On July 21, Senators Blumenthal (D-CT) and Markey (D-MA) introduced legislation, the Security and Privacy in Your Car Act (“SPY Car” Act), that would protect drivers’ privacy while allowing them to remain connected to the growing technological advances in the automobile industry. In addition to directing the National Highway Traffic Safety Administration (NHTSA) and the FTC to develop federal cybersecurity and privacy standards that would secure motor vehicles manufactured for sale in the United States and protect drivers, the SPY Car Act seeks to establish a rating system, or “cyber dashboard,” that “informs consumers about how well the vehicle protects drivers’ security and privacy” beyond the minimum standards potentially set by the NHTSA and the FTC. The requirements that motor vehicles: (i) be equipped with reasonable measures to protect against hacking attacks; (ii) maintain the ability to reasonably secure data collected within electronic systems; and (iii) be equipped with capabilities to immediately detect, report, and stop attempts to intercept driving data or control the vehicle, are among the cybersecurity standards outlined in the SPY Car Act. In regards to privacy standards, the legislation proposes the following: (i) transparency, such that owners or lessees are explicitly aware of the collection, transmission, retention, and use of driving data; (ii) consumer choice, allowing owners or lessees to opt out of data collection and retention without losing access to other features, such as key navigation; and (iii) marketing prohibition, which would ban companies from using personal driving information for advertising purposes without obtaining the affirmative express consent of the owner or lessee. The introduction of the SPY Car Act follows Senator Markey’s 2015 Tracking & Hacking: Security & Privacy Gaps Put American Drivers at Risk report, which showed gaps in the auto industry’s ability to prevent hackers from accessing internet-connected features in vehicles.
On October 1, the CFPB ordered an indirect auto lender and its auto title lending subsidiary to pay more than $48 million in restitution and consumer relief over allegations that both companies engaged in unlawful debt collection practices. The CFPB alleged that the companies used a variety of “deceptive” tactics to coerce borrowers into making payments on their remaining loan amounts. The CFPB further asserted that the companies provided inaccurate information in their advertisements to borrowers regarding monthly interest rates, and misled borrowers about the effect of changing payment due dates or the ramifications of extending loan terms, which resulted in additional accrued interest owed over the life of the loan. Under terms of the consent order, the companies agreed to, among other things, provide $44.1 million in restitution and loan balance reductions to affected borrowers and pay a $4.25 million civil money penalty.
CFPB and DOJ Reach $24 Million Settlement with Indirect Auto Lender to Resolve Discriminatory Pricing Allegations
On July 14, the CFPB and DOJ announced a $24 million settlement with an indirect auto lender to resolve allegations that the lender offered higher interest rates to minority borrowers compared to white borrowers with a similar credit risk profile. Specifically, both agencies contended that the lender allowed their partnering dealers excessive discretion to increase the lender’s base interest rate with a “dealer markup” on auto loan contracts, which resulted in discriminatory pricing. Under terms of the settlement, the lender agreed to, among other things, (i) pay $24 million in restitution to affected borrowers, (ii) impose dealer markup rate caps on auto loans, and (iii) improve its policies and procedures related to auto loan pricing and compensation program. Notably, the Bureau did not impose a civil money penalty due to the lender’s responsible conduct. The Bureau filed its consent order in an administrative enforcement action. In a separate announcement, the DOJ filed its complaint and consent order in federal court, which will require judicial approval. The lender was represented in the matter by BuckleySandler.
On July 14, New York Attorney General Eric Schneiderman announced two settlements with auto dealers over allegedly deceptive advertising practices. The first settlement was reached with a White Plains-based auto dealer that allegedly misled consumers by promoting, in its print and online ads, illusory sale and lease prices by including “discounts or rebates that were not available to most consumers, and thus, did not represent the actual sale or lease prices.” According to the Attorney General, rebates or discounts offered to “military” or “college graduates” were among the deceptive advertisements used by the auto dealer. An investigation by the AG’s Office revealed that the dealership would only make the rebates or discounts available to certain military personnel and recent college graduates. In addition to failing to comply with the Attorney General’s Advertising Guidelines for Automobile Dealers, the Attorney General alleged that the ads used footnotes and asterisks that contradicted or materially modified the principal message of the advertisements. The dealership will pay $32,500 to the state and has agreed to reform its advertising practices.
