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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.

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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.

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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).

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