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On July 4, 2017, W. Va. Code § 46A-5-108 went into effect, requiring West Virginia consumers to send a written “Notice of Right to Cure” to a creditor or debt collector prior to instituting any action under Articles 2, 3, or 4 of the West Virginia Consumer Credit and Protection Act (the WVCCPA).  The full text of the current statute can be accessed here. 

After receipt of the Notice of Right to Cure, creditors and debt collectors are provided 45 days to send a cure offer to the consumer.  If the consumer accepts the cure offer and the offer is performed, it is a complete bar to recovery if a consumer later files a cause of action for the alleged violation.  Likewise, if the court finds that a cure offer is timely delivered and above the judgment that a consumer receives, the consumer’s counsel is barred from collecting attorneys’ fees and costs incurred following delivery of the cure offer. 

Implementation of the pre-suit notice requirement has raised multiple questions for courts and creditors alike.  Although intended to add clarity and to enable creditors to address any potential errors or violations of the WVCCPA, the provision has created more questions than answers, and it remains to be seen if the intent to allow creditors and consumers to avoid costly and time-consuming litigation will be realized. 

First, the statute is silent on whether a consumer can first file suit and then send the Notice of Right to Cure, requiring the creditor to then send a cure offer in 20 days under the provisions set forth in subsection (a) of § 5-108.  It appears that the legislature only intended this provision to apply when the creditor has filed a suit and the consumer is the would-be defendant.  However, as § 5-108 currently reads, the lack of clarity in the statute has been seen as an invitation for the consumer to engage in such conduct. 

Second, the effect the statute will have on individual claims for potential class representatives is still unknown.  Can the consumer demand a settlement on behalf of a class prior to class certification?  What is the effect of a rejected cure offer to a class representative’s claim if he or she does not individually recover a judgment above the individual cure offer amount?  Are creditors and/or debt collectors required to address potential class claims in a cure offer?  Once a class is certified, does the creditor or debt collector have an opportunity to send a class–wide cure offer to all potential class members?  To date, these questions remain unanswered. 

Third, internal compliance procedures for companies conducting business in West Virginia should be updated to ensure that consumer notices are being addressed by either their legal departments or by referring the potential claim to their outside counsel to address and make recommendations to evaluate and respond to § 5-108 correspondence from consumers. 

The Financial Services Litigation group at Troutman Sanders has handled hundreds of contested matters in West Virginia, including class action cases, and arbitrations through appeal to the Fourth Circuit.  We will continue to monitor the effects of § 5-108 in West Virginia federal and state courts to identify and advise on new compliance risks and strategies.

The American Bar Association proposed Resolution 104B this past July to urge policymakers to adopt specific regulations governing auto dealerships and vehicle financing.  While the Resolution failed to win approval, it is not necessarily dead.

As proposed, Resolution 10B would do five things:

  1. Urge federal, state, local, territorial, and tribal governments to “adopt and enforce stronger fair lending laws targeted to discrimination in the vehicle sales market”;
  2. Urge Congress to amend the Equal Credit Opportunity Act to require the collection of the applicant’s race and national origin in vehicle financing transactions;
  3. Urge Congress and all state, local, territorial, and tribal legislative bodies and government agencies to adopt laws and policies that “require a flat percentage fee for dealer compensation” and “disclosure of dealer compensation” in vehicle financing transactions;
  4. Urge federal, state, local, territorial, and tribal governments to adopt legislation “requiring the separate posting of pricing of add-on products by dealers on each vehicle before a consumer negotiates to purchase a vehicle”; and
  5. Encourage state, local, territorial, and tribal bar associations to “offer programming to educate lawyers and consumers about abusive, deceptive, or fraudulent vehicle sales transaction financing and sales practices.”The Resolution was withdrawn before a planned vote by the ABA membership at an annual meeting on August 6 in the face of significant opposition.  Many in the auto finance industry believe that this Resolution would have encouraged policymakers to adopt unwarranted and redundant restrictions on the industry.Although the Resolution is off the table for now, it may reemerge in some form.  When a resolution is “withdrawn” from consideration (this can simply mean the proposal was procedurally flawed in a curable way), the proponents of the Resolution are free to submit it again.  As such, automobile dealers and lenders should remain watchful of proposals for additional regulation.

The Federal Trade Commission announced in mid-July that it conducted the first compliance sweep of car dealerships since the effective date of its revised Used Car Rule requiring use of a new Buyers Guide sticker.  The sweep took place between April and June 2018 in 20 cities nationwide.  The FTC coordinated its efforts with 12 partner agencies in seven states to ensure that dealers are displaying a revised version of the Buyers Guide, which contains warranty and other information for consumers. 

