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Federal Deception Law: 4.2.2.2 Sales Transactions Covered

The FTC rule requires a notice to be inserted in credit agreements whenever the seller finances a sale or a creditor has a relationship with the seller and that creditor finances the sale. The rule applies broadly to “any sale or lease of goods or services to consumers in or affecting commerce.”48 The rule applies equally to the sale of services, such as home improvement contracting, vocational training, employment counseling, and health spa membership, as it does to the sale of tangibles.49

Federal Deception Law: 4.2.2.4 Coverage of Leases

It is unclear whether the FTC Holder Rule applies to leases. While the rule explicitly indicates that it applies to a “sale or lease,” other aspects of the rule require the lease to involve a “consumer credit contract.”57 “Consumer credit contract” is a defined term that refers to the Truth in Lending Act definition of a finance charge and a credit sale.

Federal Deception Law: 4.2.2.5 Covered Sellers

The rule places certain obligations on “sellers,” defined as those in the ordinary course of business who sell or lease goods or services to consumers.61 Since the rule only applies to sellers who sell in the ordinary course of their business, isolated sales by individuals are not covered.

Federal Deception Law: 4.2.2.6 Public and Nonprofit Entities

Public entities and actual nonprofit corporations are not within the scope of the FTC Act,64 and the FTC Holder Rule does not obligate these entities as sellers to arrange for the notice to be placed in consumer credit agreements. For example, the FTC Holder Rule does not apply to loans made by a community college.

Federal Deception Law: 4.4.3 State Holder Statutes

Another approach to being able to raise claims or defenses against a holder when the holder notice is omitted is to bring a claim under a similar state statute. These state statutes are examined at § 4.5, infra, and it can be seen that there are extensive differences from state to state.

Federal Deception Law: 4.4.4.1 General

For both assigned installment sales contract and related direct loans, a creditor’s attempt to enforce a note without a required Holder Notice should be a state UDAP violation. Even though the FTC Holder Rule requires only the seller to arrange for the inclusion of the notice in the note or contract, the holder engages in an independent UDAP violation for its effort to deny the consumer rights provided by federal law.

Automobile Fraud: 4.4.4.2 Repossession Titles When Dealer Transferred Title

In the relatively unusual situation in which a dealer signs over the actual title to a consumer and then decides to cancel the deal, the dealer needs not only to recover the vehicle, but also legal title to the vehicle. It often does so through a repossession title. But this process is complicated because, when transferring title to the consumer, dealers usually will have placed a lien on the car’s title not in their own name, but in the name of the expected assignee.

Automobile Fraud: 4.4.4.3 Condition Subsequent Sales Must Comply with UCC Article 9

In a condition subsequent sale, the dealer’s rights when recovering the vehicle are specified by UCC Article 9. Article 9 applies whether the consumer returns the vehicle voluntarily or the dealer repossesses the vehicle. The consumer, by definition, is the owner and the dealer is, at best, a secured creditor.142 Even if the dealer states that it is repossessing pursuant to the contingency clause and not the security interest, this makes no difference for purposes of Article 9.

Automobile Fraud: 4.4.4.4 Truth in Lending Violations in a Condition Subsequent Sale

Unlike a condition precedent sale, in a condition subsequent sale the TILA disclosure is not an estimate, and thus is not disclosed with an “e.”149 The sale is the transaction as described in the disclosure form, and the finance charge begins accruing on the date of the sale, because the consumer obtains title on that date.150 Of course, if the agreement specifies that the dealer can unilaterally require an additional down payment or otherwise change the credit terms in its attempt to obtain fin

Automobile Fraud: 4.6.1 Renegotiation Misrepresentations

In the subsequent negotiation over new terms for the vehicle sale, after the original credit sale has been canceled, the dealer may engage in various misrepresentations. It is deceptive for a dealer to represent that a consumer’s failure to sign another installment agreement would result in the vehicle being considered stolen.194 It is also deceptive for a dealer to represent that the consumer has no choice but to sign another, less advantageous deal.

Automobile Fraud: 4.6.2 Backdating Documentation of a Subsequent Sale

In many canceled yo-yo sales, the dealer rewrites the transaction at a higher interest rate or a higher down payment, or may even switch the vehicle itself. Any such subsequent transaction occurs on the date of that subsequent transaction, and is not retroactively effective from the date of the first transaction that has now been canceled.

Automobile Fraud: 4.7.3 Consumer Recoveries

Consumer recoveries are, of course, dependent on the facts of the case. A number of attorneys are reporting settlements in individual yo-yo sales in excess of $100,000. Other attorneys are reporting routine yo-yo settlements in the $20,000 to $40,000 range. In one case, the jury awarded $4100 actual damages and $50,000 punitive damages, and this award was upheld by the Kentucky Supreme Court.211

Automobile Fraud: 4.8.1 Described

The automobile sublease scam involves a firm taking over, without the lessor’s or creditor’s permission, an automobile lease or car installment payment from a consumer who wants to get out of the financing. The firm then subleases the car to another consumer.

Automobile Fraud: 4.8.2 Consumer Remedies

A good example of an auto broker scam is found in Omari v. National Security Financial Services, Inc.,214 in which the California director of consumer affairs succeeded in proving that National Security, an automobile subleasing business, failed to obtain lessors’ approval prior to subleasing vehicles, failed to notify the department of motor vehicles of the transfers, failed to disclose to lessees that they were still liable on the lease, and misrepresented to sublessees that they had an interest in the lease.

Automobile Fraud: 6.1 Introduction

This chapter examines issues that are unique to the enforcement of the federal Motor Vehicle Information and Cost Savings Act (MVICSA), also sometimes referred to as the Truth in Mileage Act or the Federal Odometer Act, referred to herein as the “Federal Act” or “Act.” Also covered are issues relating to the enforcement of state odometer acts; a state-by-state analysis of these statutes is found in Appendix C, infra.

Automobile Fraud: 6.2.1 Federal Act Does Not Restrict Standing

The Federal Act does not limit who can bring an action under the Act, which is consistent with the Act’s broad remedial purposes. The Act provides that violators are liable without specifying to whom. As the Act’s provisions dealing with private remedies clearly call for a private right of action, and as the Act does not limit who can bring such an action, the Act should be construed as allowing anyone to bring an action, as long as they meet constitutional standing requirements.

Automobile Fraud: 6.2.3 Plaintiff Need Not Be Current Title Owner

The plaintiff need not currently own the car at issue.15 A spouse of the titled owner has standing to sue for Act violations if the spouse negotiated the purchase and remained responsible for the debt.16 The plaintiff need not even have completed the vehicle’s purchase. A person can still bring an action if the person intended to purchase the vehicle, but the Federal Act violations resulted in the deal falling through.17

Automobile Fraud: 6.2.4 Parties Indirectly Affected by Odometer Violation

A federal court has found that an individual who contributed some of the funds for a vehicle’s purchase has standing to sue under the Act, even though not listed on the vehicle’s purchase agreement or title.19 Courts have found parties who were not involved in the purchase of an automobile to still have standing to sue under the Act for their injuries relating to Act violations.

Automobile Fraud: 6.2.5 Lessor and Lessee Suits Against Each Other

A lessor has standing to bring an action against a lessee who, with the intent to defraud, fails to provide the lessor with the required disclosures about the leased car’s mileage while being used by the lessee.22 (National Highway Traffic Safety Administration regulations require, in certain situations, that lessees disclose odometer readings to the lessor.23) Similarly, lessees should have standing to sue their lessors or the dealer for any odometer tampering or other odometer violation which occu