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Federal Deception Law: 12.4.3.2 Impact of English-Only and English Official Language Laws

Many states have laws that declare English to be the “official language,” but these laws do not conflict with state statutes that require documents to be translated into a second language.81 However, several states have passed “English-only” laws,82 which raise more substantial issues regarding their relationship to state laws that require use of another language.83 Nonetheless, because the statutes requiring translation of certain documents

Federal Deception Law: 12.4.4 UDAP and Unconscionability Claims

Uniform Commercial Code and other unconscionability concepts also provide a basis to claim that disclosures should be made in the same language as the transaction. It would be unconscionable for a seller to use the buyer’s inability to understand contract provisions as a way to include oppressive terms in the agreement.87

Federal Deception Law: 4.1.1 Importance of the FTC Holder Rule

The FTC’s Preservation of Consumers’ Claims and Defenses Rule1 is commonly called the “FTC Holder Rule,” although a more accurate (and possibly more appealing) name for it is the Preservation of Claims Rule. In keeping with common usage, this chapter uses the phrase “FTC Holder Rule” to describe the rule and “FTC Holder Notice” to describe the notice that the rule requires.

Federal Deception Law: 4.1.2.2 Seller-Related Claims in Seller-Arranged Loans

In a second way of extending credit, the sale of goods is financed by a loan that a third-party lender makes directly to the consumer, without the seller being the originating creditor. The seller may arrange the direct loan, and the loan proceeds may even go directly from the lender to the seller, but the seller is not listed on the loan obligation as the original creditor. When financing is set up in this manner, the consumer’s debt is owed to the lender from the outset.

Federal Deception Law: 4.1.2.6 Stopping Check, Debit Card, or Other Payments As a Response to the Seller’s Misconduct

The consumer’s ability to stop payment in response to seller misconduct is significantly different when the consumer uses a check, debit card, or other payment device instead of obtaining credit to make the purchase. The FTC Holder Rule does not apply because there is no credit. As a practical matter, it is almost impossible to stop payment on many of today’s payment devices.

Federal Deception Law: 4.2.1 Operational Scope of the Holder Notice

The FTC Holder Rule is unique in that the scope of the rule is somewhat different from the scope of the rule’s operational effect. The rule operates by a notice placed in consumer credit agreements whereby, as a matter of the contract itself,38 the parties agree that the consumer can raise seller-related claims and defenses against the holder of the note or contract. As such, the effect of the rule is directly felt by any agreement that includes the FTC Holder Notice.

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