The CARLAWYER©

By Eric L. Johnson

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 U.S. Department of Justice, Consumer Financial Protection Bureau (CFPB), and Federal Trade Commission (FTC).  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

On May 8, the U.S. Department of Justice entered a proposed consent order with Hyundai Capital America, a vehicle finance company, resolving allegations that the company violated the Servicemembers Civil Relief Act by unlawfully repossessing 26 motor vehicles leased or owned by SCRA-protected servicemembers without obtaining court orders. Section 3952 of the SCRA provides that "[a]fter a servicemember enters military service, a contract by [a] servicemember for ... the purchase [or lease] of real or personal property (including a motor vehicle)" "for which a deposit or installment has been paid by the servicemember before the servicemember enters military service" "may not be rescinded or terminated for a breach of terms of the contract ... nor may the property be repossessed for such breach without a court order." A court may delay the repossession or condition the repossession on the refunding of all or part of the prior installments or deposits made by the servicemember. The DOJ's complaint alleged that, on June 25, 2014, Jessica Johnson, a Navy Airman, financed the purchase of a vehicle. The financing contract was assigned to Hyundai Capital. On March 23, 2015, Johnson enlisted in the Navy. Her enlistment orders indicated that she would be ordered to active duty beginning on August 25, 2015. In June 2015, Johnson faxed her enlistment orders to Hyundai Capital and asserted that she was protected by the SCRA. While she was on deployment, her account became delinquent. On July 27, 2017, Johnson allegedly spoke with a Hyundai Capital customer service agent about her account and stated that she was no longer deployed but was still in the military. On the same day, a Hyundai Capital employee allegedly recommended to its recovery department that Johnson's vehicle be repossessed. The written recommendation noted that "customer confirmed she is not deployed today." Attached to the recommendation was a report from the Defense Department's Defense Manpower Data Center database dated July 27, 2017, which indicated that Johnson had been on active duty since August 25, 2015, and was still on active duty as of July 27, 2017. On July 28, 2017, Hyundai Capital approved the repossession, allegedly based on the fact that Johnson was on "active [duty], but ... confirmed not deployed." Hyundai Capital then repossessed the vehicle without a court order and sold it in October 2017. Based on its review of documents provided by Hyundai Capital related to its vehicle repossessions from April 15, 2015, through May 21, 2023, the DOJ's complaint also alleged that the company repossessed, without court orders, 25 additional motor vehicles owned or leased by SCRA-protected servicemembers. The consent order requires Hyundai Capital to pay $10,000 plus any lost equity to each servicemember whose vehicle was repossessed and pay a civil penalty of $74,941. The consent order also requires Hyundai Capital to provide credit repair to affected servicemembers, provide SCRA training to its employees, and implement policies and procedures for vehicle repossessions that comply with the SCRA.

On May 16, the U.S. Supreme Court, by a vote of 7-2, rebuffed a challenge to the constitutionality of the CFPB’s funding structure, lifting a cloud that threatened the agency's enforcement and rulemaking efforts and clearing the way for final implementation of the Payday Lending Rule. The Supreme Court reversed the Fifth Circuit's decision. Justice Thomas wrote the majority opinion, joined by all three of the traditionally liberal Justices (Kagan, Sotomayor, and Jackson) as well as Justices Kavanaugh and Barrett and Chief Justice Roberts. The Court stressed that "an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes" and that the CFPB's funding scheme "fits comfortably" within that framework, consistent with historical practice. The Court highlighted two founding-era agencies—the Customs Service and the Post Office—and described how their fee-based, standing appropriations serve as precedent for the CFPB's funding structure. Also important for the Court was the statutory cap on the agency's spending, which it likened to the common historical practice of Congressional appropriations for a "sum not exceeding" a specified amount. Justice Jackson wrote a separate concurring opinion to emphasize that the political branches of government are better suited and intended to address policy concerns like the mortgage and financial crisis giving rise to the Dodd-Frank Act. She noted that the judicial branch "should not lightly assume" to place limits on other branches' powers. In a dissenting opinion, Justice Alito (joined by Justice Gorsuch) echoed many of the themes in the Fifth Circuit's opinion. They focused on the novelty of the CFPB's funding arrangement and the robust rulemaking and enforcement powers exercised by the agency, concluding that the CFPB enjoys "the very kind of financial independence that the Appropriations Clause was designed to prevent." The ruling removes a disability from the CFPB and provides the agency a freer hand in pursuing its rulemaking and enforcement agenda. Several CFPB investigations and enforcement actions were stayed pending resolution of this case, and the CFPB is poised now to push those matters forward (as the agency suggested in its own statement after the decision). On Capitol Hill, the chair of the House Financial Services Committee, Patrick McHenry issued a statement vowing to revisit the CFPB's authority through reform legislation.

