How To Detect Disclosure Mistakes Using Numbers | Hudson Cook, LLP

This article appeared in the July 2021 issue of SubPrime auto finance news.

A lot of lawyers are afraid of numbers, but I am one of the strange people who enjoy dealing with the mathematical aspects of financial services law. For a lawyer like me, the beauty of a credit or rental agreement is that if you do it right, it all adds up. There is nothing more and nothing is missing. If there is something more or something missing, then something is wrong with the contract. A recent Texas motor vehicle rental case illustrates this principle.

Quentin Holloway leased a Ford Fusion from Automotive Promotion Consultants, LLC. Even though the Consumer Leasing Act disclosure indicated that Holloway paid $ 3,710 on signing or delivery of the lease, he alleged that he only paid $ 1,500 at the start of the lease and agreed to a plan. payment for the remaining $ 2,210. Holloway claimed that overestimating the amount owed upon signing or delivery of the lease confused him about his payments and the actual cost of the lease, and he sued Automotive Promotion for violating the CLA and Mr. After Automotive Promotion did not respond to the complaint, Holloway sought a default judgment and the US District Court for the Western District of Texas dismissed the petition.

Although the court recognized that the Truth in Lending Act and Regulation Z specifically contemplate the use of deferred payments, but the CLA and Reg. M do not, he concluded that “there is no basis in the CLA, M regulation or case law to conclude that a tenant cannot finance all or part of the CCR [capitalized cost reduction] through a credit transaction. In fact, the court noted that the official comment from staff at Reg. M indicates that the amount owed at signing of the lease may include “non-cash payments” as long as that form of payment is included in the CLA disclosure. The court determined that an ACC funded through a deferred payment plan should be considered a non-cash payment that should be included in a separate row under the column indicating how the amount owed will be paid. In this case, the “Amount Due Upon Disclosure of Lease Signature or Delivery had two items: $ 1,500 paid in cash and $ 2,210 payable in the form of a payment plan.” Therefore, the court found that Automobile Promotion did not fail to accurately disclose the amount owed upon signing or delivery of the lease.The court noted, however, that the Automobile Promotion may have violated the CLA and the Rules. M by failing to include the periodic payments for the $ 2,210 loan in the payment schedule and suggested that Holloway might want to amend h’s complaint to allege a violation of 15 USC § 1667a (9) for failing to disclose the reimbursement of the part financed by the JRC donor.

The court may have dismissed Holloway’s default motion for judgment, but Automotive Promotion’s victory is likely only temporary. Holloway can amend its complaint to cite Automotive Promotion’s failure to disclose how Holloway would repay the $ 2,210 loan. A closer look at the rental agreement would have revealed the problem. Depending on how you look at it, there was either something more (the deferred CCR of $ 2,210) or something missing (the lack of recognition of the $ 2,210 in the payment disclosures). Either way, the numbers didn’t add up, making it clear that something was wrong with the contract.

Holloway v. Automotive Promotion Consultants, LLC, 2021 US Dist. LEXIS 84920 (WD Tex. May 3, 2021)


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