In a separate action, the Attorney General announced a settlement resolving allegations that 22 dealerships “persistently defrauded consumers with misleading promotions and fraudulent sales tactics.” According to the Attorney General’s office, the dealers’ advertisements included certain game cards that led consumers to believe that they would be guaranteed winners of certain items – such as cash, a free vehicle, or an Apple iPad – if they received a winning ticket containing three matching symbols. However, virtually none of the consumers won a prize when they brought in their winning tickets to the dealers. In addition to misleading game cards, the dealers were alleged to have charged unauthorized fees for vehicle maintenance plans that had not been requested by purchasers and to have upcharged the retail sales price on cars to effectively nullify discounts offered to consumers. Under the terms of the settlement agreement, the dealers will pay $310,000 in penalties and restitution.
On July 6, Governor Maggie Hassan (D-NH) signed into law Senate Bill 119/Chapter 207 to regulate the offering of GAP waivers. The act also amends the terms of Consumer Guarantee Contracts to limit the consumer’s ability to bring an action in a court of law. The act is effective September 4, 2015.
Minnesota Passes Legislation to Exclude Guaranteed Asset Protection Waiver Policies from Insurance Definition
On June 13, Governor Mark Dayton (D-MN) signed into law H.F. 3/Chapter 1, which, in part, excludes Guaranteed Asset Protection (GAP) waiver policies from the definition of insurance. Effective August 1, the act specifies that the GAP waiver statute will not apply to certain insurance law requirements, including those relating to: (i) commercial deals; (ii) a debt cancellation or debt suspension contract; and (iii) credit life, credit accident and health, and credit involuntary unemployment. The act also allows for GAP waivers to be sold for either a single payment or as a monthly periodic payment. Finally, the act includes certain GAP waiver disclosures, such as cancellation of the GAP waiver by the borrower within the free look period, which is no less than 30 days.
On June 29, the FTC filed two administrative complaints and issued proposed orders against two Las Vegas auto dealers to resolve allegations that they engaged in misleading advertising practices that misrepresented the purchase price or leasing offers of their vehicles, as well as the amount actually due at signing. In addition, the FTC also contends that the auto dealers failed to disclose other key information in its advertisements, such as the need for a security deposit, whether a down payment was required, and the terms of repayment. Under the proposed consent orders, the FTC will require both dealerships to refrain from misrepresenting the actual cost to purchase or lease a vehicle, and to comply with requirements of the Consumer Leasing Act and the Truth in Lending Act. No monetary judgment is proposed for either auto dealership.
New York AG Announces Nearly $14 Million Agreement with Local Auto Dealers Over Deceptive Sales Practices, Plans to Sue an Additional 11 Auto Dealerships
On June 17, New York Attorney General Eric Schneiderman announced an approximate $14 million agreement with three jointly-owned auto dealers in connection with the alleged unlawful sale of add-on products, such as credit repair and identity-theft prevention services. According to the AG, the auto dealers failed to disclose the costs and fees of many “after-sale” items to consumers, in some instances resulting in the addition of $2,000 to the purchase or leasing price of a vehicle. Furthermore, the AG contends that the dealers concealed that they were charging consumers for the add-on services, or misrepresented that the services were free of charge. Under the terms of the settlement agreement, the auto dealers must, among other things, (i) pay more than $13.5 million in restitution to affected consumers and (ii) pay $325,000 in penalties, fees, and costs to New York State. In addition to the settlement announcement, AG Schneiderman made public that his office has served notices of intent to file suits against an additional eleven dealerships for allegedly engaging in similar practices.
On June 10, the CFPB issued its final rule to oversee “larger participant” nonbank auto finance companies. Although the CFPB received significant feedback during the comment period, the final rule is nearly identical to that proposed in September 2014. Under the final rule, the CFPB will have supervisory authority over nonbank auto finance companies with at least 10,000 aggregate annual originations. These originations include making, purchasing, acquiring, or refinancing extensions of credit for the purchase or lease of an automobile. The CFPB estimates this threshold will bring about 34 entities and their affiliates under its supervisory authority, which represents roughly seven percent of all nonbank auto finance companies, and approximately 91% of the nonbank automobile financing market. In addition to the final rule, the CFPB also published updated automobile finance examination procedures to include industry specific guidance for covered persons.
