Dealership tripped up by preprinted sales contracts with illegible due date

A Connecticut dealership is waiting to learn whether it will have to pay damages in a class-action lawsuit stemming from illegible sales contracts.

A federal judge in Bridgeport ruled last month that the dealership and its lender violated the Truth in Lending Act by using preprinted sales contracts that obscured the due date of borrowers' first payments. The suit involved 104 contracts.

U.S. District Judge Warren Eginton rejected the argument of defendants Key Hyundai of Manchester in Vernon, Conn., and Citizens Automobile Finance Inc. that they had acted in good faith and that any truth-in-lending technical violations resulted from a "bona fide error."

The suit was filed by Gail LeFoll, who bought a 2009 Sonata from Key in June 2009. The due date of LeFoll's first payment was printed over a preprinted section of the retail installment sales contract form that Citizens supplied to the dealership.

The suit sought damages on behalf of LeFoll and 103 other customers whose contracts showed the same problem in a one-year period.

The judge said no trial is needed to determine the defendants' liability.

"The payment due date is not clear or conspicuous on any of the 104 contracts," he said in his decision. "The printed due dates range from indistinct to indiscernible, but an average, reasonable person could not find any of the disclosures to be clear and conspicuous."

As for lender Citizens, found liable for accepting the contracts, "the violations on the contracts are apparent on the face of the disclosure statements," the judge said.

Defense lawyer Kevin Greene of Hartford said the problem was not caused by the lender's preprinted forms "but was more the function of an occasional anomaly with the computer system used by the dealership." He said there will be no appeal.

The judge has not set a hearing date to determine the amount of damages and attorney fees.

The plaintiff has requested $1,000 in statutory damages for each class member for a total of $104,000. Her lawyer, David Blinn of Rocky Hill, Conn., said the maximum potential damage award in such a class-action suit under the Truth in Lending Act is $500,000.

Blinn said LeFoll suffered "some amount of trepidation" from not knowing when she needed to make her first loan payment. He added: "It's difficult to prove the value of any of these disclosures."

Key and Citizens are looking for the judge to award no damages or only a token $25 per plaintiff, arguing there is no evidence that any class member was confused or suffered any economic harm. Said Greene, their lawyer: "This case is a further example of how dealerships are unfairly penalized under the Truth in Lending Act."

Still unresolved is LeFoll's individual claim that Key violated the state's unfair trade practices law in its handling of the Sonata's $1,500 manufacturer's rebate. She alleges that Key deposited the $1,500 manufacturer's rebate into a bank account instead of crediting the rebate against the purchase as promised.

Key disputes the allegation.

You can reach Eric Freedman at freedma5@msu.edu. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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Florida Toyota dealership avoids backup-financing requirement in spot-delivery ruling

Eric Freedman
Automotive News -- December 28, 2011 - 12:01 am ET

A Florida dealership is not contractually required to provide financing to a customer who failed to qualify for a third-party loan, a federal judge has ruled in a spot-delivery case.

U.S. District Judge Robert Hinkle also ordered Janice Mack to return the used 2005 Avalon that she bought from Bobbin Trace Automotive LLC, which does business as Legacy Toyota in Tallahassee. She had made no payments beyond a $300 down payment in the nearly three years since the transaction.

Legacy now is seeking damages for the reduced value of the car, plus "substantial" attorney fees, said dealership lawyer Michael Coppins of Tallahassee.

Mack bought the car through a conditional sales contract. In finance and insurance, spot delivery refers to the practice of dealerships delivering cars to customers before a lender approves a loan.

When the prospective lender declined the retail installment sales contract, Legacy asked her to return the Avalon as the contract required and suggested that she pick a less expensive car, the decision said.

"Mack refused to return the vehicle and refused to consider alternative financing," Coppins said.

She didn't make the first two monthly installments after taking possession in February 2009. Afterward, she tendered monthly payments to Legacy, which returned them on the grounds that it wasn't financing the transaction.

She sued for breach of contract and violation of federal equal credit opportunity and Florida finance and consumer protection laws. Legacy filed a counterclaim to recover the Avalon.

