Unfair and Deceptive Acts and Practices: 7.2.6.2 UDAP Challenges
UDAP claims can successfully challenge many fees.
UDAP claims can successfully challenge many fees.
If the fee is considered optional, determine if it is required of all credit customers. If a fee is optional for cash customers, but required of credit customers, then the fee is a finance charge and should be disclosed as such.
States have explicit restrictions on certain dealer charges. Virginia requires all charges to be disclosed on the buyer’s order. Connecticut requires doc fee charges to be included in advertised prices.
One of the most oppressive and potentially unfair and deceptive sales techniques that car dealerships employ is the “TO” or turnover system, in which a series of sales personnel are used to wear down a consumer. The first salesperson the consumer meets is a “liner” or “greeter” who qualifies the consumer—that is sizes up how vulnerable the consumer is and how much the dealer can take advantage of the consumer.
A dealer’s illegal use of a consumer’s credit report may not only be a UDAP violation but also a violation of the federal Fair Credit Reporting Act (FCRA). The violation occurs when a car dealer pulls a consumer’s credit report almost as soon as the consumer walks into the showroom. The dealer requires the consumer’s driver license claiming that it needs to copy the license in order to allow the consumer to test drive a car, or that it will be used to enter a contest, or just as a precondition for meeting with a salesperson.
In a surprising number of credit and lease transactions, the vehicle the consumer wishes to trade-in has negative equity. That is, the vehicle is worth less than the outstanding credit obligation on that vehicle, or the early termination of a lease on that vehicle will create a sizeable early termination charge. Thus, the consumer’s obligation will go up because of the trade-in, not down.
Used car dealers sometimes employ special sales techniques aimed at selling a number of cars quickly, by attempting to force consumers to act quickly to buy during this “once in a lifetime” event. Dealerships will often bring in outside groups to market these sales and sometimes to actually sell the cars as well.293 These hired guns are often referred to as liquidators or promotion specialists.
A large number of the used cars sold each year in this country were actually declared “total” losses because of wreck damage, were then rebuilt, and ultimately were resold to unsuspecting consumers. Millions more are sold that were in a serious wreck, but were never declared to be total losses. Each time a major flood hits an area, thousands of cars suffer flood damage, but many of these cars are resold to consumers unaware of that flood history.
Many vehicles have defects but were never returned to the manufacturer, either as a goodwill buyback or pursuant to a lemon law. Sale of such used cars without disclosing serious defects should be a UDAP violation.363 Even though the FTC considered and rejected a version of the FTC Used Car Rule that would have required dealer disclosure of mechanical defects, the fact that the FTC failed to do so does not prevent it from being a UDAP violation to fail to disclose such defects.364
Used car dealers are notorious for price gouging on both cars and add-ons. There is a growing body of evidence that dealers discriminate on the basis of race, gender, and other invidious categories when pricing vehicles and add-ons.389 Such price discrimination may violate federal and state discrimination statutes.390 When excessive used car prices are hidden in a finance charge, this may also lead to Truth in Lending Act violations.391
There has been an explosive growth of “buy-here, pay-here” (BHPH) dealerships. These used car dealers concentrate on those who perceive themselves as high credit risks who would have difficulty finding automobile financing elsewhere. Targeted-advertising offers financing for all comers, which is not difficult for the dealer because the price of the vehicle may be fantastically overpriced, and the dealer may demand a large down payment that exceeds the vehicle’s value.
State UDAP statutes prohibit assorted deceptive pricing representations concerning discount and special bargains,410 bait and switch, and the advertising of unavailable cars.411 Price representations must clearly disclose what the purchase price includes and other additional costs must be disclosed.412 An advertisement offering $99 a month, no money down is deceptive when the dealer only is offering the car at $99 a month or no money down, but not
Safety and other material defects in a car must be disclosed before purchase.489 Failure to disclose defects known at the time of sale is a UDAP violation despite the dealer’s later compliance with federal automobile recall notice regulations.490 A manufacturer and dealer engage in a deceptive practice when they conceal knowledge concerning a car’s defects and misrepresent to a consumer the cause of a car’s problems.491 Similarly, it is deceptive n
While not every lease involves a UDAP violation,506 many dealer representations and failure to disclose important terms concerning car leases are UDAP violations. These include the following practices:
A major area of consumer concern involves penalties that consumers are charged when they default or terminate an automobile lease early. The UDAP issues are three-fold: misrepresentations and failures to disclose the true nature of early termination liability; lessor misapplication of its own early termination formula; and formulas that produce excessive charges and unreasonable results.
UDAP statutes should be able to challenge the following lessor practices:
Virtually all consumer automobile leases today are closed-end, meaning that the consumer at lease termination has no liability for the fact that the vehicle has depreciated more than originally anticipated. It is thus a UDAP violation to misrepresent that the consumer would owe a large penalty at scheduled termination (to encourage the consumer to “flip-over” the lease to a purchase).536
Once the applicable statute of limitations has been identified, the next step is to determine when the time period starts to run. The general rule is that the limitations period begins from the time a reasonable person would be put on notice concerning the facts constituting unfairness or deception.42 In some states, this discovery rule is explicit in the statute.
Some UDAP statutes specify that the statute of limitations begins to run from the date the cause of action accrues, which can be subject to varying interpretations.
The most common situation where the limitations period has run involves a UDAP counterclaim to a collection action, since the collection action may be brought several years after the underlying sales transaction took place. But even where the UDAP limitations period has expired, the consumer may still be able to use the UDAP claim by way of recoupment against the seller’s or assignee’s recovery on the debt.
A second timing issue is the extent to which a UDAP statutory provision applies to practices that occurred before the effective date of the statutory provision. In the 1970s, a major impediment to private UDAP actions was that UDAP statutes often did not exist at the time of the deceptive practices. Today the continual amending of UDAP statutes has led to a more common problem: which version of the legislation should be used—that in effect at the time of the challenged practice, or that in effect at the time the consumer brings the claim?
In some jurisdictions, state legislatures or courts hesitate to allow any consumer who wishes to complain about any deceptive practice to have immediate access to the state courts. This may be interpreted as a prejudice against cluttering the courts with “unimportant” matters or as a desire that consumers first attempt to settle disputes informally. These concerns are manifested in such preconditions to a UDAP action as a requirement that the consumer have suffered damage, that the action be in the public interest, or that the consumer first attempt to settle the dispute informally.
Most, but not all, UDAP statutes require proof of some sort of damage or injury as a precondition of a private UDAP claim. A damage precondition in a UDAP statute should be, like the rest of the UDAP statute, interpreted liberally in favor of consumers.138 Courts may borrow contract principles to evaluate whether a consumer has met a damage precondition.139
A damage precondition has limited impact on private actions for actual or multiple damages, since such damages have to be shown at some point. But if it applies to injunctive relief, it may bar actions where citizens are acting as private attorneys general and seeking injunctive relief but have not yet suffered any personal loss.143
An interesting issue is whether an organization can bring an action in its own name where the organization itself is not directly injured by the practice. A New York court has held that where legislation protects a class, a bona fide and nationally recognized organization may represent the class of persons who can claim to be aggrieved under the legislation. In the alternative, the organization need only fall within the zone of interest to be protected by the statute.150