The Lemon Law Blog

Now that financial reform legislation is headed for the final stretch of congressional debate, ordinary Americans are wondering, "What does it mean for me?"

The best place to get an answer to that fundamental question is to ask Elizabeth Warren, the Harvard Law School professor who has been a powerful voice for consumers on the front lines of the financial reform effort, landing on the front page of Time Magazine, and numerous other publications, in the process. Her common sense defense of American families and the middle class, as well as her ability to explain what is happening, makes perfect sense.

On July 2, 2010, Warren issued a statement, explaining her view of the new Consumer Financial Protection Bureau, which she herself had a strong role in forming. "They created a strong, independent consumer agency that will have the tools to rein in industry tricks and traps and to cut out the fine print. For the first time, there will be a financial regulator in Washington watching out for families instead of banks."

Elizabeth Warren's name is on the short list of President Obama's nominees to lead that new agency. He could hardly find a more qualified candidate, with a common touch and perfect sense.

In an interview that appears in today's Huffington Post online, Professor Warren talks about the difficulty consumers have in making informed credit choices, "Today, the big banks churn out page after page of incomprehensible fine print to obscure the cost and risks of checking accounts, credit cards, mortgages and other financial products. The result is that consumers can't make direct product comparisons, markets aren't competitive, and costs are higher."

On the relationship between financial reform and our economic future, she adds, "If the playing field is leveled and the broken market fixed, a lot more money will stay in the pockets of millions of hard-working families. That's real stimulus -- money to families, without increasing our national debt." For the full text of the HuffPost interview, and to learn where financial reform stands today, click here.

Tesla Motors’ dance card is filling up fast. Tesla announced last May that it will make music with Toyota in producing all-electric vehicles at the dormant NUMMI plant in Freemont, California (see “Toyota Closes NUMMI Plant in California,“ posted on this blog April 1, 2010). The new high-tech facility at the site of the old NUMMI plant will be renamed The Tesla Factory. It is there that the two companies intend to produce the Tesla Model S, its first sedan. The Tesla-Toyota union is moving ahead quickly, with the delivery of two prototype electric vehicles as early as this month. The Model S is expected to hit the market in 2012.

Tesla Motors stepped back into the spotlight with an IPO on June 29, 2010. The initial public offering of stock has been hailed as a success for the company, in spite of the market’s general rollercoaster performance last spring. After ending its first day with a sharp spike of $23.89, the stock (TSLA) has settled down and is now trading at $17.40, just above the initial public offering price of $17.00.

Meanwhile, lest we think that Tesla and Toyota are going steady, the media reports that Tesla is whispering with Daimler as well. “Tesla is also working with Germany's Daimler AG on electric vehicles and has supplied battery packs for use in Daimler's Smart minicars. Daimler has also invested at least $50 million in Tesla,” according to the trade publication Automotive News.

Coy, competitive and trendy, tiny Tesla is making some big moves with more than one dance partner. No one should be surprised at a company whose tag line is “Declare Independence.” But who ever thought batteries could be so sexy? For the company website click here.

Dilbert taps into consumer frustration with the comic strip posted below. Call it wry humor. But the California Department of Insurance doesn't think consumer fraud is funny. Whether they are referred to as "service contracts," "extended warranties" or "mechanical breakdown insurance," vehicle repair agreements are a big profit center for new and used car dealers. Telemarketers or internet schemes may tout them as well. Often such contracts are unnecessary. Even illusory. Some of these products are legal, but many are not. In the midst of a slick sales pitch, almost no one reads the prolix printed warranty form. That is a mistake Dilbert's "confusopoly consultant" wants you to make. Now the Department of Insurance is clamping down.

For many years, car dealers have claimed that these after-market products do not qualify as insurance and they do not have to be licensed to sell them. That may change. On June 17, 2010, the California Department of Insurance issued a Cease and Desist order against Consumer Direct Warranty Services and related entities. You can read the Department's full press release here.

Some dealer service contracts fall within an exception to the insurance rules. However, in order to exploit that loophole, car dealers must follow certain procedures, have back-up insurance, provide cancellation rights and comply with other regulations.

"If you want to sell insurance in California, you must obtain a license, have adequate financial reserves and you must not deceive consumers," said Commissioner Poizner. "In order to protect California consumers, there are specific requirements for insurance companies seeking to do business in California. If companies do not abide by these requirements, they will not be permitted to sell insurance in our state."

The Insurance commissioner's website goes a step further to promote consumer protection. Check out its "Guide to Auto Service Contracts and Agreements" here. If you have purchased a service contract or extended warranty that does not comply with these rules, contact us even before your car breaks down.

