The Lemon Law Blog

In a highly unusual move, DaimlerChrysler has refused to comply with a voluntary recall request by the National Highway Traffic Safety Administration (NHTSA). Although manufacturers have some discretion in the matter, such a move invites public relations problems and possible lemon law or other product claims from owners who experience the defects.

The particular recall in question involves 2.7 million 1993-2004 Jeep Grand Cherokee and 2002-2007 Jeep Liberty models. NHTSA contends the engine placement could lead to greater chance of fire during rear-end collision, with increased risk of related injuries and deaths. Chrysler denies the charges and CEO Sergio Marchionne claims, "These cars are absolutely safe and in line with what the industry was producing at the time."

NHTSA issues recalls regularly, for a variety of defects large and small. Kemnitzer, Barron & Krieg receives these weekly. This week, for example, we learned of investigations and recalls involving brake fluid in the 2010 Toyota Lexus (NHTSA Campaign ID Number : 13V235); possible transmission fluid leak in the 2012-2013 Chrysler Jeep (NHTSA Campaign ID Number : 13V234); air bag deployment problmes in 201-2012 Chrysler Jeep (NHTSA Campaign ID Number : 13V233); cracks or leaks in the fuel delivery module of 2013 Ford Lincoln (NHTSA Campaign ID Number : 13V227); and potential for melt in the CNG solenoid, with risk of fire in 2011-2013 Chevy GMC (NHTSA Campaign ID Number : 13V225).

Despite Marchionne's confidence in the Chrysler brand, locking heads with NHTSA can be risky. Right now, NHTSA has made a request for voluntary recall. However, if further agency investigation reveals that Chrysler is hiding evidence of safety defects, that could lead to an much more expensive mandatory recall, along with stiff civil penalties. Undoubtedly, Chrysler has done a cost-benefit analysis of this business decision. Just where the value of human life or injury fits into that calculus is entirely unclear.

Justice John Paul Stevens may be retired from the U.S. Supreme Court, but he is not forgotten. At its signature annual event on May 15, 2013, Public Citizen -- the Washington D.C.-based watchdog organization renowned for its promotion and protection of democratic principles -- celebrated the jurist's life and legacy, bestowing on him its Lifetime Achievement Award.

"While on the bench, Stevens, the third longest-serving justice in American history, displayed a deep concern with ensuring the fair treatment of all. He wrote a blistering dissent to the now infamous Citizens United v. Federal Election Commission decision, which gave corporations the green light to spend unlimited sums of money to influence elections," writes Angela Bradbery. You can read Bradbery's full account of the event here.

Associate attorney Kristin Kemnitzer, who attended the event on behalf of Kemnitzer, Barron & Krieg, recounts, "In a discussion with Yale Law professor and former New York Times Supreme Court reporter Linda Greenhouse, Justice Stevens commented on the power of the dissenting opinion as an important tool in American jurisprudence. While on the Supreme Court, Justice Stevens drafted 720 dissents; more dissents than any other Justice in history. Though not controlling law, many of his dissents have become as noteworthy as the majority opinions." She also reports that "Justice Stevens discussed his dissent in Bush v. Gore, reiterating that he found the Court’s majority reasoning 'unacceptable.'"

That latter case was, of course, the decision in which a narrow majority of the high court effectively handed the Presidency to George W. Bush, whose appointment of Chief Justice John Roberts further added heft to the conservative side of the Court. Given that outcome, many in the audience, and the country at large, miss the clarity and courage of Justice Stevens' dissenting voice.