On May 20, the FTC provided its annual letter to the CFPB detailing its enforcement, rulemaking, research, and policy development activities and consumer and business education during 2023 related to the Truth in Lending Act, the Consumer Leasing Act, and the Electronic Fund Transfer Act. The letter highlights the FTC's activities in the areas of vehicle sales, financing, and leasing, specifically the final Combatting Auto Retail Scams Trade Regulation Rule, and "junk fees," specifically the proposed Trade Regulation Rule on Unfair and Deceptive Fees. The letter also highlights the FTC's activities involving issues that affect American Indian and Alaska Native populations, as well as proposed changes to rules governing negative options. Finally, the letter discusses the agency's Military Task Force, which focuses on various initiatives to assist military consumers, and other FTC work involving military lending.  

Case(s) of the Month

Dealership Effectively Disclaimed Implied Warranty of Merchantability When It Sold Used Vehicle to Consumer: An individual bought a used vehicle from a dealership and financed the purchase. At the time of the purchase, the dealership provided the buyer with a Buyers Guide, which stated that the dealership was selling the vehicle "AS IS — NO DEALER WARRANTY [and] THE DEALER DOES NOT PROVIDE A WARRANTY FOR ANY REPAIRS AFTER SALE." The Buyers Guide was explicitly incorporated into the vehicle sales contract. The sales contract contained the following provision: "USED CAR BUYERS GUIDE. THE INFORMATION YOU SEE ON THE WINDOW FORM FOR THIS VEHICLE IS PART OF THIS CONTRACT. INFORMATION ON THE WINDOW FORM OVERRIDES ANY CONTRARY PROVISIONS IN THE CONTRACT OF SALE." The same day, the buyer purchased a service contract from a provider. At some point, the following handwritten notation was added to the Buyers Guide: "Customer has purchased a 24 [month]/24,000 mile [provider] warranty." A month later, the vehicle broke down. An auto repair shop informed the buyer that the vehicle was not worth repairing because, although some repairs would be covered by the service contract with the provider, approximately $2,500-$3,000 in repairs would not be covered. After the dealership refused to perform any repairs or arbitrate the matter, the buyer sued, alleging breach of the implied warranty of merchantability. The dealership moved for summary judgment, and the trial court granted the motion. 

The Court of Appeals of Indiana affirmed. The appellate court concluded that the dealership, as a matter of law, had effectively disclaimed the implied warranty of merchantability when it sold the vehicle to the buyer. Pursuant to the Indiana Uniform Commercial Code, "[u]nless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind." However, the appellate court noted that a used car dealer "may disclaim implied warranties through the use of conspicuous language containing expressions like 'as is' or 'with all faults' or other language which in common understanding call the buyer's attention to the exclusion of warranties and makes plain there is no implied warranty." The Buyers Guide, which was explicitly incorporated into the sales contract, provided that the vehicle was being sold as is. The personal representative of the buyer's estate, who was substituted as plaintiff after the buyer died, did not dispute that the Buyers Guide language was sufficient to disclaim any and all implied warranties, but he argued that the dealership negated any implied warranty disclaimer contained in the sales contract by offering the service contract to the buyer the same day it sold her the vehicle. 