In the sweep, inspectors found that approximately 70 percent of vehicles displayed Buyers Guides and roughly half of those displayed the revised Buyers Guide.  Inspectors reviewed 94 different dealerships and reported that 33 dealerships posted the revised Buyers Guide on more than half of their vehicles, but only 14 dealerships had revised Buyers Guides on all of their used vehicles for sale.  The FTC Act provides for penalties of up to $41,484 per violation for those dealerships that do not properly comply with the Used Car Rule. 

As we reported here, the FTC issued additional guidance on the Used Car Rule in September 2017 in response to a number of questions raised by dealers regarding compliance.  The guidance was in the form of frequently asked questions (“FAQs”) and addressed topics such as: whether and what type of changes can be made to the language; the format and font of the Buyers Guide; disclosure requirements regarding manufacturer and third-party warranties; and guidance for completing the “systems covered” portion of the revised Buyers Guide.  The amendments to the Rule included a grace period that permitted dealers to use their remaining stock of Buyers Guides for up to one year after the January 28, 2017 effective date, making January 28, 2018 the deadline for compliance. 

The FTC and its partners inspected dealerships in California, Florida, Illinois, New York, Ohio, Texas, and Washington.  The FTC reports that those dealerships that were not compliant can expect follow-up inspections to ensure compliance.

 

On May 31, the Fourth Circuit Court of Appeals affirmed a $150,000 sanctions award against three consumer attorneys and their law firms for bad faith conduct and misrepresentations.

The opinion reads like a detective story and lays out, in the Court’s own words, “a mosaic of half-truths, inconsistencies, mischaracterizations, exaggerations, omissions, evasions, and failures to correct known misimpressions created by [consumer attorneys’] own conduct that, in their totality, evince lack of candor to the court and disrespect for the judicial process.”

The litigation arose from a payday loan that plaintiff James Dillon obtained from online lender Western Sky.  Later, Dillon engaged attorneys Stephen Six and Austin Moore of Stueve Siegel Hanson LLP and Darren Kaplan of Kaplan Law Firm, PC who filed a putative class action against several non-lender banks that processed loan-related transactions through the Automatic Clearing House network.  Defendant Generations Community Federal Credit Union promptly moved to dismiss Dillon’s lawsuit on the basis of the loan agreement’s arbitration clause.  In response, Dillon challenged authenticity of the loan agreement and a two-year-long dispute ensued during which the district court refused to send the case to arbitration based on Dillon’s authenticity challenge; Generations appealed the district court’s decision; and the Fourth Circuit vacated it and remanded the case for further proceedings on the arbitration issue.  Significantly, when questioned by both the district court and the Fourth Circuit, Six maintained authenticity challenge and represented that he had drafted the complaint without the loan agreement and that Dillon’s claims do not rely on the loan agreement.

Six’s representations regarding the contents of the complaint were problematic given the complaint specifically referenced the loan agreement and its terms.  Evidence uncovered during arbitration-related discovery showed that Dillon possessed the loan agreement all along and, crucially, that he supplied his counsel with a copy of the agreement a week before the complaint was filed.  The latter piece of evidence was discovered only as a result of forensic examination of Dillon’s computer.  Once this evidence came to light, Dillon responded to Generations’ requests for admissions that the loan agreement was authentic.

Generations moved for sanctions against Dillon’s attorneys.  Instead of admitting their wrongdoing, Kaplan argued that there was never any challenge to authenticity, and Six argued that he still doubted authenticity even though he signed Dillon’s admissions that the loan agreement was authentic.  Invoking its inherent authority to punish bad faith behavior, the district court sanctioned Six, Kaplan, and their law firms jointly, ordering them to pay the defendants $150,000 in attorneys’ fees.  Moore was held liable jointly for only $100,000 of the total amount due to his lesser role in the bad-faith conduct.  The lawyers appealed.

The Fourth Circuit summarily rejected their arguments that neither the rules of ethics nor the Federal Rules of Civil Procedure required them to disclose the copy of the loan agreement before discovery commenced.  “These arguments miss the point.  Counsel are not being sanctioned for their failure to disclose the Dillon copy of the Western Sky loan agreement.  Rather, counsel are being sanctioned for raising objections in bad faith—simultaneously questioning (and encouraging the district court to question) the authenticity of a loan agreement without disclosing that the Plaintiff provided them a copy of that loan agreement before the complaint was filed.”

