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Repossessions: 14.2.11.1 Statute of Limitations for Lessor’s Collection of Early Termination Liability

UCC § 2A-506 provides a four-year statute of limitations for an action for default of a lease contract. The four-year period begins the later of when the default occurred or when the lessor should have discovered the default.261 Consequently, a lessor or a debt buyer purchasing the obligation from the lessor cannot seek an early termination penalty in court more than four years after the default or when the lessor should have discovered the default.

Repossessions: 14.2.11.2 Is the Real Party in Interest Bringing the Suit?

In a growing number of cases, motor vehicle leases are actually owned by a trust, as part of an arrangement to securitize the lease. Consequently, when the assignee of the original lessor (such as the finance arm of an auto manufacturer) seeks to collect on an early termination or default charge, ascertain that the party actually owns the lease.

Repossessions: 14.3.1 Overview

Rent-to-own (RTO) transactions require separate repossession analysis because of the unique nature of the RTO contract and because many, although not all, states exempt RTO transactions from UCC Article 9.277 This exemption is surprising. The very name rent-to-own and consumer expectations are that these are sales transactions which, along with the RTO company’s reservation of the right to seize the goods if the consumer defaults, all suggest Article 9 coverage.

Repossessions: 14.3.2.1 Has the State Enacted a Statute Exempting RTO Transactions from Article 9?

If RTO transactions are secured transactions covered by UCC Article 9, then RTO repossessions would be governed by the principles set out in , supra. RTO companies typically do not comply with these standards, and thus would be subject to UCC § 9-625 actual or statutory damage awards.288 Because the Article 9 violations would be systematic, the RTO company would be exposed to significant class action liability.

Repossessions: 14.3.2.2 If RTO Transactions Are Not Explicitly Exempt, Do They Meet Article 9’s Coverage Requirements?

In twelve states, either no RTO statute exists or the state RTO statute does not exclude RTO transactions from Article 9.297 In other states, the RTO statute may provide some form of exclusion from Article 9, but a court may find that the exclusion does not apply to a particular transaction or type of transaction. In all of these states, the question will be whether the transaction meets the definition of “security interest” in UCC §§ 1-201(b)(35) and 1-203.

Repossessions: 14.3.4 Application of Article 2A

UCC Article 2A regulates leases in forty-nine states and the District of Columbia (but not Louisiana).314 A few states’ RTO statutes state that RTO transactions are not governed by Article 2A,315 but in most states RTO transactions are subject to Article 2A. While Article 2A is generally less protective of consumers than Article 9, it does:

Unfair and Deceptive Acts and Practices: 7.1.1 Introduction

This section provides a list of notable subjects which may arise in automobile sales and finance transactions, pinpointing the subsections where such topics are discussed in this and other NCLC treatises. The references to sections of various NCLC treatises are all live links, but the link will only provide access if a subscription includes the applicable referenced treatise.

Unfair and Deceptive Acts and Practices: 7.2.6.1 Introduction

Most car sales today include extra essentially illusory fees added to the final purchase price: documentary (doc) fees, conveyance or transfer fees,194 NADW or other coupon books,195 inventory tax,196 advertising fees,197 dealer services, emergency roadside assistance, consumer packages, consumer services, and the like.198 Often preprinted on the final s

Unfair and Deceptive Acts and Practices: 7.2.6.4 Antitrust Claims

Consumers have antitrust claims (for treble damages and attorney fees) if car dealers, through their association or otherwise, conspire to establish standard types of extra fees. For example, an action has successfully alleged that the Louisiana dealership association colluded with the state’s dealers, in violation of the federal Clayton Act, to create a separate charge to reimburse dealers for the inventory tax dealers must pay the state. The allegation was not that the dealers had fixed prices, but that they had engaged in concerted action that had an impact on prices.

Unfair and Deceptive Acts and Practices: 7.2.6.6 Unauthorized Practice of Law

A dealer that prepares legal documents related to the sale and financing of vehicle may be engaging in the unauthorized practice of law. While what constitutes the practice of law will vary from state to state, and what activities the dealer engages in will vary from dealer to dealer, the possibility that the dealer was practicing law without a license should be examined.

