“Introduction to Consumer Law”

“Introduction to Consumer Law”

Coverage What makes a consumer statute a consumer statute? • Requires that individual(s) entered into the transaction (purchase, loan, lease, etc.) primarily for personal, family or household use. • Excludes transactions for commercial use

Coverage Joan works for a landscaping service and buys a car to get to and from work. It is a consumer purchase • Joan is the sole proprietor of Joan’s Landscaping Service and purchases a truck primarily for use in the business. It is NOT a consumer purchase.

Coverage Most of the statutes referenced here also require that the seller / lender be ‘in the business’ of selling or lending (check each statute to see if there are particular numeric requirements), so that transactions between private parties are not covered

Coverage recap 1) the individual bought (borrowed, leased, etc) for personal as opposed to business use 2) the other party to the transaction was ‘in the business’ & 3) the other party must be a private (non-governmental) party

Consumers Legal Remedies Act, (CLRA) Cal. Civil Code §1750 et seq. • applies to most ‘consumer transactions’ for goods or services • Exclusions: insurance, pure credit (financial instruments?) • excludes real property sale and construction contracts

CLRA • enumerates 24 prohibited practices at Cal. Civil Code §1770(a)(1-23). The most generally applicable / commonly used of which are prohibitions on: • representing that goods or services have . ..characteristics ..[or]. benefits .. ..quantities which they do not have . . .. (a)(5) • advertising goods or services with intent not to sell them as advertised. (a)(9) • representing that a transaction confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law. (a)(14)

CLRA Remedies • Civil Code §1780(a) provides for: • • actual damages* • • injunctive relief • • restitution (and presumably rescission) • • punitive damages*

CLRA Remedies • a penalty of up to $5,000 if the victim was a senior citizen or disabled person and suffered significant economic, physical or emotional harm • one-way attorney fees provision • Pro-class action provisions

CLRA Procedures • In order to be eligible for damages, the consumer (or her attorney) must send the seller a letter “demanding rectification”. The seller has thirty days from receipt of the letter to make rectification, after which the consumer can institute an action for damages

UNFAIR COMPETITION LAW (UCL) • Cal. Bus. & Prof. Code §17200 et seq. • Not just a consumer statute • Three primary ‘wrongs’ • ‘Unlawful’ • Most useful • Any Federal, State, Local Statute, Regulation, Ordinance, etc.

UCL ‘wrongs’ • Fraudulent • Likely to mislead a reasonable person • (proof of reliance technically not required but…) • Unfair • Last resort; as of this date no settled test

UCL Standing (Prop 64) • Plaintiffs must show they lost money or property as a result of the unfair competition

UCL Remedies • Restitution • Injunctive relief • Four year statute of limitations

Consumer = Car Cases • Tips: get ALL the documents • Dealer docs; lender docs (NOI) • Start from the beginning

Motor Vehicle Advertising • §11713.1(e) provides that “advertised vehicles shall be sold at or below the advertised total price ... regardless of whether the purchaser has knowledge of the advertised total price” • Dealers may not sell used vehicles as “certified” under many circumstances (‘as is’ sales, lemons, salvaged, frame damage, etc). Cal. Vehicle Code § 11713.18

Automobile Sales Finance Act (‘ASFA’, Civil Code §2981 et seq.; a.k.a ‘Rees-Levering’) • Coverage: • must be a ‘consumer transaction’ • only applies to financed sales of motor vehicles • motor homes are covered, mobile homes and trailers are not • the seller must arrange or assist in the financing of the vehicle. • if a consumer independently obtains her own financing (such as, by going to her credit union), such a loan is NOT covered

ASFA • The most common sale-related violations of the ASFA stem from the conflicting interests of the dealers and lender-assignees. The lender wants to see that • that the consumer has paid a significant ($2000 or so) down payment • that the primary driver has an acceptable credit score *** The dealer tends to be more interested in selling the contract at all costs. This leads to manipulations of the down payment figure, disguising co-signers as buyers, and ‘kinking’ credit applications

ASFA • Civil Code §2981.9: the One Document Rule • “Every conditional sale contract subject to this chapter shall . . . contain in a single document all of the agreements of the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle, including any promissory notes or any other evidences of indebtedness.”