The National Consumer Law Center just launched a new website. Check it out here. The nonprofit center, headquartered in Boston, has been a premier source of assistance for consumers, legal services and consumer lawyers for decades.

Its new website provides information on NCLC's recent reports, numerous publications and current initiatives. Among other things, NCLC publishes reports on scams and predatory trends in consumer transactions, manuals and treatises on a wide variety of legal topics affecting consumers, as well as other books for lawyers and the public alike. NCLC is the publisher of "Return to Sender - Getting a Replacement for Your Lemon Car" by Nancy Barron.

In addition to its publications, NCLC funds research, legal conferences and consumer education programs on a wide range of important consumer topics -- from automotive fraud and warranty law, to financial abuse of the elderly, energy policy, student loans, and predatory lending.

Kemnitzer, Barron & Krieg is actively involved in the work of NCLC. Bryan Kemnitzer is a member of the partner's council and Nancy Barron currently serves on its board of directors.

Finance reform has been bumped from front page news by international incidents and the catastrophic BP oil spill. But even as public attention has shifted elsewhere, the National Automobile Dealers Association (NADA) has not lost its focus on Washington. They are lobbying hard against legislation aimed at improving consumer protection. Why?

The landmark financial reform package that is working its way through Congress would greatly improve financial oversight of lenders. This means a wide variety of entities who share in the business of lending money, not just banks. After the House and Senate passed different versions of the bills, lawmakers from both bodies are in the process of reconciling the two versions. The battle is drawn, because the House passed a bill that exempted car dealers from financial reform, but a similar amendment failed in the Senate.

The outcome of this process will greatly affect the way cars are sold in coming years. NADA is lobbying for its car dealers to be exempt from financial regulation, and is trying hard to persuade committee members that dealers don't get involved in car loans. Nothing could be further from the truth. As Paul Wiseman of USA Today reports, "auto dealerships originate 79% of auto loans and leases." He goes on to quote the non-partisan Cambridge Winter Center for Financial Institutions Policy as concluding "that auto finance is demonstrably susceptible to unfair and deceptive practices." You can read USA Today's article here.

The argument made by car dealers that they are all small mom & pop shops is also far-fetched. While many are indeed locally owned, thousands of dealerships are controlled by mega-dealers like AutoNation whose 100+ stores have reportedly sold more than 7,000,000 cars. These multi-state conglomerates keep a short leash on customer finance through their tightly controlled on site dealer finance departments and preferred lender programs which direct dealer-arranged financing to a handful of financial institutions.

Just this week, the trade publication, Automotive News reported NADA to be particularly concerned that the proposed consumer financial protection agency would have scrutiny over sale of service contracts and aftermarket items. As we have often discussed on this blog (click on "Shopping for Car Loans") regulation of dealer finance departments is long overdue.

Many self storage facilities advertise long term garage space. Beware: this is a risky business for consumers. Storage companies often buy up properties in marginal neighborhoods on freeway frontage or on the fringe of town, where warehouse space is dirt cheap - but not always safe and not always secure.

Advertisements tout security, safety and trust. That trust may be misplaced. At the time of the space rental, storage tenants are often told they need separate insurance for their goods. That should not mean you have to buy it from them, with no opportunity to negotiate. If you are tempted to buy insurance onsite, check with your usual insurance company first. If the vehicle is stored for an extended period of time, the car may qualify for reduced registration as a "non-opp". The Form for a non-operational vehicle can be downloaded from the Department of Motor Vehicles here While you should keep the car insured for theft, be aware that insurance for garaged vehicles not being driven is very low. Your usual carrier will probably give you a discount.

With summer just around the corner and masses of Californians – especially students – on the move, many car owners find they need long term storage for a car or truck. If you are in this category, think it through. Will storage costs of an old car exceed depreciation over the rental term? It might be best just to sell the car now, and buy another used car when you return. Do not expect to be able to just park it on the street. Whether you are in the city or suburbs, most communities have a local ordinance limiting parking to 24-72 hours or by permit only. The best thing, of course, is to find a friend with an empty carport or a three-car garage. Good luck with that! More commonly, you may have to find long-term vehicle storage for a price. The E-How website has some good advice for storing vehicles, including the selection of a dry facility, adding a fuel-stabilizing additive to the gas tank, jacking the body up to relieve weight on tires, washing and covering the car. Further details can be read here.

