The CARLAWYER: Federal Developments, Legal Cases, and Monthly Compliance Tip (October 2021)


By Eric Johnson

Here's our monthly article on selected legal developments we think might interest the auto sales, finance, and leasing world. This month, the developments involve the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the Federal Trade Commission. As usual, our article features the “Case(s) of the Month” and our “Compliance Tip.”  Note that this column does not offer legal advice.  Always check with your lawyer to learn how what we report might apply to you or if you have questions.

Federal Developments

Agencies Extend Comment Period for Proposed Interagency Guidance on Managing Risks Associated with Third-Party Relationships. The FDIC, the FRB, and the OCC recently extended until October 18, 2021, the comment period for the proposed interagency guidance designed to help banking organizations manage risks associated with third-party relationships. The proposed guidance offers a framework for banking organizations to consider in developing risk management practices throughout the life cycle of third-party relationships, including planning to manage the relationship and its risks, due diligence and third-party selection, contract negotiation, oversight and accountability, ongoing monitoring, and termination. The framework considers the level of risk, complexity, and size of the banking organization and the nature of the third-party relationship. The proposed guidance also promotes compliance with applicable laws and regulations, including those related to consumer protection, and discusses supervisory reviews of third-party relationships. The proposed guidance would replace each agency's existing guidance on this topic.

Court Stays Compliance Date for CFPB's Rulemaking on Payday, Vehicle Title, and Certain High-Cost Installment Loans. On August 31, the U.S. District Court for the Western District of Texas issued an order in Community Financial Services Association of America, Ltd. v. Consumer Financial Protection Bureau, staying the date for complying with the CFPB's rulemaking on Payday, Vehicle Title, and Certain High-Cost Installment Loans. In 2018, the Community Financial Services Association of America and the Consumer Service Alliance of Texas challenged the CFPB's 2017 final rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans. The court subsequently stayed both the litigation and the compliance date. In 2019, the court lifted the stay on the litigation but not the compliance date, and the parties proceeded to file motions for summary judgment. The court's order grants the CFPB's motion for summary judgment and stays the August 19, 2019, compliance date of the Payment Provisions for 286 days. In staying the compliance date, the court stated that it was “persuaded by the Associations' arguments that they should receive the full benefit of the temporary stay and that a more substantial compliance date allows time for appeal.” The new compliance date for the Payment Provisions is now June 13, 2022.

FTC Amends FCRA Rules for Dealers. On September 8, the FTC approved largely technical changes to five rules that implement parts of the Fair Credit Reporting Act. The changes clarify that the five FCRA rules retained by the FTC (Address Discrepancy Rule, Affiliate Marketing Rule, Furnisher Rule, Prescreen Opt-Out Notice Rule, and Risk-Based Pricing Rule) apply only to motor vehicle dealers. In addition to the technical changes to the five rules, the Prescreen Opt-Out Notice Rule was revised to add to the model notices that motor vehicle dealers can use the web address where consumers can opt out of credit offers. The Risk-Based Pricing Rule also was updated to include examples that reflect its narrower scope to just motor vehicle dealers.

OCC Proposes to Rescind and Replace CRA Rule. On September 8, the OCC issued a notice of proposed rulemaking that proposes to rescind its current Community Reinvestment Act rule published on June 5, 2020, and replace it with rules largely based on those adopted by the OCC, the FDIC, and the FRB in May 1995, as amended. The proposed rules are intended to facilitate ongoing interagency work to modernize the CRA rules and promote consistency for all insured depository institutions. The proposed rules would apply to all national banks and all federal and state savings associations. Comments on the proposed rules are due by October 29, 2021.

FRB Publishes Community Bank Resource on Partnering with Fintech Companies. On September 9, the FRB published a paper intended to serve as a resource for community banks when partnering with third-party fintech companies. The paper provides an overview of the evolving landscape of community bank partnerships with fintech companies, including the benefits and risks of different partnership types and key considerations for engaging in such partnerships.

FTC Approves Compulsory Process Resolutions. On September 14, the FTC announced its approval of eight new compulsory process resolutions that will enable the agency to expeditiously investigate allegations of illegal conduct in areas that are a priority for the agency. The FTC is authorized to use compulsory process in its investigations. Compulsory process refers to the issuance of demands for documents and testimony through the use of civil investigative demands and subpoenas. Specifically, the new resolutions focus on allegations of harmful acts and practices directed at servicemembers and veterans, harmful acts and practices directed at children, bias in algorithms and biometrics, deceptive and manipulative conduct on the Internet, repair restrictions imposed by manufacturers and sellers, abuses of intellectual property rights, common ownership in competing companies that may be anticompetitive, and monopolistic practices by tech companies and other large companies.

CFPB Announces Appointment of Committee Members. On September 22, the CFPB announced the appointment of new members to the Consumer Advisory Board, the Community Bank Advisory Council, the Credit Union Advisory Council, and the Academic Research Council. These committee members will advise CFPB leadership on a variety of consumer financial issues and will serve two-year terms. 

