2015_05_06 2015 MD LEG_webinar_pptx

5/11/2015
2015 LEGISLATIVE UPDATE
Michael G. Charapp
Charapp & Weiss, LLP
8180 Greensboro Drive
Suite 1000
McLean, VA 22102
703.564.0220
www.cwattorneys.com
J. Peter Kitzmiller
Travis Martz
MADA
7 State Circle, Suite 301
Annapolis, MD 21401
410.269.1710
www.mdauto.org
For information and training purposes only. Does not constitute legal advice. For legal advice, contact the dealer’s
legal advisor.
WE WILL COVER
• 2015 Legislative Session Results
• Tesla bill
• The Fight for Authorization of Spot
Deliveries
• Spot Delivery Requirements
• 2015 HOT issues
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5/11/2015
MADA Legislative Team
•Peter Kitzmiller
MADA President
•Travis Martz
MADA Dir. of Legislative Affairs
•Mike Johanssen
MADA Legislative Consultant
•Mike Charapp
MADA Counsel
•Tom Walls
MADA Past Chairman
•J.B. Bishop
MADA Chairman
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Fiscal Year 2016 Budget
• Budget increased overall state spending from
all sources by $590.2 million or 1.5%
• General Assembly sought to persuade an ad
back of $200 million to selected programs
• A decision of the Governor on additional
spending is pending.
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Rain Tax
• SB 873 made various changes to the rain
tax.
• The bill repeals a requirement for
jurisdictions to collect the tax, but
authorizes them to do so.
• Montgomery County is exempted.
• Becomes effective July 1, 2015.
Mechanical Repair Contracts
• HB 630 requires the obligor specified in a mechanical
service contract to register with the insurance
commissioner, to pay a $25.00 annual fee, and to file
mechanical repair contracts along with evidence of
adequate insurance reserves.
• The commissioner may order an obligor to cease and
desist from sale of mechanical repair contracts for
specified reasons.
• The commissioner may pursue an action against an
unregistered person that offers a mechanical repair
contract.
• The bill becomes effective October 1, 2015.
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Electric Vehicles
• HB 235 authorizes direct sales by a
manufacturer if:
– it deals only in electric or nonfossil-fuel burning
vehicles
– no other dealer holds a franchise for the vehicle
– there is no cross ownership between licensees
• The bill permits only four dealer licenses
• It requires MVA regulations
• It becomes effective October 1, 2015.
Spot Delivery
• HB 313/ SB 298 authorizes spot delivery in
Maryland.
• It requires a written and signed notification.
• Written notice of disapproval must be sent
within four days.
• The Buyer/Lessee must return the vehicle
within two days.
• It becomes effective October 1, 2015
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SPOT DELIVERIES
• There was no clear-cut authorization in
Maryland
• MVA: only spot on a temp tag when
financing is complete
• Plaintiffs lawyers contended spot delivery is
illegal
• MVA was threatening enforcement if no bill
• MVA was considering regulations
mandating a 3 day cooling off period.
Spot Delivery Notice
FOR FINANCE OR LEASE SALES: THE FINANCING OR LEASE AGREEMENT YOU
ENTERED INTO WITH THE DEALER IS NOT FINAL AND MUST BE APPROVED BY A
THIRD-PARTY FINANCIAL INSTITUTION. IF THE TERMS ARE APPROVED, THE SALE
CANNOT BE CANCELLED. IF THE TERMS ARE NOT APPROVED, THE DEALER MUST
NOTIFY YOU IN WRITING WITHIN 4 DAYS OF DELIVERY OF THE VEHICLE TO YOU,
AND YOU OR THE DEALER MAY CANCEL THIS SALE. IF THE SALE IS CANCELLED, THE
VEHICLE DELIVERED TO YOU MUST BE RETURNED TO THE DEALER IN THE SAME
CONDITION IT WAS GIVEN TO YOU, EXCEPT FOR NORMAL WEAR AND TEAR,
WITHIN 2 DAYS OF YOUR RECEIPT OF A WRITTEN NOTICE OF THE THIRD-PARTY
REJECTION. UNLESS YOU AND THE DEALER AGREE ON DIFFERENT TERMS, ANY
DOWN PAYMENT, TITLING FEE, EXCISE TAX, DEALER PROCESSING CHARGE, OR ANY
OTHER FEE, TAX, OR CHARGE ASSOCIATED WITH THE TRANSACTION, AND ANY
TRADE-IN VEHICLE, WILL BE RETURNED TO YOU IMMEDIATELY AND YOU MAY NOT
BE CHARGED A FEE FOR USE OF THE VEHICLE THAT WAS THE SUBJECT OF THE
SALE. YOU MAY NOT WAIVE ANY OF THESE RIGHTS. IF YOU FEEL THE DEALER HAS
FAILED TO COMPLY WITH THE TERMS OF THIS NOTICE, YOU MAY CONTACT THE
MOTOR VEHICLE ADMINISTRATION OR THE CONSUMER PROTECTION DIVISION OF
THE OFFICE OF THE ATTORNEY GENERAL.
