Legal Services Alabama

May 3, 2013

Basic Tips for Handling Automobile Cases

1. Does Buyer have a Title Certificate or Application for Title?

2. Was the Disclosed “Cash Price” above the “Book price”?

3. Who was the real Buyer, Owner, Co-Signer, or Guarantor?

4. Who’s Liable -- Seller, Lender, Assignees?

5. The Statute of Limitations: 4 Yrs?

6. Was the Car Unfit for the purpose for which it was purchased?

7. Was there any “Yo-Yo”, “Spot Delivery” or “Gimme Back” Deal?

8. Any ARCP Rule 13(c) or “other” such Counterclaims?

9. What Other Documents, Papers or Materials may be useful?

10. Is the Annual Percentage Rate accurate?

Thomas G. Keith Legal Services Alabama Huntsville Office 256-551-2672 [email protected]

I. Does Buyer have a Title Certificate or Application for Title ?

Failure to provide good title can prevent obtaining a tag or having insurance coverage, possibly resulting in tickets, fines and/or loss of driver’s license. Also it effectively prevents ability to sell, trade, refinance or repair the car, and other rights of ownership.

Should you also obtain a Report of the Complete Title History?

- For Title History, use Ala. Form MV-DPPA1

- Admissible evidence under Rule 902(10).

- The Drivers Privacy Protection Act, 18 U.S.C. § 2721, et seq. “ in connection with any civil, criminal, administrative, or arbitral proceeding in any court or government agency or before any self- regulatory body, including the service or process, investigation in anticipation of litigation, and the execution of enforcement of judgment and orders, or pursuant to an order of the court;”

The Alabama Commercial Code, Code of Ala., Section 7-2-312, mandates that in any sales contract, “(a) The title conveyed shall be good, and its transfer rightful; and (b) The goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.” Alabama’s Uniform Certificate of Title and Antitheft Act, Code of Ala., Section 32- 8-44, requires the seller to immediately execute a certificate of title upon a transfer of ownership, or upon the creation of a security interest, and an application for title to be immediately delivered to the Department with a new certificate issued containing the name of any lien holders. The transferee should take delivery of the title documents within 10 days or the seller can be criminally charged under Code of Ala. Sec. 32-8-13 and Sec. 32-8-14. Remedies for not transferring the title include: Breach of Contract “Warranty of Title” under UCC 7-2-312 Fraud and misrepresentation Revocation of Acceptance Rescission Ala. Deceptive Trade Practices Act Various criminal, tax and revenue statutes

Complaints regarding failure to transfer title by a dealer and/or inquiries about the required dealer’s bond in the amount of $10,000.00 under Ala. Code, Sec. 40-12-398, can be directed to: Mr. Don Clemons, Alabama Dept of Revenue Motor Vehicle Division, Title Section P.O. Box 327610 Montgomery, AL 36132 Phone 1-334-242-9007.

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II. Does the TIL “Cash Price” far exceed NADA “Book price”?

- Compare with the NADA Price Guide for the DATE PURCHASED, based on VIN, mileage, locality, options, etc. (Legal Services keeps the old NADA Guides in our Montgomery Office for future reference to be used as evidence in such cases).

- Price Guide publications are admissible under Ala. Evid. Rule 803(17).

- The actual “cash price” is always a question of fact.

The NADA book value is admissible to establish the amount of hidden finance charges included as part of the inflated disclosed “Cash Price” and numerous other violations of TILA’s required disclosures, including an incorrect amount as Annual Percentage Rate (or “APR” ), Amount Financed, Finance Charge, etc. Lawson v. Reeves, 537 So.2d 15(Ala.Sup.Ct.1988), citing Killings v. Jeff Mtrs., 490 F.2d 865 (5th Cir. 1974 ).

Many factors may be relevant as to the amount if any of hidden finance in the cash price: In Re Russell, 181 B.R. 616 (M.D.Ala.1995). (J. Myron Thompson).