ASFA • Civil Code §2981.9: the One Document Rule • This rule is most commonly violated when the parties make agreements (which may or may not be reflected in separate documents) which contradict the terms of the purchase contract. The two forms of ‘extra-contractual’ agreements most commonly found are: • agreements to allow the consumer to defer all or part of her down payment • agreements to trade-in vehicles with negative equity

ASFA Deferred Down Payment Agreements • There is nothing INHERENTLY illegal about deferred down payment agreements. • However, when the parties agree to a deferred down payment arrangement, but that arrangement is not reflected in the contract (with the down payment being listed as ‘cash’), the dealer violates multiple sections of the ASFA: CC §2981.9 and CC §2982(a)(6)(D). • Caselaw

ASFA • Deferred down payment agreements can be: • in the form of ‘Hold Check(s) Agreements’ • separate written agreements or promissory notes • merely oral agreements • in some cases, the consumer provides the dealer with post-dated checks • Long story short: ASK about the down payment, consumer will not volunteer this information

ASFA • Remedies for violations of CC §§2981.9 & 2982(a)(6)(D) • essentially Rescission: see CC §2983 • No offset for use • attorneys fees and costs: see CC §2983.4 • These cases may be attractive to private attorneys, depending on other issues in the case

ASFA • Negative Equity not Disclosed on Face of Contract • occurs when trade-in is ‘under water’ • Dealer ‘inflates’ value of trade-in to equal payoff. Dollar amount of inflation is called an ‘overallowance’ • Dealer does not take a loss by giving an overallowance. Dealer ‘rolls’ overallowance amount into purchase price

ASFA • Overallowances which are rolled into the purchase price actually penalize the consumer • Increased taxes • Increased license fees This Practice violates multiple subsections of the ASFA Practice also violates TILA (1 year s/o/l)

ASFA • Remedies for negative equity roll-ins not disclosed on face of contract • essentially Rescission: see CC §2983 • attorneys fees and costs: see CC §2983.4 • These cases are attractive to private attorneys.

Spot Delivery / Yo-yo Sales • Refers to delivery of vehicle prior to finance approval • Permitted by contract and statute • Violations stem from • Misrepresenting consumer’s rights when financing does not go through • TILA violations from back-dating contract

Spot Delivery / Yo-yo Sales • Both the standard car contract and the ASFA (see California Civil Code §2982.5(d)(5)) require that the consumer receive a complete refund if financing falls through • Representing to the consumer that s/he is obligated to sign a new contract, or that s/he will lose a portion of payments already made violates the CLRA

ASFA Car Buyers Bill of Rights Provisions • Used Car purchasers must be offered an optional cancellation option (if under $40k) • Consumer has just 2 days to cancel IF consumer PAYS for the right to cancel • Option to cancel costs $75 to $400, depending upon price of car • Actually canceling will cost another $100 or so

ASFA Car Buyers Bill of Rights Provisions • Anti-packing provision requires written disclosure of monthly payment with and without optional products • Dealer participation in Finance Charges capped at 2-2.5 %

More car disclosure statutes • The ‘Red Tag’ Law • Cal. Veh. Code §11713.26 • Dealer must run all used cars through the National Motor Vehicle Title Information System (NMVTIS) • If vehicle shows up as junk, salvaged, or title branded, place a large red tag disclosure in the window • Regardless of NMVTIS output, dealer must make report available to consumers upon request

Buy Here Pay Here Dealers • They assign less than less than 90% of their paper (they carry at least 10% of their sales) • We are left to guess here, but I’d assume if they self-financed your client, they are BHPH • See Cal. Veh. Code

BHPH Laws • Must supply warranty with used car sale • Minimum coverage 30 days / 1,000 miles • See Cal. Civil 1795.51

BHPH Laws • Can’t use GPS to track consumer, disable vehicle • Must display Kelley or other ‘recognized’ pricing guide on the window of used car

The Federal Truth in Lending Act (TILA), 15 U.S.C. §1601 et seq • ‘consumer transaction’ requirement • applies to most consumer credit transactions • virtually all consumer mortgage loans • other closed-end consumer loans where the loan amount is $50,000 or less • open-end credit arrangements (credit cards, etc) • idea is to promote the informed use of credit and promote comparison shopping by requiring uniform disclosures which must be provided pre-consummation

Truth in Lending • Finance Charge • • includes not only interest, but any other required charge which is imposed in credit transactions but not in cash transactions (see 15 U.S.C. §1605(a)). • example: credit application fee

