FI showroom red and grey logo
MenuMENU
SearchSEARCH

Failure to Pay

Can a failure to pay off a customer’s trade-in lead to a Truth in Lending Act violation? The magazine’s legal wiz details a case involving a consumer who made such a claim.

by Tom Hudson
September 24, 2013
4 min to read


A car buyer trades in an old heap for a new ride, and the dealer agrees to pay off the balance due on the heap. Well, the dealer doesn’t pay off the trade, so the buyer sues. In such a suit, you might expect to see claims of fraud or breach of contract, but what you seldom see is a claim that disclosing the lien payoff without actually paying off the trade constitutes a federal Truth in Lending violation. Here’s how a court recently dealt with such a claim:
Gesele Jones bought a used 2007 Pontiac. There was a dispute regarding whether the seller in the transaction was Hampton Park Enterprises or Koons Automotive Inc. Jones signed two sets of sales documents that were prepared by a Koons employee. Jones signed the first set of documents at the time of sale and later returned to sign a second set. The documents included a buyer’s order, retail installment sale agreement (RISC), and an application for a certificate of title.


As part of the sale, Jones traded in a 2006 Ford Taurus. Koons allegedly agreed to pay off the amount Jones owed on the Taurus to Prestige Financial Services, but it never did so.

Ad Loading...


Prestige eventually repossessed the Taurus and told Jones that she was responsible for the remaining unpaid balance. In response, Jones sued Koons for failing to pay Prestige. Jones alleged violations of the Truth in Lending Act, the Maryland Consumer Protection Act and various common law claims. Both parties moved for summary judgment.


The court ruled for Koons on some claims and for Jones on others.
First, Jones argued that Koons violated the TILA by disclosing on the first set of documents a $1,000 down payment that she never actually made. The court granted summary judgment to Koons on that claim, finding that Koons did not violate the TILA by disclosing the down payment. The court noted that although Jones did not pay the down payment, Koons never charged her for it and absorbed the cost of the disclosed amount.


Jones also argued that Koons violated the TILA by indicating it would pay off the amount she owed to Prestige, but then failed to do so. The court granted summary judgment to Jones on that claim. The court found that both versions of the RISC listed the amount Jones owed to Prestige in the itemization of the amount financed. It was shown as an amount to be paid to a third party. Accordingly, the RISC stated that Koons would pay off the prior balance. Koons did not make any payments to Prestige. Therefore, Koons incorrectly itemized that amount in violation of the TILA.


Finally, Jones argued that Koons violated the TILA by failing to disclose certain fees. The court found there was a genuine issue of fact regarding when the various sale documents were provided to Jones and whether they accurately disclosed the fees. Therefore, summary judgment on this issue was inappropriate.


Koons argued that it was entitled to summary judgment because Jones could not prove she suffered any actual damages as a result of the alleged TILA violations. Some TILA claims fail if the consumer cannot show “actual damages,” while other claims — if argued successfully — entitle the plaintiff to so-called “statutory damages,” even in the absence of actual damages. In this case, the court found that the relevant TILA sections provided for statutory damages. As a result, the court rejected Koons’ argument because Jones was not required to prove she suffered any actual damages.

Ad Loading...


Another possible defense to a TILA claim is the equivalent to a plea of “oops.” It’s called the “bona fide error” defense. If the creditor can show the violation occurred because of a mistake and that the creditor had in place procedures to avoid such mistakes, it can dodge the TILA bullet. Koons tried this one, too, but the court determined that Koons was not entitled to summary judgment based on this theory because there was a question of fact regarding whether Koons’ sales procedures were reasonably adapted to avoid TILA violations.


Jones also argued that Koons violated the Maryland Consumer Protection Act by failing to pay off the amount she owed to Prestige. The court allowed Jones to proceed with this claim. However, because Jones had previously settled with Prestige, the court found there was a genuine issue of fact regarding whether Jones could prove damages.


So, in your next “failed to pay off the trade” lawsuit, if you read the complaint all the way through, you might just find a TILA claim.


Thomas B. Hudson is a partner in the law firm of Hudson Cook LLP and the author of several widely read compliance manuals available at CounselorLibrary.com. ©Counselor Library.com 2013, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only, to Bobit Business Media. HC# 4837-5271-6565 (10/13).

Subscribe to Our Newsletter

More F&I

Man holding magnifying glass over sales volume paper.
F&IMay 29, 2026

Why Your F&I PVR Is Misleading You

Here’s a handy checklist of the numbers to track in 2026 instead.

Read More →
Photo of woman typing on a laptop as she sits on a couch
F&Iby Hannah MitchellMay 29, 2026

Auto Consumer Anxiety Presents Opportunity

A survey of U.S. drivers found the majority are concerned about finances and the economy, but those fears make many ready to buy vehicle-protection products.

Read More →
Dustin Gingerich standing on stage giving a presentation
F&Iby Lauren LawrenceMay 28, 2026

Humble and Hungry: 12 Rules for an F&I Life

Dustin Gingerich, with a decade in the F&I business under his belt, shares his thoughts on leadership, building trust with customers, and the importance of learning and innovation.

Read More →
Ad Loading...
Photo of businessman's hands resting on files on a desk
F&Iby John TabarMay 27, 2026

Focus on the Opening

F&I managers must learn as much as possible about their customers, starting before they walk into their offices. The bulk of today’s consumers expect that, and good results will follow.

Read More →
Photo of a three-seat vehicle back seat
F&Iby Hannah MitchellMay 22, 2026

F&I Reaches for the Sky

The increasingly important profit center continued making gains in the first quarter, according to StoneEagle data, ancillary products proving more popular as consumers hold onto their buys longer.

Read More →
Cover image for a BOK Financial report titled “Timing the market: How avoiding volatility entirely can hurt long-term reinsurance program performance.” The image shows several road construction barricades with flashing amber warning lights lined up in a nighttime work zone. Beneath the image, red text explains that avoiding volatility can mean falling behind inflation and missing market rebounds that drive long-term surplus growth. The BOK Financial logo appears at the bottom right.
SponsoredMay 8, 2026

Timing the Market Can Hurt Long-Term Program Performance

For dealer-owned reinsurance entities, avoiding volatility entirely can mean falling behind inflation and missing market rebounds that drive long term surplus growth. Missing just a handful of strong market days can materially impact cumulative returns—an important reminder for long horizon trust and investment strategies.

Read More →
Ad Loading...
Ryan Ruff, The 90/10 Rule, Automotive Training Academy, Sales Series
F&IMay 6, 2026

The 90/10 Rule

In this video, Ryan Ruff explains the rule that elite sales professionals use to turn ordinary conversations into unforgettable customer experiences.

Read More →
Photo of essential oil diffuser on desk next to laptop
F&IMay 4, 2026

Your Office Is Talking

What’s the atmosphere saying about you to your customers? You can make minor adjustments and additions that transform your space into one that creates trust with the people on the other side of the desk.

Read More →
"Effective training ensures the customer’s needs remain at the heart of everything we do. When that is the focus, both sales and profits naturally improve." by Rick McCormick with F&I and Showroom logo and picture of Rick McCormick
F&IMay 1, 2026

F&I Training Fundamentals

How can auto dealerships help F&I managers fulfill their vital role in the most effective ways? Industry expert Rick McCormick shares his insights on the best ways to train these professionals and help them maintain good habits.

Read More →
Ad Loading...
Photo of car tire and the tread mark it left in snow
F&Iby Hannah MitchellApril 29, 2026

Not Just Any Tire Will Do

More consumers and businesses are opting for all-season options for various reasons as safety, sustainability and convenience push practical change.

Read More →