The Consumer Financial Protection Bureau, or CFPB, created by the Dodd Frank Act, has just published an up-to-date and detailed list of consumer complaints against the finance industry. It has received thousands of consumer complaints since the inception of the program in March 2012 through February of this year. Although roughly half of the complaints relate to mortgage problems, abuses throughout the financial services industry lead to complaints in a wide range of areas. Problems with car loans and other aspects of automotive finance, student loans, identity theft, debt collection harassment, credit card problems, credit reporting errors - the CFPB gets an earful. Emphatically making an effort to be more than just a repository of gripes, the new federal agency really attempts to get to the bottom of the issues reported. An excellent summary of the complaints, along with an explanation of what steps the agency takes on consumers' behalf, can be found in the report "Consumer Response: a Snapshot of Complaints Received" made available online this week. The kind of transparency found in this report is a big first step in the right direction.

Consumers can file a complaint with the CFPB online right here and even check on the progress of the federal agency response by following the instructions on the same website.

Consumers can also call the toll-free phone number at 1-855-411-CFPB (2372) or mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244.

Of course, administrative action is not always enough. In many cases, public enforcement action or private litigation is necessary to achieve the vindication of consumer rights. What today's report of the CFPB shows is that, when it comes to lending practices, consumers should not feel that they are alone.

California borrowers can heave a sigh of relief, as certain lenders have agreed to erase nearly $45 million in consumer debt arising out of automotive loans. The Federal Court for the Northern District of California issued its final approval of settlement terms in the class action entitled Baker v GE Retail Sales Finance, et al Case No. C10-05261 on December 20, 2012, paving the way for distribution of benefits to the settlement class.

When Plaintiff Robert Baker fell behind in payments for his motorhome, he voluntarily surrendered it to the dealer, rather than face involuntary repossession. The lender sold the vehicle and charged him a whopping $62,667.78 deficiency, without going through the notice procedure required by California consumer protection laws. Baker sued GEMB Lending, Inc., E*Trade Financial, Thor CC, Inc., CCB Credit and others alleging that post-repossession notices sent by the defendants failed to comply with California law. Failure to comply with the law prevents the lender from assessing a deficiency balance. When he learned that he was not alone, he decided to act as class representative. The class members' vehicles mostly involved RVs and included situations where, as in Mr.Baker's case, the vehicles were voluntarily surrendered as well as those that were repossessed after the borrowers' default.

Although the lenders deny that the notices failed to comply with the law, and the litigation was hard-fought, they agreed to settle the case for substantial and significant benefits to the class. Upon the court's approval of the settlement, those advantages have now been realized.

The settlement class is defined as persons (a) who entered into a Conditional Sale Contract in California for the purchase of a Motor Vehicle; (b) whose Motor Vehicle was repossessed or voluntarily surrendered; (c) who were issued a written post repossession notice by GEMB and/or Thor at any time from four years preceding the filing of this Action (October 12, 2006) through February 1, 2012; (d) whose Conditional Sale Contract was owned by GEMB, Thor and/or E*Trade at the time the notice was sent; and (e) who were assessed a Deficiency Balance following the disposition of the Motor Vehicle. Excluded from the Settlement Class are certain persons against whom judgments were obtained prior to October 12, 2010 or who filed for bankruptcy.

There are 2,034 members of the class. The settlement agreement provides that the defendants will extinguish the deficiency debt totalling $44,705,357, stop all collection activities, including suing the borrowers, and instruct credit reporting agencies to clear the negative credit line with respect to these accounts. In addition, the defendants have deposited money sufficient to pay restitution in the amount of 64% of the amount any borrower already paid. Checks in the aggregate amount of about $410,000 have been mailed. Class members who receive such a check must cash it within 90 days.

Kemnitzer, Barron & Krieg LLP and the Trueblood Law Firm represented the class.

One way companies prevent consumers from taking them to court for fraud and defective products is through arbitration. Forced arbitration clauses are hidden in the small print of many standard consumer contracts to prevent people from enforcing consumer protection laws. Arbitration is a private process that can be expensive, with little opportunity to get evidence from the other side, no jury, no judge and no right of appeal. Believe it or not, the arbitrator does not have to follow the facts or even the law, and yet the decision is binding. Statistics show that consumers win only a small percent of the time.