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Notice Details
• The notice must be in writing.
• The notice must be separate.
• The notice must be signed by the dealer and
the customer.
• A copy of the signed notice shall be provided
to buyer before delivery of the vehicle to the
buyer.
Approval
• If the terms of the RISC or lease are approved
by a third party financial institution the sale
cannot be cancelled.
• The dealer may assign the RISC or lease to the
financial institution.
• The vehicle may be titled.
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Non-Approval
• Dealer shall notify the buyer in writing within
four days of delivery of the vehicle if the terms
of a financing or lease agreement between a
dealer and a buyer are not approved by a third
party finance source.
• Notice form suggestion: obtain physical,
email, and text addresses.
If Notice Sent
• The customer must return the vehicle to the
dealer in the same condition in which the
buyer received the vehicle, except for ordinary
wear and tear, within two days of receipt of
the notice.
• If the buyer does not return the vehicle to the
dealer within two days, the dealer may
repossess the vehicle in accordance with state
law.
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Renegotiations
• The law specifically authorizes the dealer and
the customer to renegotiate financing or
leasing terms.
• If financing or leasing terms are renegotiated,
the deal may proceed under those terms.
• Best practice: send the notice of non-approval
of financing to protect dealer rights and to
spur renegotiations.
New Terms Not Agreed
• The dealer or the buyer may cancel the sale.
• The trade-in vehicle must be returned in the
same condition in which the dealer received the
vehicle.
• The downpayment must be returned.
• The titling fee and excise tax paid, the dealer
processing charge, and any other fee, tax, or
charge must be returned.
• Dealer may not charge the buyer a fee for use of
the spotted vehicle.
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Additional Provisions
• A dealer must maintain its garage insurance to
cover spotted vehicles until approval by a
third party finance or lease source.
• A buyer may not waive the rights under this
law.
• If a dealer violates this law, it is an unfair and
deceptive trade practice and the dealer is
subject to legal action under the Maryland
Consumer Protection Act.
Questions:
• What is a written notice?
• MVA guidance will be requested
• Best practice:
– Send a letter.
– Send an email.
– Send a text.
– Call the customer and advise the customer to
review what has been sent.
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Questions:
• How to calculate 4 days
– MD Code GP§1-302
– Do not count delivery day
– Sundays and legal holidays do not count
– If 4th day is Sunday or legal holiday, deadline is
next day.
• What about a new spot delivery notice if the
deal is renegotiated?
• MVA guidance will be requested
Rescission
• What if I miss the deadline and I can’t rescind?
– Do not try to retake the vehicle, it can be viewed
as wrongful repossession – a very expensive tort
and a violation of the MD Consumer Protection
Act
– You have just financed or leased the vehicle – if
you cannot rescind you are the creditor under a
retail installment sales contract or the lessor
under a lease
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5/11/2015
Rescission
• What if I rescinded, but I have been unable to
retake the vehicle?
– Going to the police is probably not the right
answer – check state law: the customer took
possession of the vehicle contractually and police
intervention may be viewed as malicious
prosecution
– Filing a lawsuit to recover your vehicle may be the
only recourse
Prior to October 1
• You may choose to use the form and
processes of the new statute.
• If you do, you will be bound to comply with
the processes.
• MVA guidance will be requested.
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5/11/2015
Recalls
• In connection with bills that did not pass,
legislators were concerned about recalls.
• Misconceptions:
– Dealers don’t want to do them
– Manufactures don’t want them done
– They are a secret
• Association sought to educate legislators
about the facts of recalls
Recalls
• New Cars
– Ground new vehicles until recall is done
– Do you know how to ask for compensation for down
time?