FTC Settles with Debt Collection Company and Owners. On September 27, the FTC announced a settlement with a debt collection company and its owners, resolving allegations that they violated Section 5(a) of the FTC Act and the Fair Debt Collection Practices Act by having employees pose as law enforcement officers, attorneys, mediators, or process servers during attempts to collect debts from consumers and by threatening consumers with arrest and imprisonment. The defendants also allegedly attempted to collect debts that consumers did not actually owe or no longer owed. Among other things, the settlement permanently bans the defendants from the debt collection industry and imposes a fine of $266,000. The total monetary judgment of more than $3 million is partially suspended due to the defendants' inability to pay.

Case(s) of the Month

Car Buyer States Multiple Claims Against Dealership Arising Out of Misrepresentations Regarding Status of Financing: A consumer who was interested in buying a car from a dealership filled out the dealership's online financing application at the sales representative's request.  A few months later, the representative allegedly told the consumer that she had been approved for financing with a bank.  The consumer signed a retail installment contract and a buyer's order for the purchase of a vehicle. She traded in her old car, made a $500 down payment, and left the dealership with the new vehicle.

About two weeks later, the buyer learned that the bank that financed her purchase was a second bank and that the financing was contingent on approval of her financing application. The representative then informed the buyer that she would have to verify her employment status with the second bank, but apparently the second bank was not satisfied with the verification that the buyer's employer provided.

Just a short while later, and six days before the buyer's first installment payment was due under the RIC she signed, the dealership repossessed the car and refused to return her trade-in vehicle or the down payment.

The buyer sued the dealership and the representative, alleging violations of the Pennsylvania Uniform Commercial Code, the Pennsylvania Unfair Trade Practices and Consumer Protection Law, the federal Equal Credit Opportunity Act, and the federal Truth in Lending Act, as well as breach of contract and fraud. The defendants moved to dismiss. First, the U.S. District Court for the Eastern District of Pennsylvania denied the defendants' motion to compel arbitration pursuant to the arbitration provision in the buyer's order. The court found that, under Pennsylvania's Motor Vehicle Sales Finance Act, an arbitration provision contained solely in a document separate from the RIC - like a buyer's order - is not enforceable unless the RIC incorporates it by reference. In this case, the RIC did not reference the buyer's order or the arbitration agreement, and, therefore, the arbitration provision in the buyer's order was not enforceable. Second, the court allowed the UCC claim to proceed based on the buyer's allegations that she had not breached the RIC as of the time of repossession because her first payment was not yet due and she provided truthful and accurate information verifying her employment, thus satisfying the second bank's requirements for completing her credit application. Moreover, the court noted that the defendants did not provide sufficient evidence that the RIC made the failure to provide verifiable employment information on the buyer's credit application a ground for repossession. Third, the court concluded that the buyer stated a claim under the Pennsylvania UTPCPL. The buyer alleged that the defendants' misrepresentation that she was already approved for financing by the first bank and would only need to sign the RIC to complete the transaction was an unfair or deceptive act. She also alleged that she justifiably relied on these misrepresentations by signing the RIC, trading in her old car, and paying a down payment for the new car. Fourth, the court concluded that the buyer stated a claim under the ECOA based on allegations that the defendants failed to give her written notice of the reasons for which they revoked her financing and repossessed her car. Fifth, the court concluded that the buyer failed to state a claim under TILA. The court rejected the buyer's contention that the dealership violated TILA by treating the sale as conditional until the RIC was assigned to a third-party bank. This undisclosed conditional term, according to the buyer, effectively shortened the first payment period because the deal was not final until the RIC was assigned and, therefore, made the disclosed APR in the RIC inaccurate. Sixth, the court concluded that the buyer stated a claim for breach of contract by alleging that the defendants breached the RIC by repossessing her car without cause and in violation of the terms of the RIC. Finally, the court concluded that the buyer stated a claim for fraud by alleging that the defendants misrepresented that she had been approved for financing with the first bank, which she justifiably relied on when signing the RIC, trading in her old car, and making a down payment. See Mount v. Peruzzi of Langhorne LLC, 2021 U.S. Dist. LEXIS 157579 (E.D. Pa. August 20, 2021).


This Month's CARLAWYER© Compliance Tip

Our Case of the Month highlights how this dealership lost in its arbitration battle with the consumer and how the court concluded that an arbitration provision contained solely in a document separate from the RIC - like a buyer's order - is not enforceable unless the RIC incorporates it by reference. In this case and under the state's law, the RIC did not reference the buyer's order or the arbitration agreement and the court found that the arbitration provision in the buyer's order was not enforceable. The court also found that the dealer didn't provide sufficient evidence that the RIC made the failure to provide verifiable employment information on the buyer's credit application a ground for repossession. Scan the documents you're asking your buyers to sign – do they include an arbitration provision or incorporate one by reference and do they provide proper grounds for repossession if the deal falls through? Time to take your friendly lawyer out for coffee and discuss! 
So, there's this month's roundup!  Stay legal.
Eric ( is a Partner in the law firm of Hudson Cook, LLP, Editor in Chief of's Spot Delivery®, a monthly legal newsletter for auto dealers and a contributing author to the F&I Legal Desk Book.  For information, visit © 2021, all rights reserved. Single publication rights only to the Association.  HC# 4828-5329-1517


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