The service contract stated: "YOU UNDERSTAND THAT THE SELLER IS NOT OFFERING ANY WARRANTIES AND THAT THERE ARE NO IMPLIED WARRANTIES OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE, OR ANY OTHER WARRANTIES, EXPRESS OR IMPLIED BY THE SELLER, COVERING THE VEHICLE UNLESS THE SELLER EXTENDS A WRITTEN WARRANTY OR SERVICE CONTRACT WITHIN 90 DAYS FROM THE DATE OF THIS CONTRACT [emphasis added]." The appellate court stated: "We need not address the particulars of this argument. As mentioned, in the event of conflict with other provisions of the sales contract, the provisions of the Buyers Guide control. The Buyers Guide disclaims all implied warranties without exception, overriding any other language in the sales contract suggesting that any exceptions exist. Even if we assume, arguendo, that [the buyer's] purchase of the Service Contract satisfied the exception laid out in the language above, it does not help [the plaintiff]." The plaintiff then argued that the handwritten notation added to the Buyers Guide - "Customer has purchased a 24 [month]/24,000 mile [provider] warranty" - served as an acknowledgment that the buyer's purchase of the service contract negated the dealership's warranty disclaimer. The appellate court disagreed, stating that "[t]he notation is nothing more than a simple acknowledgment that [the buyer] had purchased the service contract from [the] third-party [provider]; the notation does not mention the warranty-disclaimer exception in the sales contract, much less incorporate it. [The plaintiff] has failed to establish that the language of the Buyers Guide can be harmonized with the relevant language in the sales contract." See Thomas v. Valpo Motors, Inc., 2024 Ind. App. Unpub. LEXIS 555 (Ind. App. May 2, 2024). 

This Month’s CARLAWYER© Compliance Tip

The Case of the Month turned on whether the dealer had effectively disclaimed the implied warranty of merchantability when it sold the vehicle to the buyer. In this case, the Buyers Guide, which was explicitly incorporated into the sales contract, provided that the vehicle was being sold as is. The Buyers Guide disclaimed all implied warranties effectively overriding any other language in the sales contract suggesting that any exceptions exist.  The fact that the buyer purchased a separate service contract from a third-party provider wasn’t relevant. What does your Buyers Guide say about the vehicle you’re selling and does it effectively disclaim the implied warranty of merchantability? Does your buyer’s order or purchase agreement incorporate the Buyers Guide? It’s time to pull up those documents and review what they may or may not say with your friendly counsel!

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

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Eric (ejohnson@hudco.com) is a Partner in the law firm of Hudson Cook, LLP, Editor in Chief of CounselorLibrary.com’s Spot Delivery®, a monthly legal newsletter for auto dealers, and a contributing author to the F&I Legal Desk Book.  For information, visit www.counselorlibrary.com. ©CounselorLibrary.com 2024, all rights reserved. Single publication rights only to the Association.  HC# 4872-0711-6227

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From Glow3d.com:

Used car dealerships can provide better services by offering a wide selection of vehicles and providing customers with a more personalized experience ranging from financing options to protection plans and test drives. Here, we are going to dive into more detail about the best practices that a car dealership can follow.

When it comes to finding the best deal on a car, car dealerships are your best bet. They have access to all the information necessary to help you make an informed decision about your purchase. Car dealers can offer competitive pricing, discounts, extended warranties, or free maintenance packages by keeping an eye on the competition. This can help make the deal more attractive to potential customers and entice them to purchase the vehicle.

With the internet at your fingertips, it's easier than ever to locate a reputable used car dealership. However, it's important to remember that not all dealerships are created equal. While some will be honest about the car's condition and their value, others may not be so open with these details.

