The CARLAWYER - May Legal Developments
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 House Financial Services Committee, Consumer Financial Protection Bureau, three U.S. Senators, the Federal Communications Commission, and Federal Trade Commission.
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 House Financial Services Committee, Consumer Financial Protection Bureau, three U.S. Senators, the Federal Communications Commission, and Federal Trade Commission. 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
In an effort to spur innovation in the financial services industry, House Financial Services Committee Chairman Patrick McHenry recently reintroduced the Financial Services Innovation Act, which would establish regulatory “sandboxes” at the federal level. A regulatory sandbox is a framework set up by a regulator to allow small-scale, live testing of innovative technologies, products, or services by companies in a controlled environment under the regulator’s supervision. The legislation would require federal regulators to create Financial Services Innovation Offices (“FSIOs”) within their agencies and allow financial institutions to apply for an “enforceable compliance agreement” with the respective FSIOs that, if accepted, would permit them to test new products or services under an alternative compliance plan.
On February 29, the Consumer Financial Protection Bureau issued a circular to clarify that operators of digital comparison-shopping tools or lead generators can violate the federal Consumer Financial Protection Act by preferencing financial products or services, such as credit cards, loans, and bank accounts, based on financial or other benefits to the operator or the lead generator. The CFPB concludes in the circular that “[o]perators of digital comparison-shopping tools can violate the [CFPA’s] prohibition on abusive acts or practices if they distort the shopping experience by steering consumers to certain products or services based on remuneration to the operator. Similarly, lead generators can violate the prohibition on abusive practices if they steer consumers to one participating financial services provider instead of another based on compensation received. Where consumers reasonably rely on an operator of a digital comparison-shopping tool or a lead generator to act in their interests, the operator or lead generator can take unreasonable advantage of that reliance by giving preferential treatment to their own or other products or services through steering or enhanced product placement, for financial or other benefits.” The circular also provides a non-exhaustive list of examples of potentially abusive acts or practices by operators of digital comparison-shopping tools or lead generators. The circular follows guidance previously issued by the CFPB in February 2023 addressing the applicability of Section 8 of the Real Estate Settlement Procedures Act to operators of certain digital technology platforms that enable consumers to comparison shop for mortgages and other real estate settlement services, including platforms that generate potential leads for the platform participants through consumers’ interaction with the platform.
On March 14, the Federal Communications Commission adopted a voluntary cybersecurity labeling program for Internet of Things (“IoT”) consumer products that communicate over wireless networks. According to the FCC’s news release, “qualifying consumer smart products that meet robust cybersecurity standards will bear a label - including a new ‘U.S. Cyber Trust Mark’ - that will help consumers make informed purchasing decisions, differentiate trustworthy products in the marketplace, and create incentives for manufacturers presents national security concerns and whether customer data collected by the product will be sent to servers located in such a country.
On March 22, U.S. Senators Richard Blumenthal (D-CT), Edward J. Markey (D-MA), and Elizabeth Warren (D-MA) introduced legislation that requires car dealers to repair any open safety recalls for used cars prior to selling, leasing, or loaning them to consumers. According to the senators’ press release, “[t]o ensure that open recalls are repaired, the Used Car Safety Recall Repair Act incentivizes auto dealers to swiftly repair recalls by allowing them to sell recalled vehicles to other dealers who have the ability to fix the defects instead of sitting in their lots. The legislation also requires manufacturers to provide dealers with parts to repair safety defects within 60 days or reimburse dealers if the manufacturers cannot provide the necessary parts.”
The Federal Trade Commission announced that it will hold a virtual informal hearing on April 24, 2024, at 10:00 a.m. ET on its proposed Rule on Unfair or Deceptive Fees, which the FTC deems “junk fees.” The hearing will be open to the public and viewable on the FTC’s website. Certain interested organizations will have the opportunity to provide oral statements, which will be limited to 15 minutes each. However, these organizations may also submit written documents to the FTC by April 10. On October 11, 2023, the FTC issued its proposed rule, which would prohibit unfair or deceptive practices relating to fees for goods or services, including fees charged in connection with consumer financial products and services. Specifically, the proposed rule would prohibit businesses from misrepresenting the total costs of goods and services by omitting or hiding mandatory fees in advertising prices and misrepresenting the nature and purpose of fees. A link to the hearing webcast will be posted shortly before the date of the hearing on the FTC’s website.
CASE(S) OF THE MONTH
Car Buyer Failed to Allege Federal Odometer Act Claim Against Dealership’s Owner and Fraud Claims Against Dealership and its Owner: An individual bought a 2019 Lamborghini Urus from a dealership for $270,000 after the dealership’s owner and sole officer represented that the vehicle had 16,000 miles, was fully functioning, had no defects, and was in normal working condition. After taking possession of the vehicle, the buyer found that the vehicle suffered from a number of issues and rarely functioned. He took the car to an authorized Lamborghini dealership to purchase parts and was informed that the vehicle was “blacklisted” from all Lamborghini dealerships because the odometer had been rolled back approximately 21,000 miles. He also learned that the vehicle had electrical problems, was missing plastic pieces, and likely had frame damage. The buyer sued the dealership and the dealership’s owner for violation of the Federal Odometer Act and fraud. The defendants moved to dismiss the Odometer Act claim against the owner and moved to dismiss the fraud claim against both defendants. The U.S. District Court for the Southern District of Florida granted the motion. Addressing the Odometer Act allegations first, the court found that the owner could be held personally liable for sending the buyer the allegedly fraudulent odometer statement. However, the court determined that the buyer did not state an Odometer Act claim against the owner because there was no allegation that the owner acted with intent to defraud, such as that he had knowledge that the odometer reading was incorrect or was reckless or grossly negligent in that regard. Turning to the claims of fraudulent representations of material facts against both defendants, the court found that the buyer’s complaint failed to allege that either defendant had knowledge of the mileage discrepancy or the vehicle’s mechanical issues before or at the time of the sale to him. Therefore, the court dismissed the Odometer Act claim against the owner and dismissed the fraud claim against both defendants but allowed the buyer leave to file an amended complaint. See Lherisson v. Whittington, 2024 U.S. Dist. LEXIS 34395 (S.D. Fla. February 28, 2024).
COMPLIANCE TIP
Get Those Deal Jackets in Order! Do your deal jackets look like the rats have taken up residence in them? Do you have a checklist of the documents that belong and don’t belong in your deal jackets? Do those documents appear in the same order in every deal jacket? Have you asked your lawyer which documents you must retain and which you can omit from the deal jacket? Have you asked your lawyer which documents you can scan and keep electronically? Do you audit the content of your deal jackets to make sure that your document order and retention policies are being followed? And, finally, maybe you should give those documents a good read to ensure that the documents in your deal jacket are consistent and reflect your actual business practices.
So, there’s this month’s roundup! Stay legal, and we’ll see you next month.
Eric (This email address is being protected from spambots. You need JavaScript enabled to view it.) 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# 4877-7393-3234