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Automobile Fraud: 10.13.4.6 Bond Limitations on the Size of a Recovery

Most bonding statutes limit a surety’s liability, with such language as: “[t]he aggregate liability of the surety shall not exceed the sum of the bond.”825 If there are many claims or claimants, the amount of the bond must be divided accordingly.826 A Virginia statute, limiting the bond recovery to $20,000 per transaction, was interpreted to allow two co-buyers just one $20,000 recovery.827

Automobile Fraud: 10.13.4.7 Surety’s Liability After a Bond Has Expired

In many states, the surety remains liable on the bond after its cancellation for any sale made or any liability accrued on the bond before cancellation.838 In Rhode Island, for example, the bond remains in effect for two years after a dealer has gone out of business.839 This is to indemnify anyone whose cause of action arose while the bond was in effect.

Automobile Fraud: 10.13.4.10 Recovery Against a Bond When Dealer Files Bankruptcy

When a dealer files for bankruptcy, the surety bond does not become property of the estate.850 Nor are proceedings against the bond prohibited by the automatic stay.851 This is so even though allowing recovery against the bond may allow the surety to make a claim against collateral owned by the dealer, creating a “domino effect” that will affect the estate’s assets.852 A specific exception to the automatic stay also allows government agencies

Automobile Fraud: 10.13.4.11 Tips for Recovering Against a Bond

Motor vehicle dealer bonds are usually modest in amount and can be quickly exhausted if a dealer has cheated a number of consumers. In many states, bond proceeds are paid on a first-come, first-served basis.856 The first injured party to give notice may be first in line. At an early date, the consumer’s attorney should determine what steps are necessary to put the consumer’s claim in line for recovery under the bond. The attorney should also check that the bond is in good standing and has not yet been exhausted by other claims.

Automobile Fraud: 10.13.5 Consumer Recovery Funds

A relatively recent development is the establishment of consumer recovery funds that pay injured consumers when the defendant is judgment proof. For example, Virginia has supplemented its bonding requirement with a motor vehicle transaction recovery fund.860 A challenge to the constitutionality of this statute, on the ground that it applied only to judgments obtained from Virginia courts, was dismissed for lack of standing.861

Automobile Fraud: 7.6.1 General

Most jurisdictions—all states except Delaware, Kentucky, Missouri, Tennessee, and Wyoming—have enacted lemon laundering laws.275 In general, when a manufacturer buys back a car, the lemon laundering law requires that certain disclosures be made concerning the vehicle’s history before the vehicle is resold.

Automobile Fraud: 7.6.5 Application of Lemon Laundering Statutes to Multistate Transactions

Lemon laundering often involves multiple states. A car purchased in one state will be bought back by the manufacturer and resold in a second state, where it may then be transferred again to a third state. The first state’s lemon laundering statute may not be violated if the car is resold in another state without the mandated disclosures.296 In addition, the second state’s lemon laundering statute may or may not apply to buybacks originating in other states.

Automobile Fraud: 7.6.6 Remedies for Violations of Lemon Laundering Laws

Some state lemon laundering laws provide their own private cause of action, often including attorney fees.300 Other statutes do not provide a separate private cause of action for violation of the lemon laundering requirements, but those requirements are part of the state lemon law and therefore enforceable through its private cause of action. In these states the question may arise whether the consumer must give the manufacturer notice and an opportunity to resolve the problem before suing.

Automobile Fraud: 7.7.1 Relevance of Dealer Licensing Statutes to Consumer Claims

Nearly every state requires motor vehicle dealers to obtain a license.308 Many licensing statutes and their associated administrative regulations detail standards of conduct for dealers. These standards serve as grounds to revoke or suspend a license or for the state to impose some other sanction. States that do not have consumer protection laws against a particular type of automobile fraud may still have a substantive prohibition of such conduct buried in a dealer licensing statute.

Automobile Fraud: 7.7.3 Scope

Dealer licensing statutes apply to those in the business of selling vehicles. Whether “curbstone” dealers or those who sell vehicles occasionally or not from fixed locations must be licensed varies by state. The state may also create an explicit exception to the licensing requirement for banks or others that acquire and then resell vehicles as part of a different business (for example, making car loans).

Automobile Fraud: 7.7.4 Compliance with State Title Laws

A number of states specifically provide that a dealer’s failure to comply with state titling laws, such as by failing to provide a buyer with a certificate of title, can be grounds for revoking or suspending a license.320 State title laws are discussed in detail in Chapter 3, supra.

Consumer Banking and Payments Law: 5.1.4 Treatment of State Law and Limited EFTA Preemption

In general, this chapter does not cover state law regulating electronic transfers because only a few states have enacted comprehensive statutes relating to general electronic fund transfers.25 Some state laws govern disclosure of ATM fees.26 New Mexico law requires efforts to protect the confidentiality of information received about the consumer’s account when the consumer uses the point-of-sale (POS) terminal.27 Minnesota and New Mexico prohibit use of

Consumer Banking and Payments Law: 5.1.5.1 Overview; Key Terms

The EFTA and Regulation E generally govern any “electronic fund transfer” that authorizes a “financial institution” to debit or credit a “consumer’s account.”45 Some rights and responsibilities apply more broadly to “persons” beyond financial institutions and consumers.46

Consumer Banking and Payments Law: 5.1.5.2.1 Basic definition of “account”

To fall within EFTA’s scope, the electronic transfer (EFT) must authorize a debit or credit to an “account.”53 “Account” is defined in the statute as “a demand deposit, savings deposit, or other asset account (other than an occasional or incidental credit balance in an open end credit plan as defined in section 1602(i) of this title), as described in regulations of the Board, established primarily for personal, family, or household purposes, but such term does not include an account held by a financial institution pursuant to a bona fide trust

Consumer Banking and Payments Law: 5.1.5.2.3 Prepaid cards used for government benefits

Regulation E has special definitions of “account” and “financial institution” that cover some prepaid card accounts that are used for government benefits.77 Electronic benefits transaction (EBT) cards used by state or local government agencies to pay needs-based benefits are exempt under the statute.78 However, Regulation E covers electronic distribution of benefits by the federal government79 and of non-needs-tested state and local government benefits,