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HOT TOPICS
2017
MEMBERSHIP
DIRECTORY
170
In order to ensure that the terms of any consumer credit transactions entered into with covered borrowers meet
the requirements of the MLA, the creditor must determine the covered borrower status of every applicant for
consumer credit. Though the creditor is not required to use a specific method to determine covered borrower
status, the MLA Regulations do allow a safe harbor for covered borrower status determinations. In order to obtain
the safe harbor, creditors must either (1) directly or indirectly (perhaps through a service provider) verify the
consumer’s covered borrower status through the MLA database, or (2) verify the consumer’s covered borrower
status by using a consumer report obtained from a nationwide consumer reporting agency that has a statement,
code, or indicator (if any) concerning the consumer’s covered borrower status. Doing so, and keeping a record of
the findings, provides a safe harbor from liability under the MLA’s terms in such status determinations.
Violators of the MLA Regulations are subject to draconian penalties, including $500 per violation in actual
damages, in addition to punitive damages, equitable or declaratory relief, court costs, and attorney’s fees. Knowing
violations are treated as misdemeanors, which can lead to fines or imprisonment. Also, violating contracts are void
from the inception of the contract (that is, the creditor cannot collect any principal or interest).
You should seek advice of counsel to determine whether the MLA applies to your transactions.
Car Buyer’s Bill of Rights
In 2006, California passed significant legislation, known as the“Car Buyer’s Bill of Rights,”affecting the way dealers
sell, and finance the purchase of, motor vehicles. Since then, several states have passed their own versions of the
Car Buyer’s Bill of Rights. These laws generally give consumers additional rights and may, among other things,
require dealers in affected states to make additional written disclosures to consumers with respect to certain
charges and aftermarket products, as well as providing standards for selling “certified” used vehicles. You should
consult with your attorney to ensure that your procedures are designed to comply with the requirements of the
law of the jurisdiction applicable to the transaction.
Spot Deliveries
Spot delivery refers to the practice of a dealer placing a consumer in a vehicle “on the spot”to make a sale – prior
to obtaining a finance source’s approval to purchase the financing contract. The sale is made contingent upon the
dealer obtaining financing for the purchase, typically by a finance source agreeing to buy a RISC signed by the
customer and the dealer. Spot deliveries are regulated in many states, and in a few states are either prohibited or
significantly restricted. State regulation of spot delivery varies greatly. Many states have specific requirements for
terms on which spot deliveries may be conducted, disclosures that must be provided to consumers, and the form
of the spot delivery agreement. For example, a few states require that the conditions for delivery be included in
the RISC, while others require the spot delivery terms to be in a stand-alone document.
Also, consider whether the applicable law addresses certain spot delivery practices, such as:
•
Limiting fees for miles driven by the customer
•
Prohibiting the sale of the customer’s trade-in vehicle until the deal is finalized
•
Limiting the number of days to obtain financing approval