Discovery in consumer litigation is often asymmetrical and focuses on defendants’ obligations.  This opinion is a good reminder that the rules apply to plaintiffs too and that the courts will not condone a “crusade to suppress the truth to gain a tactical advantage.”

On May 21, President Donald Trump signed a bill repealing the Consumer Financial Protection Bureau’s Bulletin 2013-02, a controversial bulletin addressing auto finance.  As we reported here, the House passed a resolution officially disapproving of the Bulletin in early May, following in the footsteps of the Senate, which passed the same resolution a few weeks earlier.

Bulletin 2013-02 set forth the CFPB’s interpretation of the Equal Credit Opportunity Act (“ECOA”) as applied to pricing in indirect automobile lending.  The Bulletin targeted dealer markups, a practice whereby an automobile dealer charges a consumer a higher interest rate than the rate at which an indirect lender is willing to purchase the consumer’s retail installment contract.  The Bureau expressed concern that indirect lenders afforded too much pricing discretion to dealers, potentially opening the door to discrimination against protected groups, including women, African-Americans, and Hispanics.  Further, the Bureau also announced in the Bulletin its intent to use a disparate treatment or disparate impact theory to hold an indirect auto lender liable for allowing prohibited pricing differences created by a dealer’s conduct.

In March 2017, Senator Pat Toomey (R-Pa.) asked the Government Accountability Office, Congress’ investigative wing, to determine whether the Bulletin qualified as a “rule.”  The GAO concluded that the guidance did qualify as a rule, even though Bulletin 2013-02 was not legally binding.  Senators Toomey and Jerry Moran (R-Kan.) introduced a resolution to overturn the Bulletin in March 2018, a resolution which passed narrowly along party lines.  The bill fared better in the House of Representatives, passing 234 to 175.

House Financial Services Committee Chairman Jeb Hensarling (R-Tex.) attended the signing ceremony at the White House and issued a statement hailing the measure:  “Thanks to the hard work of Republicans in Congress, today is a good day for American consumers, who would have had to pay more for their auto loans under the Bureau’s flawed guidance, and the rule of law.  Gone are the days of a rogue Bureau using its unchecked powers to sidestep due process and harm the very consumers it is charged with protecting.  I look forward to continuing to work with President Trump, Acting Director Mulvaney, and my colleagues in Congress to ensure the Bureau, as well as all other federal regulatory agencies, are held accountable for their actions and act in a transparent manner.”

On May 8, the U.S. House of Representatives passed a resolution officially disapproving Bulletin 2013-02, issued by the Consumer Financial Protection Bureau in early 2013.  The Senate passed a similar measure on April 18, meaning the resolution moves to President Trump’s desk for signature.  Though the Senate resolution passed narrowly in a party-line vote, the bill found bipartisan support in the House, passing 234 to 175.  The bill is the latest in a line of agency guidance invalidated under the Congressional Review Act (“CRA”).

The bill was initially introduced by Senator Jerry Moran (R-Kan.) in an effort to overturn Bulletin 2013-02, which set forth the CFPB’s interpretation of the Equal Credit Opportunity Act (“ECOA”) as applied to pricing in indirect automobile lending.  The Bulletin targeted dealer markups, a practice whereby an automobile dealer charges a consumer a higher interest rate than the rate at which an indirect lender is willing to purchase the consumer’s retail installment contract.  The Bureau expressed concern that indirect lenders afforded too much pricing discretion to dealers, potentially opening the door to discrimination against protected groups, including women, African-Americans, and Hispanics.  Further, the Bureau also announced in the Bulletin its intent to use a disparate treatment or disparate impact theory to hold an indirect auto lender liable for allowing prohibited pricing differences created by a dealer’s conduct.

The resolution’s passage marks the likely end of the Bulletin’s checkered history.  In March 2017, Senator Pat Toomey (R-Pa.) asked the Government Accountability Office, Congress’ investigative wing, to determine whether the Bulletin qualified as a “rule.” The GAO concluded that the guidance did qualify as a rule, even though Bulletin 2013-02 is not legally binding. Specifically, the GAO found that:

The Bulletin provides information on the manner in which the CFPB plans to exercise its discretionary enforcement power. It expresses the agency’s views that certain indirect auto lending activities may trigger liability under ECOA. For example, it states that an indirect auto lender’s own markup and compensation policies may trigger liability under ECOA if they result in credit pricing disparities on a prohibited basis, such as race or national origin. It also informs indirect auto lenders that they may be liable under ECOA if a dealer’s practices result in unexplained pricing disparities on prohibited bases where the lender may have known or had reasonable notice of a dealer’s discriminatory conduct. In sum, the Bulletin advised the public prospectively of the manner in which the CFPB proposes to exercise its discretionary enforcement power and fits squarely within the Supreme Court’s definition of a statement of policy.

