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Repossessions: 4.6.2.1 Generally

When a vehicle is sold to the consumer on credit, the dealer retains only a security interest in the vehicle. No re-labeling of terms can change this fact.288 Despite this fact, the dealer in a yo-yo transaction rarely considers itself to be only a secured party, but rather views itself as the owner of the vehicle who can seize the vehicle without complying with Article 9.

Repossessions: 4.6.2.2 Article 9 Applies When No Written Contingency Clause Included

To make a transaction contingent on the dealer’s ability to sell the retail installment sales contract, the parties must explicitly agree to such a condition. In the most egregious cases, a dealer attempts to conduct a yo-yo sale even though there is no written document or other basis for making the sale contingent on financing. Instead, the dealer preys on the consumer’s ignorance (and some courts’ confusion) as to the dealer’s role in the transaction and the relationship of the dealer and the bank or finance company.

Repossessions: 4.6.2.3 Article 9 Applies When Contingency Clause Is Not Binding

The dealer does not retain ownership when a vehicle is sold pursuant to a contingency clause if that clause is not valid. In some states, a contingency clause is illegal.295 A review of state law yo-yo restrictions is found in NCLC’s Automobile Fraud.296 For example, the Maryland Motor Vehicle Administration states that dealers are not to use contingent or supplemental contracts.297

Repossessions: 4.6.2.4 Has the Contingency Occurred?

If a credit contract indicates a sale is contingent on financing, then Article 9 applies if financing has not fallen through. The contingency preventing the sale has not occurred and the sale is therefore final, and the dealer only retains a security interest.

Repossessions: 4.6.2.5 Article 9 Applies to Condition Subsequent Agreements

Even if a transaction is subject to a valid contingency clause and even if the conditions allowing cancellation are met, it just means that the dealer can recover the vehicle. It does not determine whether the rules for recovering the vehicle are set out in Article 9 or in bailment law. That determination may depend on whether the transaction involves a condition subsequent or a condition precedent.310

Repossessions: 4.6.2.6 Nominal Condition Precedent Sales Often Contain Characteristics of a Condition Subsequent Sale

Even when a dealer claims that an automobile yo-yo transaction is structured to involve a condition precedent, a close look at the transaction will reveal many features that are inconsistent with a condition precedent transaction, but more typical of a condition subsequent sale. The confusion optimizes profits and convenience for the dealer, but it also leads to the logical conclusion that Article 9 applies to the sale, even if the transaction nominally involves a condition precedent.

Repossessions: 4.6.2.7 Inconsistent Characteristics Indicate a Condition Subsequent Sale

Courts generally conclude that a hybrid yo-yo transaction (one that has characteristics of both a condition precedent and a condition subsequent sale) is a condition subsequent transaction even if a dealer argues that it is a condition precedent transaction. When it is ambiguous whether title has passed to the consumer, courts generally find that title has passed.322

Repossessions: 4.6.3.2 Default, Acceleration, and Repossession

If Article 9 applies to a yo-yo transaction, the dealer can recover the vehicle only if the consumer is in default.328 Seizure without a default is conversion and a breach of contract.329 It also triggers the UCC’s statutory damages remedy.330 Moreover, the dealer’s attempt to undo a binding credit agreement is unfair and deceptive, leading to potential UDAP and fraud claims.331

Repossessions: 4.6.3.4 Right to Cure or Reinstate; No Breach of the Peace

Any attempt to seize the vehicle must also comply with an applicable state right to cure statute, providing notice and opportunity to cure.342 While these statutes often apply only to defaults based upon nonpayment, that is not always the case. Other states give debtors the right to reinstate instead of a right to cure, with a corresponding notice requirement.343 If applicable, the dealer must comply with this requirement as well.