Truth in Lending • Annual Percentage Rate • • a measure of how much finance charges are paid on a certain loan amount (‘amount financed’) over a period of time • • annual percentage rates must be accurate within 1/8 of 1% (.125%) (15 U.S.C. §1606(c)) • • finance charge disclosures must be accurate within $100 (15 U.S.C. §1605(f)(1))

Truth in Lending • Most common TILA violations in car transactions • Negative equity roll-ins • Back-dating a second or third sales contract in a yo-yo sale to the date of the first contract, which leads to an over-stated APR. This practices violates TILA if the APR is off by more than .125%. • Failing to make disclosures ‘available’ pre-sale (tough to prove)

Truth in Lending • A note about spurious open-end credit • There are two kinds of disclosures contemplated by TILA: • ‘closed-end disclosures’, designed for a single extension of credit, such as a car loan • ‘open-end disclosures’, designed for a line of credit which will be used many times, such as a credit card agreement • Unless the lender can ‘reasonably contemplate repeated transactions’, it violates TILA by giving only open-end disclosures

Truth in Lending • TILA Remedies (see §1640) • • any actual damages • • a statutory damage amount, which is capped at (and typically amounts to) $1,000 • • one-way attorneys fees • • specifically provides for class actions

Repossessions and Deficiencies • Repo man cannot breach peace meaning • No physical confrontation • Can’t proceed over verbal objection • Can’t trespass (cut a lock; break into garage, etc.) • Citations in materials

Repo Man’s Duty to Send Notice re Possessions in Vehicle • Repo men have a duty under Bus. & Prof. Code §§ 7507.9-.10 to provide notice to the consumers that they have this property prior to disposing of it. These notices are rarely sent. Although there is no private right of action under the B&P Code sections, consumers could seek compensation through the Unfair Competition Law, Bus. & Prof. Code §17200 et seq. Disposing of the property could also constitute a violation of the Rosenthal Act.

Back to the ASFA • Back to the ASFA: Required Notice of Intent to Dispose (NOI) • Contrary to many consumers’ expectations, there is no requirement of notice of any kind prior to repossession. However, the finance company must provide notice to the consumer of its intent (NOI) to dispose (resell) the vehicle • • within 60 days of the repossession • • at least 15 days prior to resale (20 days if the notice is coming from out of state)

Required Notice of Intent to Dispose (NOI) • The NOI must contain all the disclosures required by Cal. Civil Code §§2983.2(a)(1-9). Among the disclosures required is the consumer’s right to ‘redeem’ by paying the balance of the loan. • Strict compliance is required with these requirements: if the secured creditor fails to strictly comply, it will be absolutely barred from collecting any deficiency. .

Required Notice of Intent to Dispose (NOI) • if the sale was negotiated in a language covered by Cal. Civil Code §1632, the NOI must be in that language. Compliance with this requirement is quite low

Required Notice of Intent to Dispose (NOI) Generally, the secured creditor must give the consumer the right to reinstate. EXCEPTIONS follow • the consumer provided false information on the credit application • in order to avoid repossession, the vehicle was concealed or removed from the state • the consumer has threatened to destroy the vehicle, or allowed it to become substantially impaired in value • the consumer has threatened or assaulted the repo man

Required Notice of Intent to Dispose (NOI) Generally, the secured creditor must give the consumer the right to reinstate. EXCEPTIONS follow • the consumer has used the car to commit a crime, or allowed it to be used for criminal purposes • the vehicle has been seized under Federal drug laws or other statutes that prohibit reinstatement • the consumer has already reinstated twice, or reinstated once in the past year (Civil Code §2983.3(b))

Required Notice of Intent to Dispose (NOI) • Secured creditors violate the ASFA when they deny the right to reinstate for any other reason (e.g. ‘refusal to make payments’, ‘abandonment of vehicle’). Such an improper refusal results in a forfeiture of the right to reinstatement, and may give rise to a claim for conversion. .

Cal. Civil Code §1632 Applies to the following types of ‘consumer transactions’: retail installment sales of goods or services to consumers by retail sellers (Unruh) transactions covered by the Automobile Sales Finance Act transactions covered by the Vehicle Leasing Act unsecured consumer loans

Cal. Civil Code §1632 Applies to the following types of ‘consumer transactions’: consumer loans secured by something other than real property leases of dwelling units for longer than one month mortgage loans negotiated by independent brokers attorney fee agreements Reverse mortgages / foreclosure consulting contracts

“Introduction to Consumer Law”