2018 GNYADA Membership Directory

“Abusive” Practices Under Section 1031 of the Dodd-Frank Act, abusive practices include practices that materially interfere with the consumer’s ability to understand a term or condition of the product or service or take unreasonable advantage of a consumer’s lack of understanding, inability to protect their interests, or their reasonable reliance on the credit provider (dealer) to act in the consumer’s interests. Ex-CFPB Director Richard Cordray had indicated the agency would not publish regulations further clarifying what are abusive practices but would do so by bringing enforcement actions against perceived violators. Said Cordray, “For an institution, if they are in a situation, they should be thinking carefully about whether they are taking unreasonable advantage of their customer … It’s a customer by customer thing.”Again, the CFPB does not have authority to enforce“abusive”trade practice violations against franchised auto dealers but the same conduct that the CFPB would consider to be “abusive”may support a private UDAP action under state law. Honesty and transparency in the sales and F&I processes are perhaps the best defense to a claim of an unfair or abusive practice. Section 1042 of Dodd-Frank extends this UDAP enforcement authority to State Attorneys General and other regulators. Already, several State AGs have brought civil actions involving creditors other than auto dealers. The FTC and CFPB signed a memorandumof understanding in December 2012 to share information and coordinate their supervisory and enforcement efforts among their respective regulated entities. The FTC partnered with 32 law enforcement agencies in the U.S. and Canada to implement Operation Ruse Control, a crackdown on perceived deception and fraud in auto sales. Collectively, they brought over 185 actions against auto dealers. Both the FTC and the CFPB have signed similar memoranda of understanding with State Attorneys General. State UDAP Laws State UDAP laws are not uniform and a number of states apply different tests for “unfairness” or “deception” than does the FTC. Many enumerate specific practices deemed to be unfair. Others use differing standards that include: (1) whether the practice, even if not previously considered unlawful, offends public policy under any state authority; (2) whether it is unconscionable, unethical, immoral, oppressive, or unscrupulous; and (3) whether it causes substantial injury to consumers. In particular, state standards for “unfairness” may include a lower threshold for liability than the FTC’s “unfairness” standard. Many state UDAP laws also cover Internet or out-of- state transactions if a resident of the state is adversely affected. You should be aware that state Attorneys General are very liberal in using UDAP laws to bring claims against auto dealers. Private lawsuits, especially class actions, present another risk under state UDAP laws. Among class actions that have been brought successfully against auto dealers under state UDAP laws are class actions for: • Misrepresentations about the vehicle’s fuel efficiency, safety features, and warranty; • Payment packing; • Retaining amounts of itemized sums listed as “amounts paid to others” on retail installment sales contracts without disclosing that the dealer may retain part of the funds; • Concealing negative equity in the cash price of a vehicle;

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