It is essential that you feel comfortable with the dealership and its staff while making your purchase. Make sure they understand your desired vehicle, budget, and any other expectations you may have. When browsing, dealerships often have a variety of cars on display. This allows them to get a better idea of what kind of car would work best for you and if it’s in line with the cars currently available for sale. If the dealership staff do not comprehend your requirements, they may not be able to provide the service you need. 

By providing exceptional customer service and garnering positive ratings from consumer reports and other sources of customer reviews, dealerships can ensure that their audience will support them in their efforts to improve their business practices. 

Car financing by car dealerships can be a great way to purchase a new or used vehicle. They can help you get a loan and arrange to finance. With car financing, dealerships can offer buyers options such as lower down payments, lower monthly payments, and even 0% interest rates. They often have relationships with major lenders and banks specializing in auto loans, giving them the ability to offer better rates than other companies in the same industry. This can make the process of buying a car much more affordable and easier.

When financing through a car dealership, buyers will typically need to provide proof of income, identification, and proof of residence. Along with this, a credit check will be conducted to determine the buyer’s creditworthiness. This helps the dealership to determine the lending terms and rates available to the buyer. Accordingly, it would be helpful if car dealers let customers know what documents they need to facilitate the buying process.

Dealers can offer supportive car protection plans to their customers in order to give them peace of mind that their vehicles will be taken care of no matter what. A comprehensive mechanical breakdown plan which covers all necessary repairs, including parts and labor, to keep the vehicle running can be very useful to car buyers. The plan can also include towing, car rental coverage, and roadside assistance. Extended warranty plans can be another suitable option. This plan should cover any unexpected repairs that may arise after the vehicle's original warranty has expired. It should also cover any factory defects or recalls that may occur down the road. This will make customers more likely to purchase from the dealer and ensure that their vehicles are always in top condition.

Car dealers can offer a better test drive experience by providing a more comprehensive overview of the car and its features. For example, they can explain in detail the car's safety, performance, and comfort features, as well as the available options and accessories. Additionally, car buyers can be provided with a detailed walk-through of the car’s interior and exterior, or using 360 car photography, allowing potential buyers to get a better feel for the car before actually getting behind the wheel. To make the test drive experience more enjoyable, car dealers can provide refreshments and snacks, offer a comfortable and inviting atmosphere, and have knowledgeable staff members on hand to answer any questions. 

Conducting a follow-up process after the test drive makes sense, which could include an invitation to schedule a second test drive or the offer of discounts and incentives. This will help ensure that potential buyers have a positive experience and are more likely to purchase the car.

Sean Toussi

If you have any questions or comments regarding this article, please email Sean@Glo3D.com

Glo3D.com Content Team,

AI-based, Digital Merchandising.

Virtual tour, Video Tour.

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Encryption Decryption: 

**August 2022- FOR YOUR REVIEW 

Breaking Down Email Encryption Requirements Under the Safeguards Rule By K. Dailey Wilson* On October 27, 2021, the Federal Trade Commission finalized its long-awaited updates to the Safeguards Rule. The 2021 changes to the rule require financial institutions, including auto dealers and finance companies that offer financing, to dust off their existing information security programs and likely make some significant changes. This article highlights one key change—the requirement to encrypt emails containing customer information. What is encryption? As of December 9, 2022, financial institutions will be required to protect by encryption all customer information held or transmitted by the financial institution both in transit over external networks and at rest or to secure such information through effective and equivalent alternative safeguards. Technically speaking, "encryption" means the "transformation of data into a form that results in a low probability of assigning meaning without the use of a protective process or key, consistent with cryptographic standards and accompanied by appropriate safeguards for cryptographic key material." I don't know about you, but that definition is about as clear as mud to me, and I am a millennial. In non-IT speak, "encryption" is a process whereby plain text, like a text message or email, is scrambled into an unreadable format. When the intended recipient accesses the message, it is unscrambled and translated back into the original plain text. What must be encrypted? When a financial institution sends any customer information through email over an external network, that financial institution will need to encrypt that email. So, what is customer information? "Customer information" means any record containing nonpublic personal information about a customer of a financial institution, whether in paper, electronic, or other form, that is handled or maintained by or on behalf of the financial institution or its affiliates. In layman's terms, "customer information" can include: • information a consumer provides to you on an application to obtain a credit transaction; • payment history; • account balance information; • the fact that an individual is or has been one of your customers or has obtained a financial product or service from you; • any information a consumer provides to you or that you or your agent otherwise obtain in connection with collecting or servicing a credit account; • any information in connection with a financing transaction that you collect through an internet "cookie"; and • information from a consumer report.