• Used Cars
– No federal requirement to be sure used cars have
recalls performed
– But concern about product liability
– Makes sense to check and repair brands you sell
– Easier today to check other brand vehicles
• www.safercar.gov
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5/11/2015
2015 HOT TOPICS
CFPB
The Attack on Dealer Participation
• Consumer advocates believe that dealers should
only make money on selling the vehicle – not on
anything else
• Rate participation is a hot button – consumer
advocates call it mark up
• Based on the false assumption that wholesale rates
are available to consumers
• The attack was sudden, but the industry pushed
back
• The fight is far from over, and a fair lending policy is
critical
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5/11/2015
CFPB Threat to
Major Financial
Institutions
Summary: You can be
held liable for
discrimination by
dealers. You must:
Impose controls
Monitor dealers
Take Action on
Discrepancies
Compensate victims;
OR
Pay flat fees
CFPB Compliance
What Should a Dealer Do?
• Establish a fair lending policy
• The policy must eliminate discretion for F&I
personnel to set rates
• Have a fixed starting point
• Permit deviations only for specified, nondiscriminatory reasons
• Require management approval for other
deviations
• Keep records to support deviations
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5/11/2015
CFPB Compliance
Be Proactive With Finance Sources
• Finance sources are under pressure from the
CFPB
• They are using CFPB’s statistically
questionable methods to review your
portfolio
• Finance sources may be contacting you based
on perceived disparate impact.
• Respond. This is why a fair lending policy is
important.
CFPB Compliance
OTHER F&I PRODUCTS
• Emphasis, properly, has been on CFPB’s attack on
dealer reserve
• It is only a matter of time before federal scrutiny
spreads to other F&I products -- extended service
agreements, GAP, etc.
• Dealer focus:
– Concentrate on products that provide value to consumers;
– Use a transparent process for selling F&I products, through
use of a menu or a similar tool; and
– Establish fixed selling prices for those products with
deviations for established competitive reasons.
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5/11/2015
Federal Trade Commission
• When the CFPB was created, the FTC was given greater
powers and more funds to regulate car dealers
• Operation Ruse Control announced in March 2015
– Advertising consent orders with 3 more
dealers
– Consent orders on “add-ons”
• What does the action on add-ons mean to dealers?
• Ongoing privacy concerns: When is the last time the
dealer reviewed its information safeguards plan and red
flags policy?
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Federal Trade Commission
Why A Dealer Should Be Concerned
• Anti-dealer advocates are upset with the CFPB
dealer exemption and want it changed
– Elizabeth Warren, one of the architects of the
CFPB, has criticized the exception in a speech that
the Washington Post awarded “four Pinocchios”
• Beware of FTC bureaucratic turf protection
• FTC may wish to justify its sole federal
jurisdiction over car dealers with vigorous
enforcement
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5/11/2015
FTC – Advertising Consent Orders
• 2012 - Entered by five dealers who used some variation of
“we will pay off your trade no matter how much you owe”
• 2013 consent orders against two dealerships for
advertising without adequate disclosure of
conditions
• 2014 consent orders against ten dealerships as part
of “Operation Steer Clear”
• 2015 consent orders against three dealers as part of
“Operation Ruse Control”
• Common themes – lack of adequate disclosures
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FTC – Advertising
• What are hot buttons?
– TILA and Leasing ads non-compliance
– Bait and switch -- advertisement net of incentives of
limited availability without adequate disclosure and
advertising deals that are not available
– Advertising “pay off your trade no matter how much you
owe” is radioactive – 2012 consent orders
– Advertising in all media involved, but internet advertising
is the true target today
– Know the digital advertising rules
• Comply with MD advertising law
• Review the NADA advertising guide at www.nada.org.
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5/11/2015
QUESTIONS?
2015 LEGISLATIVE UPDATE
Michael G. Charapp
Charapp & Weiss, LLP
8180 Greensboro Drive
Suite 1000
McLean, VA 22102
703.564.0220
www.cwattorneys.com
J. Peter Kitzmiller
Travis Martz
MADA
7 State Circle, Suite 301
Annapolis, MD 21401
410.269.1710
www.mdauto.org
For information and training purposes only. Does not constitute legal advice. For legal advice, contact the dealer’s
legal advisor.
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