Remember: Leasing Is Also Regulated

Leasing is frequently touted as less subject to government regulation at the state and federal level than dealer financing employing retail installment sale contracts. There’s a bit of truth to that — some typical plaintiff lawyer attacks are a bit tougher to make when the transaction at issue is a lease.

But leasing is subject to federal and state regulation. A recent case from Florida illustrates the point.

Granted and Denied

Steven Cox entered into a single-payment lease with Porsche of Fort Myers for $36,539. He traded in his 2015 Hyundai Genesis for an agreed price of $25,000 and wrote a check for the remaining $11,539.

The lease form provided by Porsche Financial Services Inc., which took assignment of Cox’s lease, included the $25,000 trade-in credit as part of the “Amount to Be Paid in Cash” and indicated “N/A” on the “Net Trade-In Allowance” line. Cox sued Porsche Financial Services Inc., Porsche Cars North America Inc., and Porsche Leasing Ltd., alleging various federal and state law claims stemming from the fact that the defendants failed to disclose the value of his trade-in on the lease and failed to reduce the capitalized cost by the value of his trade-in, which he claimed cost him an extra $3,970 in rent charges and taxes.

The defendants moved for summary judgment. The federal trial court judge granted the motion with respect to Porsche Cars and Porsche Leasing and granted in part and denied in part the motion with respect to Porsche Financial Services.

First, the court denied Porsche Financial’s motion with respect to Cox’s Consumer Leasing Act claim. After determining that the CLA recognizes a claim for failure to accurately disclose the value of a lessee’s trade-in and that Cox had standing to assert that claim, the court addressed Porsche Financial’s argument that it was not a “lessor” liable for CLA violations. The court found that Cox presented sufficient evidence that Porsche Financial was a lessor that regularly engages in leasing, relying on decisions by other federal district courts that “have held similar automobile finance companies liable as lessors arising from a lease negotiated by an intermediate dealership.”

The court added that even if Porsche Financial is not a “lessor” and is merely an “assignee” that is liable only for violations that are apparent on the face of the lease, it could still be liable because the lease displayed the details of the trade-in yet noted “N/A” on the line for “Net Trade-In Allowance.”

Next, the court found that Cox stated a claim against Porsche Financial for violating the Florida Deceptive and Unfair Trade Practices Act. The court found that Cox’s CLA claim could form the basis of an FDUTPA claim. Moreover, the court noted that Cox pled sufficient evidence for a jury to conclude that the failure to disclose the value of Cox’s trade-in and the failure to reduce the capitalized cost by the net trade-in value were deceptive.

A Costly Failure

In response to Porsche Financial’s argument that it, as an assignee, is not directly responsible for any FDUTPA violations, the court stated that Cox “adduced evidence that the dealerships follow Porsche Financial’s guidelines with respect to the financing component of the deal.”

The court also rejected Porsche Financial’s claim that Cox did not suffer any damages because Porsche of Fort Myers would not have agreed to a capitalized cost reduction on a single-payment lease. The court found that the “faulty disclosure deprived [Cox] of the opportunity to make an informed decision and ultimately resulted in his over-payment of certain costs.” The court, however, granted summary judgment to Porsche Financial on Cox’s claim that it was negligent in failing to establish sufficient tax procedures for Porsche of Fort Myers, which resulted in overcharging for sales tax.

If your dealership’s finance folks are not thoroughly familiar with the requirements of the federal Consumer Leasing Act and Regulation M, which implements the CLA, you’d do well to have them do some brushing up. A good place to start is the Federal Reserve Board’s website, where you will find a publication called “The Keys to Vehicle Leasing.” It’s pretty basic, written as a consumer education piece, but, like we said, a good place to start.

Thomas B. Hudson is a partner in the firm of Hudson Cook LLP, publisher of Spot Delivery, and the author of several widely read compliance manuals. Contact him at [email protected]. ©CounselorLibrary.com 2018, all rights reserved. Single print publication rights only, to Auto Dealer Today (10/18). HC No. 4835-9280-8820

Originally posted on Auto Dealer Today