We also advise that you remove all valuables from the car, even though it is in a locked space. This includes all information concerning the vehicle, like the owner’s manual, purchase documents and warranty history. Never keep the title with the car. Remove even the registration and insurance papers you would normally keep with you when driving. And of course, do not leave a set of keys in the vehicle. Self storage units are notorious for their high burglary rate, and although you hope the car will be secure, don’t take any chances with things you can easily remove.

A classic car is about to get even more rare. Remember the 1970 Mercury Cougar - a true icon of 20th century American highways? Who would have thought Ford would even consider dropping the brand? Yet, that was the buzz throughout the auto industry last week. From Automotive News to Consumer's Union, sources were reporting that Ford management will consider the proposal this summer as a belt-tightening measure.

The demise of Mercury will mean the end of an era for Ford. From one perspective, it seems like an odd time to make the cut. Mercury was created during the Great Depression as a mid-priced alternative to the more luxurious Lincoln models.

Mercury later developed the now-classic 60's and 70's designs of the Cougar brand. The Cougar GTE was the epitome of a real "muscle car." To this day, devotees roll up their T-shirt sleeves when cruising in those classics. But muscle cars and other "manly" vehicles just don't sell like they used to, as GM learned when it decided to close down Hummer this year.

The numbers only tell part of the story, but it is the part that Ford executives will be listening to come July. Apparently Mercury's U.S. sales took a slow motion dive from more than 500,000 units in 1978 to less than 100,000 units in 2009. That's a free-fall of more than 75%.

Nonetheless, dropping Mercury is not an obvious choice. We at Kemnitzer, Barron & Krieg share the view of consumer advocate and Ohio lemon lawyer Ron Burdge, who notes that there are less reliable vehicles left in the market. Yellow might be a popular color for Cougars, but there are worse lemons in all colors out there on the road.

Airbags in a car are like the lifeboat on a small vessel. You don’t need them often, but you do need to know that they will work in an emergency. The problem is there is no easy way to test them out, because once deployed they must be professionally repacked.

Several years ago, a man and his wife came into our office. They had purchased a truck advertised to have driver’s and passenger’s side airbags. When their grandchildren came to visit, they looked for a switch (sometimes called a PSIR) that can suppress the airbag when children are present in the front seat. There was no suppression switch. Why? Because there were no airbags! Somehow, the manufacturer had engineered the vehicle in just such a way that the airbag did not fit on the passenger side. Oooops. The manufacturer (in that case GM) later argued that it “forgot” to tell the buyers they had left the airbags out. The vehicle could not be modified to add the airbags later. We filed a class action and, in the end, the owners of thousands of vehicles were entitled to rescind and return their trucks.

Learning that the advertised airbags were missing was like tossing a packed lifeboat into the water only to watch it sink instead of float and deploy. Even with airbags in vehicles, it is wise (and required under California law) to buckle up as well for the best protection in a crash. While they should not be relied on in place of seatbelts, properly manufactured airbags do save lives.

The Center for Auto Safety deserves credit for being an early proponent of airbags, and remains a good source of information concerning the variations in safety records of different brands. Nissan has been no stranger to problems in its sudden restraint systems over the years. For that reason, it was not a total surprise today when NHTSA announced a Nissan recall for nondeployment of passenger airbags in 2005-2007 Infiniti cars. See NHTSA Campaign ID Number 10V175.

The National Highway Traffic Safety Administration reported today that Toyota is recalling certain 2003 Sequoia SUVs for a problem in the vehicle stability control system. Should the problem occur, the Sequoia "may not accelerate as quickly as the driver expects,increasing the risk of a crash." You can read the full recall notice here. The Sequoia was Toyota's first full-size SUV, coming out in 2001. Throughout the model lifetime, it has been marketed for families with children and carpool purposes, so even a remote or minor safety concern has serious implications for family use. The model has gone through a lot of changes since 2001, and for that matter since 2003. For the time being, this notice is limited to the 2003 model year.

Like other recalls, this announcement comes from the Office of Defects Investigation (ODI), a department within the National Highway Traffic Safety Administration (NHTSA). ODI conducts defect investigations and administers safety recalls to support the NHTSA’s mission to improve safety on the nation's highways. ODI also reports on and monitors the adequacy of manufacturers' own voluntary recall campaigns.
Toyota states that it will notify owners. However, most of the affected vehicles are otherwise out of warranty and may have changed ownership several times. For that reason, Toyota may not be able to notify new owners directly. If this applies to you, call the Toyota hotline at 800-331-4331 or go to the NHTSA sponsored website at http://www.safercar.gov.

