Automobile Fraud: 7.2.3.4 Timing of Disclosure Requirement
State damage disclosure statutes differ in their requirements regarding the timing of the damage disclosure. Some require disclosure only prior to delivery of the vehicle to the consumer.190
State damage disclosure statutes differ in their requirements regarding the timing of the damage disclosure. Some require disclosure only prior to delivery of the vehicle to the consumer.190
A state’s new car damage disclosure law may require disclosure only when the dealer has actual knowledge of the damage. Even when the damage occurred prior to the dealer’s receipt of the vehicle, however, it may be possible to show actual knowledge through documents that the manufacturer or transporter provided to the dealer. The manufacturer may also require that the dealer inspect the vehicle for transit damage promptly upon delivery.
Remedies vary if the damage is not disclosed.
Although new car damage disclosure laws are generally useful for consumers when the damage amount to their cars exceeds the threshold disclosure amount, the laws can have the effect of insulating dealers and manufacturers from liability when the threshold is not met. The question is whether cars that are damaged in an amount less than the statutory threshold can still be sold as “new” without disclosure of the damage.
After the hurricanes of 2005, several Gulf Coast states adopted new requirements for water-damaged vehicles.
Even if a state does not have a damage disclosure law, if it requires dealers to inspect vehicles there is likely a duty under common law or the state UDAP statute to disclose damage that an inspection revealed or should have revealed. Connecticut,217 Michigan,218 Rhode Island,219 and Wisconsin220 require dealers to inspect used cars before selling them.
A number of states have statutes or regulations that require disclosure of certain specified prior uses of the vehicle. These requirements may be found either in the state’s UDAP statute or regulations244 or in the state’s motor vehicle dealer licensing statute.
Gray market vehicles are vehicles that are sold in the United States even though they were manufactured for sale elsewhere. They may not meet federal emissions and safety standards.255 As a result, it may be difficult or impossible to title the vehicle in the United States.256 Odometer issues also arise because the odometer must be converted from kilometers to miles when the vehicle is brought into the United States.257
Sale of cars without functioning airbags is a growing problem in light of the expense of replacement airbags and their attractiveness to thieves.265 A number of states have enacted laws addressing this problem.
Contradictions on the TILA disclosure itself or between the TILA disclosure and other loan documents may also render the disclosures not clear and conspicuous. Lenders or their agents may also provide other information that contradicts or overshadows the TILA disclosures, rendering the TILA disclosures not “clear and conspicuous.”
The Consumer Leasing Act (CLA) and Regulation M specify approximately thirty terms that must be disclosed to lessees, and require that charges on default or early termination be reasonable. Failure to comply with any disclosure requirement or the reasonableness requirement can lead to a statutory damages award plus actual damages and attorney fees. There are also a number of CLA lease advertising requirements, with private remedies if the consumer is damaged.
A special issue arises when a manufacturer “supports” an inflated residual by agreeing to subsidize the lessor because the vehicle at lease end will be worth less than the inflated residual. A lessor can use the inflated residual to lower the amount the lessor loses to depreciation over the lease term, allowing the lessor to reduce monthly lease payments (if it keeps rent charges the same). This can result in more of the manufacturer’s vehicles being sold.
About a third of the states make failure to perform a sales contract grounds for revoking or suspending a dealer’s license.321 Most make odometer violations a basis for license revocation.
Dealer licensing statutes also commonly include recordkeeping requirements designed to thwart fraud.325 These requirements vary from state to state, but may include information about the previous owner, the date of purchase, and the vehicle identification number for each vehicle the dealer buys; a description of each vehicle; a description of the body or chassis of used vehicles sold and any vehicle disassembled or altered; the sale price; the name and address of the purchaser; and copies of the title, the warranty, and other documents.
At least seventeen states have statutes with recordkeeping requirements specific to automobile auctioneers.327 The statutes are not uniform in their requirements.
A number of statutes require automobile auctioneers to disclose substantial background information regarding vehicles.333 Maine requires the most disclosure, including the vehicle make, model, and identification or serial numbers; odometer reading; name and address of the previous owner, including the principal use of the vehicle; the means by which the prior owner acquired the vehicle; all known mechanical defects; the extent of any damage, such as by fire, water, or collision; whether implied warranties are excluded or modified; whether t
Other statutes specific to automobile auctions are more limited and involve disclosure regarding the nature of a warranty or guaranty,336 compliance with safety and pollution requirements,337 vehicle identification numbers,338 whether a vehicle is rebuilt,339 and whether a manufacturer was required to replace or repurchase a vehicle due to defect.340
The Maryland, New York, Pennsylvania, South Carolina, and Washington statutes regarding automobile auctions contain a private right of action for violations.345 In other states, the auction’s violation of state standards may be a state UDAP violation or lead to a fraud claim.346 Motor vehicle auctions may be required by state law to post a bond that will be available to pay specified types of judgments obtained by consumers.347
A number of states have special motor vehicle statutes that give the consumer a cause of action for automobile fraud. Some of these statutes provide better remedies or have fewer preconditions than the state’s unfair and deceptive practices (UDAP) statute.
Many of the statutes under which automobile fraud claims are brought, including the Motor Vehicle Information and Cost Savings Act, many state odometer statutes, federal RICO and most state RICO statutes, many state lemon laws and damage disclosure laws,708 the Magnuson-Moss Warranty Act, and nearly all state deceptive practices (UDAP) statutes, allow an award of attorney fees if the consumer is successful.
In drafting an automobile fraud pleading, the consumer’s attorney should be careful to include at least one claim under a fee-shifting statute. If there is any possibility of asserting such a claim, the attorney should keep careful, detailed, contemporaneous records of time and any expenses, including pre-suit activity such as investigation and negotiation.
There is a large body of case law interpreting the fee-shifting provisions of federal statutes.716 Many states have built up their own body of law interpreting state fee-shifting statutes,717 but most state courts give considerable weight to federal interpretations of comparable federal statutes.718
Ordinarily, a fee request is submitted to the court, not the jury, after the plaintiff is awarded damages.730 This procedure is preferable to submitting attorney fee issues to the jury, which would unnecessarily complicate the case, and introduce side issues that distract attention from the consumer’s case. Only if the award of attorney fees is sought as consequential or incidental damages should the claim be submitted to the jury.731
Fee arrangements can be tricky when a case is settled. For example, the defendant may offer an amount that is sufficient to make the consumer whole, but insufficient to pay the consumer’s attorney a reasonable fee as well. Or the defendant may accept return of a vehicle, without any money changing hands. To avoid the dilemmas created by this type of settlement tactic, it is important for the consumer and the consumer’s attorney to have worked out in advance a clear understanding of how fees will be handled if there is a settlement.735
If a defendant does not voluntarily pay a judgment, state law collection procedures will need to be used to enforce the judgment. This effort can be complicated by the difficulty in locating a dealer’s assets. The most obvious assets of the dealership—the vehicles displayed for sale—are likely to be covered by a superior lien pursuant to the dealer’s floor plan financing arrangement.