In conclusion, the GAO found that the Bulletin was subject to the requirements of the CRA because it served as “a general statement of policy designed to assist indirect auto lenders to ensure that they are operating in compliance with ECOA and Regulation B, as applied to dealer markup and compensation policies.”  Because the CFPB did not present the Bulletin for Congressional review, it was, effectively, a nullity.

President Trump is almost certain to sign the bill into law when it reaches his desk, putting the final nail into the coffin of Bulletin 2013-02.

Troutman Sanders routinely advises clients on the compliance risks posed by direct and indirect auto lending. We will continue to monitor these regulatory developments.

New Jersey Attorney General Gurbir S. Grewal and the New Jersey Division of Consumer Affairs have filed a complaint against luxury used-car dealership 21st Century Auto Group, Inc. and its owner, Dmitry Zeldin, accusing the dealership of violations of state consumer protection laws.  According to the Office of the Attorney General, 21st Century fails to disclose to consumers that certain vehicles have incurred prior damage and also advertises vehicles after they are sold in a “bait and switch” operation.

The A.G.’s Office prosecuted 21st Century and Zeldin five years ago on allegations of the same practices.  In 2014, the parties entered into a settlement agreement, with the dealership agreeing to pay a penalty of $130,000 and make widespread changes to its business practices.  The agreement also prohibited the dealership from engaging in unfair or deceptive acts or practices in the future.  However, the Division of Consumer Affairs reported that it continued to receive complaints about 21st Century following the settlement agreement.

“Businesses can’t just sign a settlement agreement and then go right back to the same dishonest practices that got them into trouble in the first place,” Grewal said in a statement. “They must abide by the reforms set forth in the agreement, especially those requiring them to stop deceiving customers.”

The complaint features new allegations against 21st Century, including the assertion that the dealership sold “gray market cars” – vehicles that are intended for distribution outside of the United States and do not necessarily meet safety and emissions standards required under federal law.  The complaint alleges other violations, including:

  • conducting credit checks without a consumer’s knowledge or authorization;
  • failing to conspicuously post the total selling price of used motor vehicles;
  • submitting false financial information to a lending institution;
  • misrepresenting that certain used motor vehicles advertised and/or offered for sale were covered by a warranty;
  • failing to refund monies paid by consumers after they cancelled the sales transaction;
  • advertising used motor vehicles on the 21st Century Auto Group website at a price much lower than the price posted on the vehicle at the dealership location;
  • failing to disclose to a consumer prior to purchase that a used motor vehicle had sustained major flood damage; and
  • representing that, as part of a negotiated deal, they will make certain repairs to a used motor vehicle and then, after the sale is consummated, failing to do so.

The case is Gurbir S. Grewal, et al. v. 21st Century Auto Group, Inc., et al., pending in the Superior Court of New Jersey, Chancery Division, Union County.

 

In Echlin v. PeaceHealth, the U.S. Court of Appeals for the Ninth Circuit held that a debt collection agency meaningfully participated in collection efforts even if it did not have authority to settle the account, did not receive payments, and was not involved in collection beyond sending two collection letters.  Accordingly, the collection agency did not violate the Fair Debt Collection Practices Act by sending the letters on its own letterhead.

Michelle Echlin incurred a debt in the form of medical bills owed to PeaceHealth.  After Echlin ignored multiple requests for payment, PeaceHealth referred her account to ComputerCredit, Inc. (“CCI”).  CCI sent Echlin two collection letters on its letterhead but Echlin did not respond.  In accordance with its agreement with PeaceHealth, CCI returned the account back to PeaceHealth.  Echlin later filed a purported class action alleging that CCI’s letters created a false or misleading belief that CCI was meaningfully involved in the collection of her debt—a practice known as flat-rating.  CCI and PeaceHealth moved for summary judgment.  The district court granted PeaceHealth’s and CCI’s motions for summary judgment, and Echlin appealed.

