Government Comings and Goings

Shaun PetersenSVP Legal and Govt. Affairs

NATIONAL INDEPENDENTAUTOMOBILE DEALERS ASSOCIATION

Manufacturer Recalls- Legislation in DC - Blumenthal Amendment; Rentals- Legislative Attention in CA, NYC, NJ- NIADA Position of Best Practices on Recalls- Not all Recalls are equal: Safety vs. Non-Safety- Disclosure vs. Repair- Safercar.gov – VIN Specific Inquiry and Batching- Tort Liability for selling vehicles with known open

Recalls- “Stop Drive” & “Stop Sell” Notifications- CPO/X-point inspection advertising

Military Allotment- Department of Defense Regulation Change- Ban on use of allotments for acquiring personal

property- House and Senate language require report on the

process behind amendement- CFPB "reminder" letters

CFPB - What’s next?⁻ Pending Bills to Reform Structure – HR 5485,

CHOICE Act⁻ Reforming CFPB Indirect Lending Guidance (HR

1737 and S 2663)⁻ House Financial Services Committee Report⁻ Larger Market Participant Rule:

⁻ Comments in support of 10,000 transactions a year or more up to suggested 50,000

⁻ BHPH - Reservation of Right for Potential Rulemaking

⁻ Arbitration Rulemaking ⁻ Debt Collection Rulemaking

CFPB – EZCORP - Facts:- Payday, installment, auto title lender- Ceased doing those loans in the US- Allegations:- Unlawful in-person collection visits at their homes

or workplaces- Risked disclosing consumers’ debt to third parties,

and caused or risked causing adverse employment consequences to consumers such as disciplinary actions or firing

- Ignored consumers requests to stop calling workplaces

CFPB – EZCORP - Deceived consumers with threats of legal action

when that was not true- Ran credit checks on despite advertising it would

not- Required consumers to pay through EFT – cannot

condition loan on preauthorizing repayment through EFT

- Made simultaneous attempts to EFT earlier than promised

- Lied to consumer that could not stop EFT payments, collection calls or prepay

- $7.5 mil restitution; $3 mil fine

CFPB – In Person Collection Guidance - Heightened risk of UDAP violation- “substantial injury to consumers which is not

reasonably avoidable by consumers and not outweighed by countervailing benefits to consumers or competition”

- Third parties may learn consumers have debts in collection

- Co-workers, employers, customers, roommates, neighbors

- Harm reputation- Negative employment consequences

CFPB – In Person Collection Guidance - May result in substantial injury even when there is

no risk the existence of the debt will be disclosed to third parties

- Employers prohibit non-work related visits- Likely or actual consequence of visit to harass

consumer- FDCPA violations – 3rd party collectors

CFPB & FTC – Credit Reporting⁻ What is the Furnisher Rule?⁻ 1. Have written policies aimed to ensure

accuracy of information sent to CRA⁻ 2. Investigate and respond to consumer

disputes

CFPB & FTC – Credit Reporting⁻ CarHop⁻ Advertised that could help rebuild credit⁻ Allegedly provided inaccurate credit

information⁻ Offered right to return within 72 hours⁻ ”Voluntary repo”⁻ Reported customers as repossessed owing

money⁻ Payment histories inaccurately reported⁻ Reported closed/deleted accounts

CFPB & FTC – Credit Reporting⁻ CarHop - cont’d⁻ Alleged violations⁻ Did not provide consumers address to contest

inaccurate information – if reason believe inaccurate

⁻ Did not report “good credit” info⁻ Did not have reasonable policies/procedures –

appropriate for nature, size, complexity –Furnisher Rule

⁻ $6.5 million fine

CFPB & FTC – Credit Reporting⁻ FTC – Tri-Color⁻ RFC did not have policies and procedures for

investigating consumer disputes⁻ Company directed consumers to dispute with

CRA⁻ $83,000 fine

Wage and Hour Issues⁻ Classification of Employees - Independent

Contractors or Employees⁻ Overtime exemptions – professional, salaried

employees⁻ Service advisor exemption – Supreme Court

Dealership Exemptions■ Minimum Wage/Overtime Overtime Only■ Executive Salesman■ Administrative Partsman■ Professional Mechanic

Commission-PaidMotor Carrier

Executive Exemption1. The employee is in charge of a department or

sub-department; and2. The employee supervises the work of two or more

full-time employees; and3. The employee is paid a salary of at least $455 per

workweek (for now).

Administrative Exemption1. The employee’s primary duty is non-manual office

work directly related to management policies or general business operations; and

2. The employee exercises discretion and independent judgment on matters of significance; and

3. The employee is paid a salary of at least $455 per workweek (for now).

Professional Exemption1. The employee’s work requires advanced

knowledge, invention, imagination or talent; and2. The employee exercises discretion and

independent judgment on matters of significance; and

3. The employee is paid a salary of at least $455 per workweek (for now).

Salesman exemption1. The employee is employed at a “retail”

automotive dealership; and2. The employee’s primary duty is to sell cars or

trucks to customers.