The rule will take effect 60 days after publication in the Federal Register. Although the CFPB has not determined when and in what order examinations will begin, some industry insiders have predicted they could start in late 2015. Read more…
On June 9, the FTC announced that it has provided to the CFPB its 2014 Annual Financial Acts Enforcement Report. The report highlights the FTC’s enforcement, research, rulemaking, and policy development activities with respect to the Truth in Lending Act (Regulation Z), the Consumer Leasing Act (Regulation M), and the Electronic Funds Transfer Act (Regulation E). Areas detailed within the report include enforcement actions related to non-mortgage credit, including auto finance and payday lending, mortgage loan advertising, and forensic audit scams; and consumer and business outreach related to truth in lending requirements. The report, submitted on May 29, will be used to prepare the CFPB’s Annual Report to Congress. The FTC also submitted a copy of the report to the Federal Reserve Board.
South Carolina Passes Legislation to Create the Guaranteed Asset Protection Act, Effective Immediately
On June 1, Governor Nikki Haley (R-SC) signed into law Senate Bill 441, enacting the Guaranteed Asset Protection Act and instituting a framework under which guaranteed asset protection (GAP) waivers may be offered in South Carolina. As outlined in SB 441, a GAP waiver is “a contractual agreement in which a creditor agrees for a separate charge to cancel or waive all or part of amounts due on a borrower’s finance agreement in the event of a total physical damage loss or unrecovered theft of the motor vehicle.” Effective June 5, SB 441 prohibits the creditor from conditioning the terms of an extension of credit upon the borrower’s purchase of a GAP waiver and requires the creditor to disclose the terms of the GAP waiver “in easily understandable language,” including the purchase price, the procedures for obtaining GAP waiver benefits, and a statement that the purchase of a GAP waiver is optional.
FTC Lobbies Michigan Legislature to Repeal Ban On Direct-to-Consumer Sale of Motor Vehicles by Auto Manufacturers
On May 11, the FTC released a statement regarding the agency staff’s May 7 letter to Michigan Senator Booher, which concerns pending SB 268 – an act to regulate the sale and servicing of automobiles. The proposed legislation seeks to create an “exception to current law that prohibits automobile manufacturers from selling new vehicles directly to consumers.” While the letter states that the bill likely will encourage competition and benefit consumers, the staff’s view is that the legislation’s scope is too narrow and “would largely perpetuate the current law’s protectionism for independent franchised dealers, to the detriment of Michigan car buyers.” The focal point of the FTC staff’s letter is that, “absent some legitimate public purpose, consumers would be better served if the choice of distribution method were left to motor vehicle manufacturers and the consumers to whom they sell their products.”
On May 1, Governor Mary Fallin (R-OK) signed into law SB 465, which amends a current law imposing a $100 penalty on a secured party if it does not furnish a release of a lien after seven days. Under the new law, a $100 penalty will be imposed each day following the first seven days – the penalty can reach $1,500 or the value of the vehicle, whichever is less. The law is effective November 1, 2015.
On May 12, Governor Larry Hogan (R-MD) signed HB 313, which will require auto dealers to provide notice to the purchaser/lessee before the dealer-arranged third-party financing is approved. The law requires the dealer to “notify a buyer in writing if the terms of a certain financing or lease agreement are not approved by a third-party finance source within a certain period of time.” Specifically, the dealer has four days from the delivery of the vehicle to notify the purchase/lessee of the third-party rejection. If the sale of the vehicle is canceled, the purchaser/lessee must return the vehicle to the dealer within two days of receiving the written notice. The new law is effective October 1, 2015.
On March 26, the FTC announced the results of Operation Ruse Control, “a nationwide and cross-border crackdown” on the auto industry with the intent to protect consumers who are purchasing or leasing a car. Efforts taken jointly by the FTC and its law enforcement partners resulted in over 250 enforcement actions, including the six most recent cases that involved (i) fraudulent add-ons; (ii) deceptive advertising; and (iii) auto loan modification. According to the press release, the FTC recently took its first actions against two auto dealers for its add-on practices, which allegedly violate the FTC Act by failing to disclose the significant fees associated with offered programs or services and misrepresenting to consumers that they would save money. Three auto dealers recently “agreed to settle charges that they ran deceptive ads that violated the FTC Act, and also violated the Truth in Lending Act (TILA) and/or Consumer Leasing Act (CLA).” Finally, at the FTC’s request, the U.S. District Court for the Southern District of Florida temporarily put an end to the practices of a company that charged consumers an upfront fee to “negotiate an auto loan modification on their behalf, but then often provided nothing in return.” The FTC’s recent actions are indicative of its ongoing efforts to prevent alleged fraud within the industry.