Unfair and Deceptive Acts and Practices: 7.2.7.1 Introduction

An important car dealer profit center (and source of UDAP violations) involves dealer installed add-ons, such as rustproofing, glass etching, alarms, gas and glaze packages,229 and undercoating. While the popularity of particular add-ons may vary over time, the common feature is that the dealer’s mark-up is typically exorbitant. Most of the UDAP cases in this area are older cases involving rustproofing. But many of the same principles established in these rustproofing cases will apply to other add-ons.

Unfair and Deceptive Acts and Practices: 7.2.7.2 Rustproofing and Related Packages

While rustproofing was the dealer add-on of choice in the 1980s, it continues to prove profitable under different names, such as an “environmental protection package.” Such a package may include rustproofing, glazing, and undercoating, and may cost the consumer over $1000. The cost to the dealer of this add-on may be in the range of $100 or less.230 It is not surprising then that the dealer will aggressively sell the package.

Unfair and Deceptive Acts and Practices: 7.2.7.3 Glass Etching

Glass etching of a vehicle’s vehicle identification number (VIN) on a window ostensibly has value in identifying the car, thus preventing thefts and aiding in the recovery of stolen cars. In reality windows are easily replaced and the VIN is already permanently marked on many areas of the car that are much more difficult to remove or alter. Nonetheless there may be some minor value to having the windows etched and some police departments do this free of charge.

Unfair and Deceptive Acts and Practices: 7.2.3.2 Dealer Kickbacks on Financing

Consumers may not realize that in many cases their car payments going to a bank or other creditor generate significant income to the car dealer. Although the dealer may represent that an interest rate is at a level set by the bank or other creditor, in fact the creditor provides the dealer with an interest rate at which it would be willing to buy the retail installment agreement the dealer makes with the consumer (the buy rate) but then gives the dealer discretion to set the actual interest rate at some higher rate.

Unfair and Deceptive Acts and Practices: 7.2.3.4 Class Action ECOA Challenges to Dealer Kickbacks

While a UDAP claim may be the most practical to pursue in an individual case, class actions and government enforcement actions have often used the federal Equal Credit Opportunity Act (ECOA) to challenge the practice in cases brought against automotive financers, rather than the dealers.160 Evidence points to dealers marking up interest rates higher for African Americans or other consumers of color, and the allegation is that the pricing system set by the creditor has a disparate impact on a protected group.

Unfair and Deceptive Acts and Practices: 7.2.4.2 When Dealer Is Actually the Service Contract Provider

Because profits are so great in the sale of service contracts, dealers have an incentive to not only sell the policy, but to become the service contract provider, so that they can keep all the profit derived from the contract’s sale. Particularly when the service contract provider is not the car’s manufacturer, the contract provider could be owned by the dealer or a close relation of the dealer’s, or that an offshore company owned by the dealer owns the service contract provider.

Unfair and Deceptive Acts and Practices: 7.2.4.4 Undisclosed Inspection Fees

A dealer selling a service contract may be violating a UDAP statute when it fails to disclose additional fees that will be imposed if the consumer makes a claim under the contract, such as when the dealer charges an inspection fee to determine if the repairs are covered under the contract. In one case the fees were $695. A federal court has held that these facts state a UDAP claim.182

Unfair and Deceptive Acts and Practices: 7.3.3 “Unhorsing” and Selling the Consumer’s Trade-In Prematurely

One practice that dealers often engage in is “unhorsing” or depriving the consumer of their current vehicle during the negotiation of the purchase of a car. The failure to return a trade-in can take place at a number of different times, but is perhaps best summarized by the South Carolina Court of Appeals: “In the final analysis, [the consumer] was riding when he went to the dealership and ended up walking.”248

Unfair and Deceptive Acts and Practices: 7.3.5 Dealer Failing to Pay Off the Lien on the Consumer’s Trade-In

A surprisingly common abuse is for a dealer to take a vehicle in trade, but not to pay off the amount owed to the consumer’s creditor on the trade-in’s car original financing. This kind of abuse can also happen when the consumer turns in a leased car, and expects any early termination charge to be paid by the dealer as part of the purchase price of another vehicle. In both these cases, when the dealer fails to make the owed payments, the consumer’s creditor comes after the consumer for repayment.