A Dealer Win, and a Couple of Lessons

A Maryland dealer and a captive finance company prevailed in a case that proved, once again, that credit sales are not loans.

March 2018, Auto Dealer Today - Feature

by Thomas B. Hudson, Esq. - Also by this author

The Court of Special Appeals of Maryland found in favor of a dealer and finance company after a car buyer charged them with violating that state’s interest, usury, and consumer protection standards. Photo by sach1tb via Flickr
The Court of Special Appeals of Maryland found in favor of a dealer and finance company after a car buyer charged them with violating that state’s interest, usury, and consumer protection standards. Photo by sach1tb via Flickr

The case I write about this month is noteworthy not just because a dealer won a case in consumer-friendly Maryland, as rare as that is, but also for a couple of points that we in the business sometimes forget. First, I’ll tell you the facts of the case and we’ll look at how the court addressed those facts, then I’ll get around to the other points the case illustrates that are worth thinking about.

Late Fees and Repossession

James Dupreez signed a retail installment sale contract to buy and finance a truck. The RISC was assigned to GMAC Inc.

When Dupreez failed to make certain payments on the contract, GMAC charged late fees. GMAC eventually repossessed the truck, and sent Dupreez a notice stating that it would sell the truck unless he paid past due payments, late charges and costs of repossession. GMAC sold the truck and then sued Dupreez to collect the deficiency that remained after the sale.

Dupreez counterclaimed. He alleged that GMAC violated the Maryland Interest and Usury Statute when it repossessed and sold the truck because it provided incorrect information in its pre-sale notices to him, and that the RISC violated the Maryland Retail Installment Sales Act by requiring him to pay late fees and repossession costs and by charging for a repair warranty and debt cancellation insurance without itemizing the amounts in the RISC.

Dupreez also alleged a violation of Maryland’s Consumer Protection Act, unjust enrichment, and negligent misrepresentation, all based on the premise that the RISC violated the MRISA.

The trial court granted GMAC’s motion to dismiss. Dupreez appealed.

RISCs Are Not Loans

The Court of Special Appeals of Maryland (Maryland’s intermediate appellate court) affirmed the trial court’s decision. The appellate court first held that the usury statute does not apply to installment sales of motor vehicles because the statute applies to “loans,” and retail installment sales contracts are not “loans.”

Second, the appellate court held that the MRISA does not prohibit a creditor from charging late fees and repossession expenses for vehicles that have a sale price in excess of $25,000. The MRISA generally applies to sales of goods that have a cash sale price of $25,000 or less. Because the sale price of Dupreez’s truck exceeded $25,000, the MRISA did not regulate GMAC’s ability to charge late fees and repossession expenses; instead, according to the appellate court, GMAC’s ability to do so is governed by the Uniform Commercial Code. GMAC also had a right to charge late fees because the RISC itself provided that the holder of the contract could assess such fees.

Because Dupreez’s other claims were premised on GMAC’s alleged violations of the usury statute or the MRISA, the appellate court concluded that the trial court did not err in dismissing them.

Key Takeaways

The first point you should note is the court’s distinction between retail installment contracts and loans. Dealers who sell and finance cars using retail installment contracts frequently, and carelessly, refer to the financing of the vehicles as “loans.” They are not.

As this case illustrates, retail installment contracts are frequently subject to state regulations that are different from those that regulate loan transactions. As this case also illustrates, plaintiffs’ lawyers are not above trying to convince courts that loans are installment sales, or vice versa, when such a “recharacterization,” as we call it, can provide a colorable basis for a claim.

Occasionally, a court will fall for that argument. That’s why we stress to dealers (and to finance companies) that loans and credit sales are different creatures, and that referring to them erroneously can help the plaintiffs’ lawyers who try to make such arguments.

The second point to note is that some state and federal laws simply don’t apply to some larger transactions. Sometimes the limit is based on the price of the goods financed, and sometimes the limit is triggered by the amount financed.

Here, the cutoff for the operation of the state law relied on by the consumer was $25,000 — transactions in amounts higher than that were simply not subject to that law’s restrictions. The cap for the application of the federal Truth in Lending Act and Consumer Leasing Act is higher — $55,800 for 2018, and adjusted for inflation, but still eliminates a bunch of highline transactions. The lesson is one that highline dealers and their lawyers should always keep in mind.

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] © 2018, all rights reserved. Single print publication rights only, to Auto Dealer Today (1/18). HC No. 4823-7216-2650.

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  



Jim Ziegler
Stupid Is as Stupid Does

By Jim Ziegler
The Alpha Dawg charts the brief rise and long fall of Johan de Nysschen, the recently departed president of Cadillac and author of the business plan that effectively crowned Lincoln as the new king of American luxury.

They Finally Killed Somebody

By Jim Ziegler
Ziegler believes Uber’s directors should face criminal charges for their role in an Arizona woman’s violent death.

20 Things a GM Must Do Every Week

By Jim Ziegler

All Things Must Pass

By Jim Ziegler

Opening Observations

They Took Cadillac for a Ride

By Tariq Kamal
Hindsight is 20/20, but at least one industry member saw GM’s latest mishap coming a mile away.

Stand Up and Be Counted

By Tariq Kamal
The Dealers’ Choice Awards are the Yelp of vendors and finance sources.

Over the Curb

This Is Us: Dealer Edition

By Jason Heard
Heard knows delegation and outsourcing are the quickest path to a work-life balance.