To make them appear fair, some companies are beginning to offer consumers the right to “opt-out” of the arbitration clause. Most people don’t notice the “opt-out” clause or don’t understand it, so they ignore it. Corporations are banking on consumer apathy. The opt-out clause allows you to “just say no” to arbitration. If you have the choice, opt out as soon as you purchase the goods; by the time a dispute arises it may be too late.

If the arbitration clause is clear and otherwise satisfies criteria established in the case law, it will probably be enforced.

However, some arbitration clauses are just gibberish. If an arbitration clause is unconscionable and incomprehensible, courts may refuse to compel arbitration, allowing the consumer to retain the right to bring claims in court. Kemnitzer, Barron & Krieg challenged just such a clause last week in a case involving a predatory car title loan, called Davis v Car Capital, et al. In its order denying Car Capital's motion to compel arbitration, the trial court found procedural unconscionability in the preprinted "adhesion" contract in which terms are hidden in a prolix form drafted by defendant. The trial court also found substantive unconscionability in that there were inconsistencies between the AAA and BBB forums, it was unclear which rules would apply, the cost was prohibitive and Car Capital had taken advantage of its own self-help remedy. In a rare glimpse into the arbitration process itself, the Court noted, "Not only do BBB's discovery limits impair preparation for the hearing, the arbitrator has sole discretion to deny a party a continuance to respond to an ambush of harmful evidence presented at the hearing." Associate Kristin Kemnitzer successfully argued the case.

Race and gender discrimination has been a problem in auto lending for decades. The National Consumer Law Center obtained injunctions against this practice by some lenders a decade ago. Studies had shown that car salesmen systematically denied women and African Americans the same pricing structure they offered to white men, and lenders were happy to finance those unfair terms. It seems that the practice is still widespread.

Car dealers fought hard against being included in the Dodd-Frank Act, which established the Consumer Financial Protection Bureau, and were ultimately excluded from its coverage. Not so the banks, which indirectly fund and finance automotive purchases. This week, CFPB interim Director Richard Cordray informed banks that the agency's regulatory authority extends to "auto lenders whose policies harm consumers through unlawful discrimination." Cordray (whose nomination for permanent director won approval of the Banking Committee and is headed for a vote in the Senate) announced those banks must comply with fair lending laws, including the federal Equal Credit Opportunity Act, enacted in 1974. An important product of the civil rights era, the ECOA expressly bans discrimination in auto lending.

Despite the dealers' exemption from the scope of Dodd-Frank, the banks provide dealer incentive for a wide range of deceptive practices. Banks take assignment of retail installment sales contracts that contain a host of worthless add-ons, hidden charges, price bumps and inflated interest rates, and then try to argue they had nothing to do with the dealer fraud at the point of sale. Indirect finance practices such as as dealer mark-up, yield spread, dealer participation and dealer-assisted financing have all been areas of abuse in the past, and it looks like these practices will be under closer scrutiny now. In new rules and guidelines, the CFPB makes it clear that banks can be held responsible for the impact of such markups, even if they are not sitting down face-to-face with the borrower. Under the new rules, banks should more carefully monitor such dealer practices and simply refuse to accept assignment of discriminatory deals.

Economic justice is widely considered the new civil rights movement. The CFPB's courageous announcement is a big step forward in this regard.

Congress created the Consumer Financial Protection Bureau with passage of the Dodd-Frank Act in 2010. It is a balanced approach to oversight of many of the banking practices that led to the financial meltdown of 2008. The CFPB has been called the "brainchild" of Elizabeth Warren, now a Senator (D, Mass) and member of the Senate Banking Committee. Many thought she would have been the CFPB's first Director, but Republicans threatened to block her confirmation at the outset.