Sampson v. Mercury Finance Co., 1996 U.S.Dist. LEXIS (M.D. Ala. 1996).

Preston v. Mercury Finance Co., 1996 U.S.Dist. LEXIS 22005 (S.D. Ala. 1996).

Sharon Harris, et al, v. J.D. Byrider, et al, Case # 47CV98-1763 . (See this Class Action Complaint based entirely on fraud and possible state law claims).

III. FTC Credit Practices Rule on Co-Signers

444.3 Unfair or deceptive cosigner practices. (a) In connection with the extension of credit to consumers in or affecting commerce, as commerce is defined in the Federal Trade Commission Act, it is: (1) A deceptive act or practice within the meaning of section 5 of that Act for a lender or retail installment seller, directly or indirectly, to misrepresent the nature or extent of cosigner liability to any person...... (c) To prevent these unfair or deceptive acts or practices, a disclosure, consisting of a separate document that shall contain the following statement and no other, shall be given to the cosigner prior to becoming obligated,

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which in the case of open end credit shall mean prior to the time that the agreement creating the cosigner's liability for future charges is executed:

Notice to Cosigner

“You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.

You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.

The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.

This notice is not the contract that makes you liable for the debt.’ ” FTC Credit Practices Rule, 16 CFR § 444.1(k):

A natural person who renders himself or herself liable for the obligation of another person without compensation. The term shall include any person whose signature is requested as a condition to granting credit to another person, .... A person who does not receive goods, services or money in return for a credit obligation does not receive compensation within the meaning of this definition. A person is a cosigner within the meaning of this definition whether or not he or she is designated as such on a credit obligation.

As part of its responding to public comments, the FTC Commission explained:

The phrase "another person" will avoid confusion between a cosigner and a principal debtor. Clarifying language has been added defining a cosigner as one who enables a consumer to receive goods, services or money, but does not receive such goods, services or money himself .... We have added language which makes it clear that a person is a "cosigner" under this rule, whatever he or she is called by a creditor, if he or she meets the definition in the rule.

49 Fed. Reg. 7740, 7779 (March 1, 1984).

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NOTE: The FTC Credit Practices Rule overrides inconsistent provisions of state law as to matters covered. Free Bridges Auto Sales v. Fitzgerald, 48 Va. Cir. 1999, Va. Cir.1, LEXIS 13 (Cir. Ct.1999).

IV. FTC Rule on Preservation of Consumer Claims and Defenses

§ 433.2 Preservation of consumers' claims and defenses, unfair or deceptive acts or practices

In connection with any sale or lease of goods or services to consumers, in or affecting commerce as "commerce" is defined in the Federal Trade Commission Act, it is an unfair or deceptive act or practice within the meaning of section 5 of that Act for a seller, directly or indirectly, to: (a) Take or receive a consumer credit contract which fails to contain the following provision in at least ten point, bold face, type:

NOTICE ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. or,

(b) Accept, as full or partial payment for such sale or lease, the proceeds of any purchase money loan (as purchase money loan is defined herein), unless any consumer credit money loan contains the following provision in at least ten point, bold face, type:

NOTICE ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER

16 C.F.R. § 433.2

The FTC “Holder Rule” expressly incorporates "purchase money loan[s]" within the scope of the rule in §433.2(b).

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The term "[p]urchase money loan" is defined as "[a] cash advance which is received by a consumer" which is applied "in whole or substantial part, to a purchase of goods or services from a seller who

(1) refers consumers to the creditor or

(2) is affiliated with the creditor by common control, contract or business arrangement." 16 C.F.R. §431.1(d).

The Holder Rule essentially strips the ultimate holder of the paper of its traditional status as a holder-in-due-course and subjects it to any potential defenses which the purchaser might have against the seller. See Federal Trade Comm'n v.Winters Nat'l Bank & Trust Co., 601 F.2d 395, 397 (6th Cir.1979).