Today, President Obama urged passage of the financial reform legislation presently before Congress. "Unless your business model depends on bilking people, there is little to fear from these new rules," he declared in a speech at Cooper Union in New York City. The full text of his remarks is posted here

Why then, is the National Automotive Dealer’s Association urging its members to board their corporate jets and fly to Washington D.C. on Monday? Its website announcement reads: “The National Automobile Dealers Association (NADA) is organizing a Dealer Fly-in on April 26 to meet with Senators and urge support for the Brownback Amendment which would exempt auto dealers from the proposed Bureau of Consumer Financial Protection."

Consumers may not have the means to hop a commercial airline, much less a corporate jet, to meet in person with Congress before Senator Dodd brings the Bill (S. 3217) to the floor of the Senate next week. But that doesn’t mean that consumers can’t be heard. All you have to do is call toll free 1-866-544-7573. When you input your zip code at the prompt, you will be connected automatically to your U.S. Senator’s office. A senate staffer on the other end of the line will ask the purpose your call. You should be prepared to say something like this: “Please tell Senator________ [name] to vote to support financial reform that holds banks accountable and creates a strong, independent Consumer Financial Protection Agency. I am against the Brownback Amendment or anything else that excludes car dealers and automotive lenders from this important reform."

Numerous consumer organizations vehemently oppose such an amendment. These include The Military Coalition, Americans for Financial Reform and the National Association of Consumer Advocates, to name just a few. If the financial reform legislation currently under debate is intended to bridge the gap between Wall Street and Main Street, it can’t by-pass the local Auto Mall.

The Obama Administration issued a report today entitled A Look Back at GM, Chrysler and the American Auto Industry. Actually, it is a short look back through the last tumultuous twelve months, to announce the unexpectedly rapid progress that General Motors and Chrysler are making toward repayment of their federal bailout money. "GM’s early repayment of its $6.7 billion loan leaves the remaining U.S. government stake in the company at $2.1 billion in preferred stock and 60.8% of the common equity," the notice reports. And, while the announcement does not say Chrysler has fully repaid its government loan, the news that “Chrysler Financial has already fully repaid (with interest) the $1.5 billion TARP loan that it received to support auto financing” is encouraging.You can read the entire report here. While Chrysler's relatively rosy outlook and General Motors' early repayment of billions will come as good news to taxpayers, their corporate success is small comfort to consumers whose warranty rights were trampled in the messy restructuring of both companies. The car buying public remains cautious. Like the manufacturers themselves, consumers are eager to pay off debts before going on a spending spree. Whether these icons of American industry will recover market share once pent-up demand spills over and credit eases will depend on whether improvement in vehicle safety and design follows the companies' financial improvement.

The National Consumer Law Center has just published a new report on the shocking state of repossession abuse throughout the country. The short but thorough "REPO MADNESS - How Automobile Repossessions Endanger Owners, Agents and the Public," by NCLC staff attorney John van Alst and investigative reporter Rick Jurgens, is a riveting must-read for anyone who is planning to buy a car on credit. It can be read online or downloaded here.

A midnight visit from the repo man is one of those things no one ever thinks could happen "to me." Yet, in 2009 alone nearly 2 million vehicles were repossessed. That's 2,000,000 cars and trucks! While some people got themselves into cars they just couldn't afford, many other people may have missed a single payment or been told by the lender not to worry while a late check was in the mail. Based on what our clients tell us, lenders and debt collectors are increasingly aggressive.

Most alarming is a map of the United States showing the location of violent acts associated with repossessions - assaults, battery, use of weapons, kidnapping, impersonation of law enforcement and even fatalities. The authors argue that, because repossessions are one of the only self-help enforcement mechanisms allowed by law, there is in fact a kind of lawlessness in the process. The term "self-help" in this context means that lenders can send out the tow truck by simply alleging that the owner of the car is behind in payments, without any proof or court judgment to back up the claim. "With most repossessions occurring without the involvement of law enforcement, parties often assert their rights in a sort of vigilante justice," the report explains.

This sort of vigilante justice invites a lot of mistakes. Sometimes the tow truck takes the wrong car. That's grand theft. Sometimes the tow truck driver is in such a hurry, he doesn't notice children napping in rear car seats. That's kidnapping. Scroll down through the Consumer Alerts section of our firm website to read "Repossess My Car But Not My Kids". With plenty of evidence and examples to back up their statement that "auto repossession remains a crude, unregulated
and naked exercise of force and guile," Van Alst and Jurgens offer a good case for nationwide reform.

While self-help repossession is still allowed, California has some powerful consumer protection laws to help combat abuses. Read the NCLC Report. And, if you have been a victim of repo-madness, do not wait to give us a call.