Since its inception, the CFPB has operated without a permanent Director. Despite the fact that the Dodd-Frank Act is the law of the land, the financial industry has vowed to obstruct its function and effectiveness. There are reportedly more than 150 lobbyists tasked with attacking the CFPB. One would think that consumer protection would be something both political parties could support. Yet, Republicans have taken the side of the big banks. Since they do not have the votes or public support to repeal the Dodd-Frank Act, they seek to prevent the CFPB's full operation by blocking the confirmation process.

President Obama first named Richard Cordray to be CFPB Director in a recess appointment, and has now re-nominated him to be permanent Director. Cordray's credentials for the position are impeccable. The former Ohio Treasurer and Attorney General is a Marshall Scholar who clerked for the U.S. Supreme Court and has argued numerous cases before the high court. At the same time, he is mainstream and moderate, his approach to regulatory reform has been measured and meticulous.

Cordray's nomination for permanent Director of the CFPB came up for hearing before the Senate Banking Committee today. By all accounts, the hearing was "cordial." Just what that means in today's Congress is entirely unclear. If that means he is not to take a "no" vote personally, that is not the purpose of the confirmation process. The Dodd-Frank Act provides for the creation of the CFPB, and the law provides for confirmation of a qualified permanent Director for the agency.

Sen. Sherrod Brown (D, Ohio), who is one of Cordray's many supporters, summed up the hearing today, “Some (Republicans) here want to nullify the (Dodd-Frank) legislation” and for the first time in history “senators are blocking the nominee because they simply don’t like the agency that he will lead.”

Meanwhile, Elizabeth Warren had this to say, "I think the delay in getting him confirmed is bad for consumers, it's bad for small banks, bad for credit unions, for anyone trying to offer an honest product in an honest market."

Bipartisan polls show that the American people are fed up with obstructionist tactics. As Warren said today, "The American people deserve a Congress that worries less about helping big banks, and more about helping regular people who have been cheated on mortgages, on credit cards, on student loans and on credit reports." American consumers need the CFPB, and the CFPB needs a permanent Director now. More on the effect of today's events can be found here.

Are run-flat tires all they have been cracked up to be? The original idea was that these super-tires could be driven for awhile even if punctured, thereby eliminating the need to carry a spare. Many passenger cars and light trucks are now sold with four tires, rather than five. When they first came onto the market, car critics and consumers alike raved about the promised benefits and hoped for the best.

But now, that convenience has lead to a lot of complaints, not the least of which is that the specialized tires are much more expensive than regular rubber. Some drivers have expressed concern about repeated loss of tire pressure. In addition, there have been reports that particular models, including certain BMWs, show evidence of cracking in the wheel rims. This is important because, while most other makers no longer put run-flat tires on standard vehicles, BMW persists. Some technicians contend the car owners themselves are to blame, for hitting a curb or their driving technique. But, consumers really cry foul when BMW claims the high-cost repairs are not covered under warranty.

Whether manufacturer engineers have figured out a fix for the various problems remains to be seen. Meanwhile, no luxury car driver likes to be told that an obvious problem is the result of some obscure driver error.

NBC's investigative reporter Jeff Rossen has a great program out today on the deceptive sale of used cars that have pending safety recalls. The few minutes it takes to watch this video could save you money or save your life.

Missing airbags, brake malfunctions, steering problems, unstoppable cruise control, electrical defects, fire danger - buyers reasonably assume all of these safety recall issues are disclosed. It is shocking to think that a used car salesman would conceal even open safety recalls. One common ploy is for the dealer to say the car has been through something like a 100 point checklist. The buyer should demand to see, and then actually read through, that checklist item by item. Did the mechanic simply check for things like floormats, but not working brakes? And what does a check mean - that the car simply has four tires or that none of the four show excessive wear?

One of the tactics of which consumers should be aware concerns a car dealer's deceptive use of the Carfax report. That report may fail to show an existing recall, and yet the car buyer is urged to rely on it explicitly. Carfax can be useful for verifying VIN numbers and other details about a car, but it is a mistake to think it is always a full and accurate history of that car. There are several versions of the Carfax service, and there are many reasons why a Carfax report might be incomplete. Not all Carfax reports will show recent accidents or NHTSA safety recalls. Car buyers should cross-check the Carfax report by getting additional information from the National Highway Traffic Safety Administration directly.

