Houston Independent Automobile Dealers Association March 2016 Issue: Floor Plans | Page 15

financing. Although you would never know it from the CFPB announcement, Herbies did not
agree to any of the CFPB's allegations, entering into the consent order solely for purposes of
settlement. Under the order, Herbies must provide $700,000 in consumer redress. A civil
penalty of $100,000 is suspended as long as the consumer redress is paid. Herbies also agreed
to stop deceiving consumers during the financing process and must not misrepresent interest
rates, finance charges, or amounts financed, or any other fact material to consumers concerning
the financing of any vehicle. Herbies also must clearly and prominently post the purchase price
on all automobiles for sale when offering financing. Finally, Herbies must give consumers
certain information about the financing offer, including the actual APR, the car price, and all
finance charges, and get a signed acknowledgment from buyers that they received the required
information before or at the time financing is offered.
CPO, Warranted and Guaranteed Cars With Open Recalls. On January 28, the FTC
announced proposed consent orders with General Motors Company, Jim Koons Management
and Lithia Motors Inc. under which the companies have agreed to settle separate FTC
administrative complaint allegations that each touted how rigorously they inspect their cars, yet
failed to disclose that some of the cars they were selling were subject to unrepaired safety
recalls. The FTC’s complaint against GM cited the company’s representations for “Certified PreOwned Vehicles,” while the complaint against Koons dealt with that company’s purported
“guarantee,” and the Lithia complaint involved the company’s “warranty.” For each company,
the charge was similar – in describing the program and touting the inspection of the vehicles,
the companies failed to disclose that some of the vehicles were subject to open (unrepaired)
recalls. The proposed consent orders remain in effect for 20 years, and prohibit the companies
from claiming their used vehicles are safe or have been subject to a rigorous inspection unless
they are free of unrepaired safety recalls, or unless the companies clearly disclose the recalls in
close proximity to the inspection claims. The proposed orders also would prohibit the companies
from misrepresenting material facts about the safety of used cars they advertise.
Litigation
GAP Insurance Provider Did Not Misrepresent that Insurance Would Fully Pay Off Debt
When Payment Was Actually Limited to 25% of Vehicle Value: A consumer bought a GAP
insurance policy. After she suffered a total loss of one of her covered vehicles, she sued the
insurer for fraud, misrepresentation, and deceptive practices, claiming that it misrepresented
that her policy would pay off her indebtedness in full in the event of a total loss, when her
recovery was actually limited to 25% of the actual cash value of the vehicle. The insurer moved
to dismiss the complaint, and the federal trial court granted the motion. First, the insured argued
that the title of the GAP insurance option on the insurer's website - Loan/Lease Payoff - is
misleading because the insurance does not necessarily provide for a complete payoff. The court
disagreed, noting that the heading, alone, is insufficient to mislead and that the website includes
a full explanation of the 25% limitation language behind a link directly next to where the insured
clicked to receive the insurance. Next, the insured argued that the insurer amended its rulesand-rate filing to omit the 25% limitation language, and this amendment misrepresented the
benefits of the policy. The court disagreed, finding that a rules-and-rate filing is not required to
contain policy language, so removal of that language could not be misleading. Moreover, the
court noted that the insured did not know of the rules-and-rate filing at the time she bought her
insurance, so she could not have relied on the filing in deciding to buy the insurance. Finally, the
insured argued that a claims adjuster misrepresented to her when she totaled her car that the
entire debt would be covered by the insurance. The court found that she could not have relied
on this misrepresentation in connection with her insurance purchase because it took place after