In throwing out all of Mack's claims, Hickle said that the transaction was clearly conditional, and that "the deal was off" if financing couldn't be arranged.

"The documents include not a hint that if financing could not be arranged, Mack could keep the car, paying Legacy only in the installments that would have been due a third-party lender," he said.

Hinkle also ruled that Legacy properly exercised its right to cancel the deal and rejected allegations by Mack that "Legacy's real goal was to provide financing on worse terms."

Mack's lawyer, David Abrams of Tallahassee said the decision "is not an affirmation that the court is necessarily condoning spot deliveries." Spot deliveries are a "risky business practice," legally and fiscally, Abrams said.

It will be up to Mack to decide whether to appeal, he said.

You can reach Eric Freedman at freedma5@msu.edu. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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'Fictitious down payment' snags dealership

Eric Freedman
Automotive News -- December 21, 2011 - 12:01 am ET

A Connecticut dealership that listed a fictional down payment on a customer's sales contract owes her damages, a federal district judge in Hartford has ruled.

Don Mallon Chevrolet Inc. in Norwich, Conn., must pay plaintiff Agdaliz Negron $1,000 plus attorney fees for violating the Truth in Lending Act, U.S. Magistrate Judge Thomas Smith said.

After a nonjury trial, Smith rejected the store's argument that it had merely made an inadvertent, "bona fide error" during a "super sale" when it hired five temporary salespeople and three temporary F&I managers on a part-time basis.

However, Smith ruled in favor of the dealership on Negron's claimed violation of the state unfair trade practices law.

'Sloppy' procedures

The case stems from the May 2007 purchase of a 2004 Chevrolet Impala, including a service contract, VIN etching and a GAP policy. With financing, the total sale price was $27,580.

Documents listed a $250 down payment. In his decision, Smith said the $250 "fictitious down payment" resulted in assessing sales tax on that amount, making the extra sales tax "in reality part of the finance charge."

The dealership's procedures to avoid such an error were "casual and sloppy," Smith said. He noted that the store could not even identify the temporary sales and finance personnel who participated in the transaction.

The $1,000 statutory award is the maximum allowed for such a Truth in Lending Act violation. Smith has not yet ruled on the amount of attorney fees, but dealership lawyer Kevin Greene of Hartford said Negron requested $25,000, which, Greene said, is unreasonable and unsupportable.

At the same time, Smith found insufficient evidence to support the unfair trade practices claim that the dealership deliberately falsified Negron's credit application to defraud her and the lender. The application misstated her employment history, including job title and length of service.

The salesman who handled the sale denied supplying false information or telling Negron and her father to lie to the bank if asked about the down payment.

Smith emphasized that Negron signed the application, which had a provision stating that she had read and understood it.

'Credibility contest'

Smith said the unfair trade practices allegation "boils down to a credibility contest" between the plaintiff and two men: one a used-car salesman and the other a used-car sales manager. "To argue that none of these three witnesses has a motive to lie is absurd," he said. "All three have a motive or motives to lie."

Smith gave no weight to "scant and sketchy testimony" by Negron's father, who attended only part of the transaction, and to testimony by another employee, which, Smith said, "does not ring true."

Defense lawyer Greene said the dealership hasn't decided whether to appeal the judgment. He added: "The financial discrepancy claimed by the plaintiff actually inured to her benefit because the disclosure of the financial terms was inaccurate."

Negron's lawyer did not respond to requests for comment.

You can reach Eric Freedman at freedma5@msu.edu. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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Ex-salesman at N.Y. dealership among 18 charged in auto loan schemes

Jim Henry
Automotive News -- December 7, 2011 - 8:40 am ET

Eighteen people, including a former salesman at a new-car dealership in Jamaica, N.Y., have been charged in auto loan schemes that generated losses of about $1.9 million at 18 financial institutions, prosecutors in New York City said.

The alleged schemes were for the purchase of used, high-end luxury cars. Make and model details weren't immediately available, but prosecutors said brands included Maserati, BMW, Porsche, Lexus, Cadillac and Mercedes-Benz.