Partsman exemption1. The employee is employed at a “retail”

automotive dealership; and2. The employee’s primary duty is stocking, issuing,

requisitioning, or selling parts.

Mechanic exemption1. The employee is employed at a “retail”

automotive dealership; and2. The employee’s primary duty is performing

mechanical or body repair work on a car or truck.

Commission-paid exemption1. The employee is employed at a “retail”

automotive dealership; and2. The employee receives the majority of

compensation in the form of “commissions;” and3. The employee receives at least time and one-half

the federal minimum wage ($10.89) for all hours worked.

Motor carrier exemption1. The employee is employed by a motor carrier;

and2. The employee works on or drives a vehicle that

weighs 10,000 lbs. or more; and3. The employee performs safety-affecting duties for

the vehicle’s operation in interstate commerce.

White Collar Exemptions• Effective December 1, 2016, minimum salary

threshold will be $913 per week (paid on a “salary basis”)

• Requirement still applies each pay period (not annualized)

• Thresholds will be “updated” every three years, with 150 days' notice

White Collar Exemptions• Employers will be able to satisfy up to 10% of the

salary threshold from “nondiscretionary bonuses and incentive payments”

• Includes commissions

• Can count only those paid quarterly or more frequently

Service Advisor Exemption• In Navarro v. Encino Motors, a federal appeals

court held that service advisors are NOT exempt salespersons as a result of their job duties

• Relied on DOL Rule that drastically changed the The issue is currently before the U.S. Supreme Court

• Dealerships may utilize the commission-paid exemption where available to maintain service advisors’ exempt status

DOJ – Fair Lending- Auto Fare – NC- Allegations: Reverse Redlining – “intentionally

targeting African Americans for the extension of credit on unfair and predatory terms without meaningfully assessing creditworthiness”

- State law violations- Failure to comply with repo laws- GPS without disclosing

DOJ – Fair Lending- Why was the suit brought?- Statements made showing interested in African

American consumers - “Inferior intellect”- Fewer credit options- More likely to accept dealership terms- Derogatory statements- Dominant African American area

DOJ – Fair Lending- What is required?- Documents policies and procedures for credit

apps and financial documents needed- Limit total of payments per months – 25% of total

documented net income- Deferred down limited to 4 months/$800 total- Provide CarFax at consumer expense- Notice on car – mileage, year, make, model,

sales price, down payment

DOJ – Fair Lending- What is required? – cont’d- Test drive – consumer get inspection – can have for

3 hours- Provide written notice encouraging test drive - Interest rate caps – Maximum minus 5%- Charge same rate to all consumers except rate is

reduced additional 3% if- - Downpayment – 150% of posted

- Net income more than $2499 monthly- Previously financed with dealer- FICO more than 550

DOJ – Fair Lending- What is required? – cont’d- Pricing limitations – 15% greater than NADA

retail value- No Doc Fees- Repossession limitations

- 2 consecutive installments- Within 45 days and not redeemed, 30%

refund of down payment less reasonable fees – no refund if more than 2,000 miles driven

DOJ – Fair Lending- What do I do?- Must have fair lending policy- Watch what you say!- Watch easy front door access

State Issues- State related issues - assistance

- Oregon BHPH Legislation- GPS issues - NJ, IL, CA, OK

State Issues- SC – Doc Fee litigation

• Consumer charged a closing fee that wasn’t directly related to the expenses incurred in closing may sue for damages under SC Dealers Act

• Dealer couldn’t explain how closing fee calculated• Court stated dealer must account for costs that

comprise its closing fee and fee can’t be comprised of general operating expenses

• Court said dealer may comply with Closing Fee Statute by setting a fee that represents avg. of costs actually incurred by dealer in all closings from prior year

State IssuesWhat did the Court’s opinion tell us?:■ The time for analysis of items included in closing fee and cost for each is the

point at which the closing fee is set.■ Dealers are limited to actual costs of retrieving and preparing documents for

closing. Costs should not include expenses for salaries of finance and sales managers, building, utilities, "outside services," – no general operating expenses not directly tied to sale.

■ It should be OK to set a closing fee in an amount that is an average of the costs the dealer actually incurred in all closings of the prior year.

■ Closing fee is not limited to expenses incurred for document preparation, retrieval, and storage. However, any costs sought to be recovered by a dealer under a closing fee charge must be directly related to the services rendered and expenses incurred in closing the purchase of a vehicle. What about costs of forms, computer programming of closing documents, the hardware to deliver the closing documents, and other such expenses?

Freeman v. J.L.H. Investments, LP, 2015 S.C. LEXIS 367 (S.C. November 4, 2015).

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Shaun PetersenSenior Vice President, Legal & Government AffairsS2521 Brown Blvd.Arlington, TX 76006817-640-3838 (office614-738-0960 (cell)shaun@niada.com