The Federal Trade Commission has included within the reach of the Holder Rule those sellers and creditors who "employ procedures in the course of arranging the financing of a consumer sale which separate the buyer's duty to pay for goods or services rendered from the seller's reciprocal duty to perform as promised."

40 F.Reg. 53,506, 53,522 (1975).

Furthermore, the buyer has rights and defenses as to all assignees of the debt pursuant to Code of Ala., Section 5-19-8, 15 U.S.C. Section 1603(6), 16 C.F.R. Section 226.3(8) and express terms of the contract.

See Gill v. Fidelity Financial Services, 631 So.2d 913(Ala.1993).

NOTE THERE IS A TILA EXCEPTION to “HOLDER RULE”: Under TIL Act’s Remedies there is an exception to the general rule as to assignees. TILA expressly limits recovery against assignees to only the TIL Claims which are apparent on the face of the documents.

V. Statute of Limitations under UCC §7-2-725

A claim for breach of retail installment sales contract is time-barred under the provisions the four year statute of limitations for the sale of consumer goods in Code of Ala., §7-2-725, and due to be dismissed for that reason. See Fallimento C.Op.M.A. v. Fischer Crane Co., 995 F.2d 789 (7th Cir. 1993); Wood v. Wilkinson, 425 So.2d 1062 (Ala. rd 1982). See D. A. N., J.V.,III v. Clark, 218 S.W. 3 455 (Mo.Ct. App. 2006).

The statute of limitations runs from the maturity date of the note, or from the date of each installment becoming overdue (or the date of acceleration in the case of where all remaining payments are due). Maynor v. Dillion, 241 Ala., at 365. See 82 A.L.R.316.

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VI. “As-Is” Sales: Are Goods Fit for the purpose being purchased for?

Revocation of Acceptance - Code of Ala., §7-2-608

A car or other consumer good sold without any express or implied warranty whatsoever, may still allow a buyer to be able to revoke acceptance. A letter or oral statement can be enough to cancel the sale. If valid the revocation allows cancellation of the debt, recovery of all amounts paid, and recovery of incidental or consequential damages.

Revocation of Acceptance is different than any warranty, and applies to “as is” sales, and to loan assignees and/or lenders closely connected with the seller. Page v. Dobbs Mobile Bay, d/b/a,Treadwell Ford, 599 So.2d 38 (Ala .Civ. App. 1992); Cole v. 1st National Bank of Tusca.,485 So.2d 717 (Ala. 1986). If there is a breach of a warranty it is an additional grounds for non-conformity with the contract.

These conditions must be met before a consumer can revoke acceptance:

1. The nonconformity must substantially impair the value of the good to the buyer.

2. The buyer must have been justifiably unaware of that nonconformity at the time of acceptance or if the buyer knew about it, reasonably assumed the seller would cure it.

3. Revocation must occur within a reasonable time after the buyer discovers or should have discovered the nonconformity.

4. The vehicle (good) must be in essentially the same condition as when delivered, except for damage caused by the non conformity and

5. The buyer must notify the seller of the revocation (in writing, if possible, saving a copy as a record)

The consumer has several options:

A. hold the good until the seller picks it up B. sell the good for the seller’s account C. return the good D. continue to use the good if necessary Tips:

1. Have the car inspected by an expert at the earliest opportunity and get a signed list of problems. Do this before returning the good, or reselling it.

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2. Notify the seller and any other potential parties of the opportunity to inspect the car before it is altered or resold. If at all possible have yourself or your representative present to observe any inspection or work performed by the seller.