A used-car dealership in New Jersey also was charged as a corporation. Prosecutors announced the indictments Thursday, Dec. 1.

The schemes included the use of straw buyers, according to the indictments. In some cases, the straw buyers were people with good credit scores who allegedly were paid to obtain loans for cars that were resold to someone else, according to the New York City Police Department and the district attorney's office for the borough of Queens.

After making a few payments, the defendants would let the loans go bad, leaving the straw buyers on the hook for the balance, according to prosecutors.

"Unfortunately, these individuals wound up with ruined credit, multiple banks suing them for money, and suspended driver's licenses for unpaid parking tickets on vehicles they allegedly 'own,'" Queens District Attorney Richard A. Brown said in a written statement.

To keep the scheme going, the defendants made enough payments to make sure the selling dealerships wouldn't be charged back for the bad loans, authorities said. Auto lenders would demand repayment from a dealership if loans defaulted in the first 90 days, prosecutors said.

A former salesman at Hillside Honda in Jamaica, Adrian Sylvester, 28, of Brooklyn, has been charged with grand larceny, falsifying business records, possession of stolen property and conspiracy, according to court records.

Hillside Honda was not charged, according to court records. Dealership management did not return a call asking for a comment on the case.

Prosecutors said the investigation also discovered a second group of defendants who allegedly obtained auto loans through false pretenses and used the money for other purposes.

That second group of defendants included Silver Arrow Auto Sales, a used-car dealership in Teterboro, N.J., according to court records. According to the indictment, the dealership submitted false paperwork to banks in support of loan applications, then transferred the money to corporations controlled by the defendants.

The owner of Silver Arrow Auto Sales listed in court documents did not respond to an e-mail request for comment. He was not charged in the indictment.

You can reach Jim Henry at autonews@crain.com. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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Former Texas dealership wins loan dispute

Eric Freedman
Automotive News -- December 7, 2011 - 12:01 am ET

An arbitration award in favor of a former Texas dealership has been upheld in a dispute over loan terms and a co-signer’s claim that her signature was forged on the retail installment sales contract.

The three-judge panel of the Texas Court of Appeals unanimously ruled that the dispute properly went to arbitration rather than to a court trial.

Based on his credit rating, Tomasa Lopez failed to qualify for financing to buy a used 2004 Chevrolet Suburban at what was then Casa Pontiac-Buick-GMC Inc. in Baytown, the court said. His sister in December 2004 agreed to co-sign for the loan and signed various documents, including one containing an arbitration agreement.

The Lopezes sued Casa under the Texas consumer protection law, alleging unconscionable conduct. The dealership was sold after the Lopez transaction, said Casa’s lawyer, Daniel Pappas of Houston, and no lenders were involved in the litigation.

The suit asserted that when the sister later received copies of the paperwork, she discovered different loan terms from what they had agreed on, that monthly payments and finance charges were higher than expected and that her signature had been forged on a sales contract containing several fees to which they had not agreed.

Lopez spoke no English. The plaintiffs also contended that Casa deceived him about being able to improve his credit rating by making payments on a note in his sister’s name.

Pappas said the suit sought “considerable damages,” including mental anguish and punitive damages.

A lower-court judge ordered the case to arbitration and later confirmed the arbitration award against the Lopezes.

The Court of Appeals agreed with Casa that the arbitration agreement was enforceable and that the Federal Arbitration Act applies because purchasing and financing of the Suburban clearly involved interstate commerce.

“All of the factual obligations arise out of or relate to the sale and financing of the vehicle,” Chief Justice Adele Hedges wrote in the court’s opinion. “These types of claims all fall within the scope of the arbitration agreement.”

The court also held that the Lopezes failed to provide evidence that the agreement was unconscionable due to their lack of education, lack of sophistication in financial and legal affairs and weak English-language skills.

And it emphasized that the sister admitted signing the arbitration agreement.

The plaintiffs’ lawyer, Philip W. Green of Kingwood, could not be reached. Pappas said Green has indicated that there will be a further appeal.

You can reach Eric Freedman at freedma5@msu.edu. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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