Houston Independent Automobile Dealers Association October Issue: Marketing | Page 13

rate a creditor may charge to a maximum of 36 percent, requires certain disclosures, and provides other protections for ‘‘consumer credit’’ extended to servicemembers and their dependents. Among other changes, the July 2015 amendments extended the protections of the MLA to a broader range of closed-end and open-end credit products. This interpretive rule provides guidance, in question and answer form, on questions DOD has received regarding compliance with the amendments. DoD says that the interpretive rule does not substantively change the regulation implementing the MLA, but merely states its prior interpretations of an existing regulation. Note that the MLA’s exception for vehicle fi nance appears to have been muddied, in that the guidance states that in order to take advantage of the exception for finance transactions secured by personal property being purchased, the financing must be solely for such personal property. Did the CFPB’s Small Dollar Proposal Leave a Back Door to Regulate Auto Dealers? The CFPB’s proposed small dollar rule (currently out for comment) imposes requirements on creditors making longer-term loans with a “total cost of credit” in excess of 36%. Given that the requirements make these loans unappealing and unprofitable, it seems likely that creditors will simply stop offering them. The CFPB is engaged in an interesting dance – it is trying to say that loans over 36% that don’t meet the requirements are unfair and abusive, but that the 36% trigger isn’t an impermissible usury limitation. Case of the Month Spot Delivery Goes Sideways. Brianna Jefferson bought a used car from United Car Company, Inc. She signed a retail installment sale contract and a spot delivery agreement. The spot delivery agreement provided that United could unilaterally cancel the RISC if it was unable to assign the contract to a third party or could require Jefferson to sign a second RISC with different terms. United unilaterally cancelled Jefferson’s contract, repossessed the car, and demanded that she pay a repossession fee and forfeit her down payment. After Jefferson repaired another car so that she would have reliable transportation, United advised her that it had obtained financing. Jefferson sued United for violating the Truth in Lending Act and Regulation Z. She claimed that United used illusory disclosures in the RISC because, at the time of consummation of the transaction, the disclosures were subject to change or cancellation at United’s sole discretion. Jefferson moved for a default judgment, and the U.S. District Court for the Eastern District of Michigan granted the motion. The court found that cases in the district support Jefferson’s allegations that a dealer’s use of a spot delivery agreement that allows the dealer to cancel a retail installment sale contract or substitute a second contract with different terms renders the RISC illusory, in violation of TILA. The court granted Jefferson $1,571 for her down payment, $2,000 in statutory damages, and $4,037 in attorneys’ fees and rescinded the RISC in light of United’s repudiation of the contract by demanding and repossessing Jefferson’s car. Jefferson v. United Car Company, Inc., 2016 U.S. Dist. LEXIS 92657 (E.D. Mich. July 18, 2016) So there’s this month’s roundup! Stay legal, and we’ll see you next month. ________ Tom ([email protected]) and Nikki ([email protected]) are partners in the law firm of Hudson Cook, LLP. Tom has written several books and is the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers. He is Editor in Chief of CARLAW®, a monthly report of legal developments for the auto finance and leasing industry. Nikki is a contributing author to the F&I Legal Desk Book and frequently writes for Spot Delivery. For information, visit www.counselorlibrary.com. Copyright CounselorLibrary.com 2016, all rights reserved. Single publication rights only, to the Association. (9/16). HC# 4840-2928-1080.