3. Record the odometer reading at each step.

4. Take pictures of the car to record the condition.

5. If the car is returned to the seller, BE VERY CAREFUL and have witnesses and photographs.

Sample Memo of Law in a Revocation Case

1. It is established law in Alabama that “[t]he sale of a motor vehicle is the sale of goods and is covered by Alabama’s version of the Uniform Commercial Code.” Quality Truck & Auto Sales, Inc. v. Yassine, 730 So. 2d 1164, 1169 n.6 (Ala. 1999). A majority of states have also held that motor vehicle sales are sales of good that are governed by Article 2 of the Uniform Commercial Code. Herbert v. Harl, 757 S.W.2d 585 (Mo. 1988) (citing Gillespie v. American Motors Corp., 277 S.E.2d 100 (N.C. 1981); Peckham v. Larsen Chevrolet-Buick-Oldsmobile, Inc., 587 P.2d 816 (Idaho 1978); Lexington Mack, Inc. v. Miller, 555 S.W.2d 249, 251 (Ky. 1977); Park County Implement Co. v. Craig, 397 P.2d 800 (Wy. 1963)).

2. Furthermore, it is a well-recognized principle of American commercial law that a buyer may revoke acceptance of a nonconforming good if the nonconformity substantially impairs the value of the good to the buyer.1 Revocation is available to a buyer that is unaware of the nonconformity at the time of acceptance when: (1) such acceptance is reasonably induced by the seller’s assurances, (2) revocation occurred within a reasonable time after the buyer discovers the noncomformity, (3) the vehicle was in essentially the same condition when returned to the seller, except for the damage caused by the nonconformity, and (4) the buyer notified the seller or the revocation.2 This rule has also been applied in Alabama specifically through the application of Ala. Code §7-2-608 which also permits a buyer to revoke acceptance under the aforementioned conditions. Ex Parte Stem, 571 So. 2d 1112, 1113 (Ala. 1990). In certain circumstances, a buyer’s request for their money back may be considered revocation of acceptance. In Cole v. First National Bank of Tuscaloosa, 485 So. 2d 717 (1986), a case with startlingly similar facts to the case at bar, the Supreme Court of Alabama found that there was evidence that a buyer

1 U.CC. § 2-608. 2 Id.

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provided a seller sufficient notice of revocation of acceptance by verbally asking for her money back. In Cole, the defendant-buyer experienced significant mechanical problems with a used Cadillac immediately after purchase. Id. at 718. The defendant took the vehicle back to the seller for repairs, but no repairs were made. Id. After being instructed by another Cadillac dealer that the car was not safe to drive, the defendant told the seller to “take the car back and give [her the] money back.” Id. at 719. The Court found that this statement by the buyer was enough evidence to create a question of fact as to whether sufficient notice of revocation of acceptance was given and reversed the summary judgment ruling of the trial court. Id.

3. Additionally, continued use of a vehicle after verbal revocation of acceptance is not automatically an act that constitutes an acceptance of ownership after revocation. In Ex Parte Stem, the buyer revoked acceptance in writing, but continued to drive the vehicle for “7 months and nearly 9,000 miles” before filing an action against the seller to rescind the contract of sale and obtain the return of the purchase prices plus interest. 571 So. 2d at 1113. The Alabama Supreme Court found that if the buyer had stored or returned the vehicle, “he would have been put in the position of doing without a vehicle for transporting his child, which was one of the primary purposes for which he bought the vehicle, until trial of this case or else he would have been required to purchase or lease an additional suitable vehicle.” Id. at 1116. The Court reasoned that under those circumstances “Stem’s continued use of the automobile was not an act that constituted an acceptance of ownership after revocation,” reversing the contrary finding of the lower court. Id.

VII. Was Client Victim of a “Yo-Yo” Deal or “Spot Delivery” Set-up?

The Potential Client comes in your office and asks:

“Can I get my money back if I put a downpayment on a car when it was never financed and I didn't know because I was convinced that it was?”

In the “yo-yo” transaction, the consumer believes a vehicle’s installment sale or lease is final and the dealer gives the consumer the car “on the spot”. Later, the dealer generally tells the consumer to return the car because supposedly the financing has fallen through. If the consumer does not return the vehicle or agree to rewrite the transaction on less favorable terms, the dealer repossesses, and in some extreme cases has even had the consumer arrested.

-- Yo-yo sales are one-sided.

-- The dealer is motivated to back out of the sale for reasons other than lack of financing, but usually states that the financing fell through.

