advertisements and Representations that Predated Signing of Lease Agreement Containing

Broad Arbitration Clause: A lessee sued his lessor for false advertising, fraudulent concealment, and violation of consumer protection statutes in connection with its advertising and representations made during the negotiation process. The lessor moved to compel arbitration pursuant to an arbitration agreement that the lessee signed as part of the lease transaction. The U.S. District Court for the District of Nebraska granted the motion. The lessee argued that because his claims arose before and during the negotiation process, they were not subject to the arbitration agreement that he signed thereafter. The court found that the broad arbitration agreement, which applied to any claim that “arises out of or relates to your credit application, lease, or condition of this Vehicle, this Lease or any resulting transaction or relationship,” covered the lessee’s claims that he was induced to enter into the lease based on the lessor’s advertisements and/or representations made during the lease negotiation process. The court rejected the lessee’s argument that the arbitration agreement must specifically state that it applies retroactively in order for it to apply to claims that predate the execution of the agreement where his “claims are inextricably linked to the formation, interpretation, and enforcement of the lease agreement that contains the arbitration clause at issue ... and do not exist independent of that agreement.” See Boehm v. VW Credit, Inc., 2022 U.S. Dist. LEXIS 8744 (D. Neb. January 18, 2022).

COMPLIANCE TIP

Last month’s Federal Development regarding the FTC Advisory Opinion on Recovery of Attorneys’ Fees and Costs Under Holder Rule and our Case of the Month on arbitration showcase why a dealer should start using a properly drafted arbitration agreement, if it isn’t already doing so. Although the FTC’s Advisory Opinion is not binding on the courts, a court may find the FTC’s opinion that that Holder Rule does not impose a limit on a consumer’s ability to recover their attorneys’ fees and costs as very persuasive. In addition, the FTC’s advisory opinion could mean more plaintiff’s cases against your dealership as plaintiff’s attorneys may now be more willing to bring a claim if their odds of getting their attorneys’ fees and costs paid are better than before. n

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