Repossessions: 4.6.3.5 Article 9 Notice and Disposition

If a dealer with only a security interest in the vehicle recovers the vehicle—either by seizing it or because the consumer turns it over voluntarily—then the dealer must comply with Article 9 requirements as to notice of sale and disposition.344 To comply with Article 9, the dealer must give the buyer notice of a repossession sale or its intention to retain the vehicle in full satisfaction of the debt.345 When the trade-in or down payment equals at least sixty percent of the vehicle’s cash price

Repossessions: 4.6.4 Implications When Article 9 Does Not Apply

When Article 9 does not apply to a true condition precedent yo-yo transaction, then the delivery to the consumer may be considered a bailment. The consumer will be a bailee, and the law of bailment and common law rules rather than Article 9 will govern the method of retaking the vehicle.352 For example, the dealer’s recovery must be peaceful and done without force.353 Arkansas specifies how a vehicle may be recovered in this situation.354

Fair Debt Collection: 7.4.10.3.1 Service of the complaint and accompanying documents

FDCPA § 1692e can be violated where a collector improperly serves a court summons or complaint and misrepresents in the affidavit of service that it was properly served—also known as sewer service.1046 FDCPA § 1692a(6)(d) exempts from the FDCPA process servers “serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt.” Courts hold that this exemption does not apply to a process server’s filing of a false affidavit.1047

Fair Debt Collection: 7.4.10.3.3 Suing on an inapplicable or unclear legal theory

Collectors may sue the consumer on a legal theory inapplicable to the facts pled in the case. This can be the result of sloppiness where the collector is filing thousands of complaints on a cookie-cutter basis without professional attention of an attorney. Or the practice can be deliberate because the inapplicable theory authorizes a larger recovery (such as attorney fees or prejudgment interest) and the collector assumes it will prevail by default on the inapplicable theory.

Fair Debt Collection: 7.4.10.3.4 Amounts sought

A collection lawsuit can violate FDCPA § 1692e where it seeks amounts the plaintiff is not entitled to,1084 including stating an amount due that includes amounts that the plaintiff might have a right to in the future, but is not yet entitled to.1085 A collector violates FDCPA § 1692e where, in litigation, it alleges the plaintiff is owed attorney fees to which the collector is not entitled,1086 where it alleges it is owed interest charges not

Fair Debt Collection: 7.4.10.4.2 Initiating a lawsuit without sufficient evidence of debt

Debt buyers may file suit with insufficient evidence to prove their case, on the assumption they will win by default. If the consumer contests the case, the debt buyer may or may not have any access to account-level business records on the debts that they buy.1105 It may be a factual issue whether a debt buyer has or can obtain (from the original creditor or a prior debt buyer) the additional information and documentation.

Fair Debt Collection: 7.4.10.5 Deceptive Affidavits and Business Records

Debt collection litigation often includes affidavits submitted by the collector—attached to the complaint, used to introduce business records, and in support of summary judgment. Even where the collector has prevailed in its collection lawsuit, misrepresentations in affidavits may be actionable under FDCPA § 1692e.

Fair Debt Collection: 7.4.10.8.1 Pursuing postjudgment remedies when debt no longer or never owed

It is a FDCPA § 1692e violation to agree to a settlement as full satisfaction for a judgment debt, but then continue pursuing postjudgment creditor remedies.1142 Also deceptive is to continue to garnish or threaten garnishment even after prior garnishments had satisfied the judgment.1143 Similarly it is a FDCPA § 1692e violation to collect on a judgment after it has been vacated.1144 After the judgment has been vacated, it also violates FDCPA

Fair Debt Collection: 7.4.10.8.2 Misrepresentations concerning exemptions

Exemptions may limit a collector’s ability to garnish consumer income or assets or seize consumer property, and representations can be deceptive where they suggest a creditor can seize more than exemption law allows.1148 State law may provide for differing amounts that can be garnished depending on the consumer’s status (such as head of family).

Fair Debt Collection: 7.4.10.8.3 Misrepresentations concerning creditor rights or the amount owed postjudgment

Collectors can violate FDCPA § 1692e by misrepresenting to the consumer the collector’s rights in pursuing postjudgment remedies. It can be deceptive to inform the consumer that joint bank accounts are subject to complete seizure when they are not.1155 It can also violate FDCPA § 1692e where the garnishment order sent to the consumer’s employer and/or to the consumer contains a misrepresentation of state law garnishment requirements.1156

Fair Debt Collection: 7.4.11.1 Generally

Enforcement of a mortgage is the collection of a debt.1164 As described at § 4.7.5, supra, the FDCPA applies to a wide range of mortgage collection and foreclosure activities carried out by law firms, mortgage servicers, and other players in the mortgage lending industry.