Houston Independent Automobile Dealers Association October Issue: Marketing | Page 9

Warranty Act. The FTC proposes to revise the Disclosure Rule to specify that disclosures mandated to
appear 'on the face' of a warranty posted on an Internet website or displayed electronically must be
placed close to the text of the warranty terms begins. The Pre-Sale Availability Rule details the methods
by which warrantors and sellers must provide warranty terms to consumers prior to sale of the warranted
item. The FTC proposes to revise the Pre-Sale Availability Rule to allow warrantors to post warranty
terms on websites if they also provide a non-Internet method for consumers to obtain the warranty terms
and satisfy certain other conditions. Comments on the proposed rule are due by June 17.
Are You Up To Speed on Your Credit Reporting Responsibilities? On May 9, the FTC announced a
$72,000 settlement with Credit Protection Association, a debt collection agency, resolving allegations that
the company violated the Fair Credit Reporting Act by failing to have adequate policies and procedures in
place to handle consumer disputes of information the company provided to credit reporting agencies and
by failing to adequately inform consumers about the outcomes of its investigations about disputed
information. In addition to the civil penalty, the company will be required to adopt new procedures that
comply with the requirements of the FCRA's Furnisher Rule. The FTC also released a blog post
discussing its settlement with Credit Protection, noting that the case offers compliance guidance for other
companies covered by the Furnisher Rule.
Adios, Arbitration Agreements in Credit Contracts. On May 5, the CFPB issued a proposed rule
limiting mandatory arbitration clauses in a w ide variety of contracts. The CFPB is seeking comment on a
proposal to prohibit companies from using class action waivers in pre-dispute mandatory arbitration
clauses with consumers. Companies would still be able to include arbitration clauses in their contracts,
but for contracts subject to the proposal, the clauses would have to say explicitly that they cannot be used
to stop consumers from being part of a class action in court. The proposal provides the specific language
that companies must use. The proposal also requires companies using pre-dispute arbitration
agreements to submit to the CFPB claims, awards, and certain related materials filed in arbitration cases
to allow the Bureau to monitor arbitrations to ensure that the process is fair for consumers. Comments on
the proposed rule are due by August 22.
Case of the Month
Dealership's Inflation of "Cash Price" to Compensate for Trade-In Over-Allowance Did Not Violate
TILA: A consumer agreed to buy a new car from a dealership for $31,322. The manufacturer's suggested
retail price for the car was $24,150. The dealership subtracted $3,500 from the $31,322 price for the car
that the consumer traded in as part of a promotion in which the dealership agreed to provide a $3,500
discount for any trade-in, regardless of the trade-in's actual value, which in the consumer's case was
close to $0. In cases where the dealership gives the $3,500 discount, the buyer agrees not to negotiate
the sale price, and the dealership adds $3,500 to the sale price.
The consumer sued the dealership for violating the federal Truth in Lending Act and the Connecticut
Unfair Trade Practices Act. The federal trial court granted the dealership's motion for summary judgment.
The consumer claimed that the dealership violated TILA by failing to accurately itemize the amount
financed and failing to accurately disclose the finance charge in the retail installment contract she signed.
Both arguments were based on the fact that the dealership inflated the cash price of the car the consumer
bought to compensate for the trade-in discount it gave her for a car with almost no value.
First, the court found that the dealership accurately disclosed the finance charge. The consumer claimed
that the increase in the sale price of the car to compensate for the trade-in discount constituted an
undisclosed finance charge. The court disagreed, noting that because the dealership increased the sales
prices of its cars to offset the trade-in allowances in both cash and credit transactions, the increase did
not amount to a finance charge.
Second, the court found that the dealership accurately itemized the amount financed. The court noted
that although the consumer agreed to a bad bargain, the itemization of amount financed represented a
true and accurate description of the terms to which she agreed. After the court dismissed the consumer's
federal claims, it declined to exercise jurisdiction over her state law claims.