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-- The seller is usually in fact the originating creditor, but is seeking to sell the loan for greater profit.

-- Or often the dealer simply believes they can squeeze out more profit from the buyer by recalling the deal

See NCLC’s Manuals as to yo-yo cases in Repossessions at §4.5, et seq, and in Unfair and Deceptive Acts and Practices, at §5.4.5, et seq, for a host of potential legal violations several of which almost always arise in yo-yo sales, including:

Uniform Title and Revenue laws Federal Odometer Act Truth in Lending Act Fair Credit Reporting Act Equal Credit Opportunity Act Common law UCC Article 9 Wrongful repossession Conversion Fraud Invalid or Non-binding Contingency Clauses Contract Conditions – Precedent vs. Subsequent (were actions consistent ?)

NOTE: It is arguably impossible, or at least almost impossible, for a yo-yo transaction to be carried out legally and without giving the buyer valid claims and defenses.

VIII. Using ARCP Rule 13(c) and “other” such Counterclaims

- ARCP Rule 13(a): Recoupment, and Compulsory Counterclaims Ex Parte Fletcher, 429 So.2d 1041 (Ala. 1982) ( violation under the Federal Truth in Lending Act is recoupment or a compulsory CC).

- ARCP Rule 13(c) : Relation-Back of Unrelated or Untimely claims to time the original Plaintiff’s claim arose.

- ARCP Rule 13(h): for Additional party in Counterclaim or Crossclaim

- “Counterclaims in Reply”- 11 Moore's Manual--Federal Practice and Procedure § 11.64 Southeastern Industrial Tire Co. v. Duraprene, 70 F.R.D. 585 (E.D. Pa. 1976) See Broadway v. Peoples Nat. Bank, Case #CV80-5138, U.S.Distr.Ct.. (ND Ala.)

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IX. Useful Documents and Information :

-Ala.Code §7-9A-210: UCC demand for accounting, list of collateral, st. of acct. Advertisements (if any) Signs or Stickers, with price and any other info or claims Loan Application (if available) The dealer’s “Deal Jacket” CarFax Report (if any) Any documents, papers, bills, receipts to show prior owners, repairs, service, etc. RISC (Retail Installment Sales Contract) Note and Payment Schedule Security Agreement with language creating a security interest TIL Disclosure Statement--- (APR, trade-in, add-ons, downpayment, etc.) Assignment Block/Information “Holder” Notice Arbitration Agreement Warranty or “As-Is” Disclaimer Bill of Sale Federal Odometer Statement (for vehicles <10 yrs old) FTC Buyer’s Guide properly posted and displayed? http://www.pueblo.gsa.gov/cic_text/cars/usedcar/usedcar.pdf http://www.ftc.gov/bcp/edu/resources/forms/buyers.pdf

X. Checking the “Annual Percentage Rate” under TILA

http://www.occ.gov/tools-forms/tools/compliance-bsa/aprwin-software.html http://www.bankrate.com/calculators/auto/auto-loan-calculator.aspx

Also, APR programs can be accessed from the CD-ROMs accompanying NCLC’s Cost of Credit Manual, NCLC’s Truth In Lending Manual, and NCLC’s Consumer Law in a Box.

Additional Resources:

- www.AlabamaLegalHelp.org

- www.consumerlaw.org

- [email protected] (for NACA Members—will need ID and password).

http://www.ftc.gov: Facts for Consumers—Buying a Used Car, Filing a Complaint, etc., & links to many other useful materials for consumers.

Tell your story at: https://help.consumerfinance.gov/app/tellyourstory

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The U.S. Consumer Financial Protection Bureau and its new director, Richard Cordray, want to hear your stories about dealing with borrowing on credit, collections and mortgage foreclosure problems.

- Ala. A.G.’s Office of Consumer Protection: www.ago.state.al.us/Page-Consumer-Protection 1-800-392-5658

For An Interesting Article in Subprime Dealer News:

http://www.subprimenews.com/spn/news/story.html?id=1918

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