The Ninth Circuit found that CCI had meaningfully participated in collection of Echlin’s debt because it controlled the content of collection letters it sent and did not seek PeaceHealth’s approval prior to mailing.  While CCI did not have authority to process or negotiate payments from PeaceHealth, CCI handled correspondence and phone inquiries from debtors.  In addition, CCI personnel returned consumers’ calls if requested.  In rejecting Echlin’s claims that CCI could not have meaningfully participated if it had not handled payments or taken further action in collecting on the account, the Court noted that “[m]eaningful participation in the debt-collection process may take a variety of forms,” as shown by a long, non-exhaustive list of factors considered by courts across the country.

Notably, the Ninth Circuit distinguished cases that addressed the meaningful involvement by attorneys because those cases reflect concerns regarding the “unique sort of participation that is implied by letters that indicate the creditor has retained an attorney to collect its debts.”  The higher standard of involvement required of attorneys and law firms collecting a debt did not apply to non-attorneys.

In a short, straightforward opinion, the Eighth Circuit Court of Appeals joined its sister circuits that have applied a materiality standard to consumer claims of falsity and deception under the Fair Debt Collection Practices Act.

Consumer Paul Hill incurred a medical debt, and the creditor hired Accounts Receivable Services, LLC to collect the debt.  In the collections process, Accounts Receivable unsuccessfully filed a lawsuit against Hill to recover the debt.  The state court ruled that Accounts Receivable was not entitled to prevail in the collection lawsuit because it had not established that the documents purporting to show the assignment of debt were authentic.  Hill then sued Accounts Receivable under the FDCPA, claiming false and misleading representations in violation of 15 U.S.C. § 1692e, including threats “to take any action that cannot legally be taken … .”  15 U.S.C. § 1692e(5).  The United States District Court for the District of Minnesota dismissed Hill’s claims and he appealed, arguing that the Court erred in applying a materiality standard to these provisions.

To decide whether a materiality threshold applies, the Eighth Circuit Court of Appeals examined decisions from its sister circuits on the issue, found their reasoning persuasive, and adopted the view that a violation requires a showing of materiality.  The FDCPA was enacted to require that debt collectors provide information which helps consumers choose intelligently their actions with respect to their debts.  As the Seventh Circuit had explained, “immaterial information neither contributes to that objective (if the statement is correct) nor undermines it (if the statement is incorrect).”  An immaterial statement cannot mislead and, therefore, even if technically false, it is not actionable.

Applying the materiality requirement, the Eighth Circuit concluded that, even if Accounts Receivable had misrepresented authenticity of the debt assignment documents, such misrepresentations were immaterial because Hill did not deny that he incurred the debt and owed it.  Just because the debt collection lawsuit was unsuccessful does not automatically establish a violation of the FDCPA, as the Court previously held in Hemmingsen v. Messerli & Kramer, P.A., 674 F.3d 814, 820 (8th Cir. 2012).  “Accounts Receivable’s inadequate documentation of the assignment did not constitute a materially false representation, and the other alleged inaccuracies in the exhibits are not material.”

The Eighth Circuit’s decision is a welcome addition to the growing line of cases adopting the materiality threshold.

In a 51-47 vote on April 18, the U.S. Senate voted in favor of invalidating 2013 guidance from the Consumer Financial Protection Bureau that targeted purported discrimination in the automobile finance market.  The resolution passed on party lines, with Senator Joe Manchin (D-W.Va.) the lone Democrat to join Republicans in voting to overturn the guidance. 

As we reported here, Senator Jerry Moran (R-Kan.) introduced a resolution in March to overturn the CFPB’s highly controversial Bulletin 2013-02, which set forth the CFPB’s interpretation of the Equal Credit Opportunity Act (“ECOA”) as applied to pricing in indirect automobile lending.  The Bulletin targeted dealer markups, a practice whereby an automobile dealer charges a consumer a higher interest rate than the rate at which an indirect lender is willing to purchase the consumer’s retail installment contract.  The Bureau expressed concern that indirect lenders afforded too much pricing discretion to dealers, potentially opening the door to discrimination against protected groups, including women, African–Americans, and Hispanics.  Further, the Bureau also announced in the Bulletin its intent to use a disparate treatment or disparate impact theory to hold an indirect auto lender liable for allowing prohibited pricing differences created by a dealer’s conduct. 

In March 2017, Senator Pat Toomey (R-Penn.) asked the Government Accountability Office whether the Bulletin qualified as a rule subject to Congressional review.  The GAO concluded that the Bulletin was indeed a rule and, as a result, should have been subject to Congressional review.  Based on the decision, Toomey co-sponsored with Moran the resolution to kill the guidance. 

The resolution moves now to the House of Representatives for a vote.