Houston Independent Automobile Dealers Association March 2016 Issue: Floor Plans | Page 14

The CARLAWYER©
By Thomas B. Hudson and Nicole Frush Munro
As winter gets serious, we hunker down and peruse developments in the auto sales, finance
and lease world. This month, we feature developments from the Consumer Financial Protection
Bureau and the Federal Trade Commission we thought might interest folks during the winter
doldrums. We also recap some of the auto sale and financing lawsuits we follow each month.
Remember – we aren’t reporting every recent legal development, only those we think might be
particularly important or interesting to industry.
Why do we include items from other states? We want to show you new legal developments and
trends. Also, another state’s laws might be a lot like your state’s laws. If attorneys general or
plaintiffs’ lawyers are pursuing particular types of claims in other states, those claims might soon
appear in your state.
Note that this column does not offer legal advice. Always check with your own lawyer to learn
how what we report might apply to you, or if you have questions.
This Month’s CARLAWYER© Compliance Tip
Offering cars that are “certified pre-owned,” “inspected” or “guaranteed”? If some of those cars
you are offering are subject to open recalls, you urgently need to review your advertising in light
of the recent FTC action described below.
Federal Developments
Spanish, Anyone? On January 22, the FTC issued its newest Spanish-language fotonovela in
an effort to educate Spanish-speaking consumers about the car buying process and increase
awareness of possible scams.
The CFPB Rides Herd on a BHPH Dealer. In late January, the CFPB announced a consent
order with Herbies Auto Sales, a Colorado buy-here pay-here used car dealer. The CFPB
alleged that Herbies engaged in abusive acts or practices through its sales process and misled
consumers about the cost of credit. The CFPB charged that Herbies unlawfully advertised a
misleadingly low 9.99 percent APR, without disclosing a required warranty, the cost of a
required payment reminder device and other credit costs as finance charges. The CFPB
claimed that the ads helped Herbies convince consumers they would get the 9.99 percent APR
instead of the much higher rate actually charged. According to the CFPB, Herbies violated the
Truth in Lending Act and the Dodd-Frank Act by hiding finance charges and advertising a lower
APR than consumers received and by misrepresenting finance charges and APRs in marketing
materials, showroom window displays, and TILA disclosures. Hidden finance charges,
according to the CFPB, included costs, only in financed transactions, for a required repair
warranty and for a required GPS payment reminder device. The Bureau also alleged that
Herbies hid finance charges because Herbies refused to negotiate prices with credit customers
but did negotiate with cash customers, resulting in a finance charge for credit customers that
should have been included in the disclosed cost of credit. Finally, the Bureau claimed that
Herbies' sales process lured consumers into the dealership with an inaccurate APR and then
kept them in the dark about the true cost of financing the cars they were buying, thereby taking
advantage of consumers' inability to protect their interests in selecting or using Herbies'