California consumer safety advocate Rosemary Shahan agrees that the sale of used vehicles with unrepaired recalls is a dangerous and deceptive practice. She says such cars are "a threat to you, your family, and everyone riding with you." Shahan is director of Consumers for Auto Reliability and Safety (CARS),which is promoting legislation in California to stop these unsavory and unsafe practices. You can find out more about this effort here.

It used to be that contracts were a matter of mutual consent. Every first year law student sat through innumerable hours studying offer and acceptance, wrangling over the meaning of a "meeting of the minds." In his classic text published in 1881, "The Common Law," Oliver Wendell Holmes agonized over the concepts of promises, performance, consideration and communication.

Well, that was the olden days.

Today, our system of contracts has become confused by the prevalence of fine print, illegible text and incomprehensible legalese. The mass-produced promises in preprinted form have replaced any sense of an actual agreement between the parties. That has a corrosive effect on consumer confidence in our economic system.

What consumers need to know, is that the small print is not harmless. It matters. It matters a lot. Buyers and borrowers should at least try to read the boilerplate. Even if the banker or car dealer or cellphone provider tells you to take it or leave it. Some contracts that were non-negotiable may be unenforceable if they contain unconscionable terms. However, some courts uphold shocking terms that are buried in the tiny "mouse-type," like exhorbitant interest rates, or upcharges, or arbitration provisions that ban consumers from bringing valid claims in court.

As this Wondermark comic by David Malki! so aptly shows, sometimes what you don't know CAN hurt you.

Richard Cordray, Director of the Consumer Financial Protection Bureau, recently announced that the CFPB intends to take a close look at some troubling automotive finance practices. Reminding certain financial institutions that auto lending is very much within the CFPB's jurisdiction, Cordray declared, “We are examining institutions around auto lending just as we are looking at them on mortgage, credit cards, student loans,” according to an in-depth report in today's Bloomberg online. While dealers themselves obtained exemptions from the consumer regulatory authority, auto finance lenders that otherwise meet CFPB criteria are open to scrutiny and possible enforcement action.

Discriminatory lending practices have been the subject of past litigation against manufacturers' captive finance divisions, notably cases brought by the National Consumer Law Center, and their co-counsel, as summarized here. But, financial discrimination - by race, gender, religion, ethnicity, and other factors - is only part of the problem that California car buyers and borrowers face. Deceptive practices, schemes and scams are all variations on the theme of misrepresentation, which continues to be a pervasive problem in automotive finance and title loans. Hopefully, the attention of the CFPB will shed light on unfair and fraudulent business practices and result in a more even playing field between consumers and lenders in auto finance transactions.

A problem with 2011 and 2012 Chevy Cruze sedans came to our attention last year, which we reported on this blog here. A defect in the vehicle underbody potentially allowed oil or other flammable materials to collect, increasing the risk of a vehicle fire.

What started out as a voluntary action by the manufacturer spiraled into an offical demand by federal regulators. The National Highway Traffic Safety Administration listed the 2011-2012 Chevrolet Cruze engine shield modification as a safety recall. (NHTSA I.D. # 12V288000.) In response, General Motors promised to fix the problem by modifying certain underbody elements.

Apparently, the story did not end there. After the fix, owners reported a number of problems with the performance of the vehicle, including gas mileage. Given General Motors' advertising that touted fuel economy and optimal driveability, the Cruze owners' anger is justified. While no high performance or enviable mpg rating is worth the risk of a life-threatening fire, owners were led to believe that the recall repairs would be quick and easy, with no negative consequences. Instead, it sounds like the recall "fix" was a bitter pill with some nasty side effects. We are in the process of investigating the extent of these concerns.