"Customer information" encompasses a lot of types of information that may be included on or in communications you have with your customers. For example, information from the consumer's credit report would be included in an adverse action notice. Account balance information is likely included on monthly statements provided to customers in connection with their motor vehicle financing transactions. If you email these communications to customers, you will now be required to encrypt these emails. Practical considerations When implementing an email encryption solution, it is critical to consider the encryption process from the customer's point of view. Encryption solutions that require customers to take additional steps, such as downloading special software to access the encrypted email, could frustrate customers and reduce the likelihood that they take the extra step to actually receive and read important legal disclosures. Accordingly, it is a good idea to test a potential email encryption solution and evaluate its impact on the customer experience before fully implementing it. Additionally, you should notify both new and existing customers that you use an email encryption solution. Customers who are not expecting to receive an encrypted communication from you may be confused and even concerned that the communication is a phishing attempt rather than an important customer communication. Finally, note that you could avoid the requirement to encrypt emails by making communications containing customer information available through an alternative method. For example, you could make the information available in a customer's account accessible via username and password (e.g., through an online customer portal), only using email to notify the customer that such communication is available. Because the email would only alert the customer that a notification is available and would not itself contain customer information, email encryption would not be required. Customers will appreciate the added protection to their nonpublic personal information that an encryption email solution or other equivalent safeguard will provide. Just make sure it's simple to use and not unexpected. *K. Dailey Wilson is an associate in the Tennessee office of Hudson Cook, LLP. Dailey can be reached at 423.490.7567 or dwilson@hudco.com. Copyright © 2022 CounselorLibrary.com LLC. All rights reserved. This article appeared in Spot Delivery®. Reprinted with express permission from CounselorLibrary.com. CounselorLibrary LLC and Hudson Cook LLP are affiliated companies with common ownership. CounselorLibrary LLC does not provide legal services, representation or advice. It is not necessary for you to use the legal services of Hudson Cook in order to be a customer of CounselorLibrary, and vice versa.

Dear Dealer:

This letter serves as notice that as of April 15, 2021, the Tennessee Motor Vehicle Commission, in an effort to promote a fair and level playing field for all licensees and to prevent abuses to the public, will begin auditing advertising through all media, state-wide.

Please ensure all advertising is compliant. Failure to do so may result in substantial civil penalties. Again, the Motor Vehicle Commission will begin a thorough review of advertising across all mediums beginning April 15, 2021. 

The Tennessee Motor Vehicle Commission has primary authority over motor vehicle dealer advertising. Remedies include civil penalties, license suspension and/or revocation. Its authority is also shared with other authorities, such as the Attorney General’s Office and the Federal Trade Commission. For Federal Advertising regulations, please visit www.ftc.gov.

Specifically, Tenn. Code Ann. § 55-17-114(b)(1)(E), outlines conditions under which the Motor Vehicle Commission maintains authority for license revocation and/or suspension. Additionally, pursuant to Tenn. Code Ann. § 55-17-117(a), any person violating this part or any rule promulgated under this part, or any order issued by the commission, is subject to a civil penalty of not less than one hundred dollars ($100) nor more than five thousand dollars ($5,000) for each day of violation or for each act of violation.   

We thank you and appreciate your attention to this important matter.

Kindest Regards,

Tennessee Motor Vehicle Commission

 
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