Guest Blog by M. Brent Yarborough, Zarzaur & Schwartz, P.C.
On October 16, 2015, Michael Joyce, of Shindler and Joyce, and I presented “Legal Dings, Dents and Crashes: Collecting on Auto Deficiency Accounts” at NARCA’s Fall Conference in Washington, DC. This article, consisting of Parts I and II, is based in part upon the materials we put together for that presentation. Although he was unable to join us in Washington, Keith Shindler, of Shindler & Joyce, was instrumental in developing the presentation. I would also like to thank Nikkita Brown, of Shindler & Joyce for her help in keeping us organized and on schedule.
In Part I, we discussed Documentation, Venue, E-Sign, Securitization and Defenses related to collecting auto deficiency accounts. This portion of the article concerns Counterclaims.
Part II – Counterclaims
As in other consumer debt collection cases, counterclaims are sometimes brought under federal consumer protection statutes such as FDCPA or TILA. The creditor attorney prosecuting an auto deficiency case should also be familiar with counterclaims that can be brought under the state’s Uniform Commercial Code.
With regard to TILA, an assignee is liable for TILA claims that are apparent on the face of the disclosure statement or other documents assigned with the loan. Also, even after TILA’s one-year statute of limitation has expired, a consumer may use a TILA counterclaim to partially or completely offset the deficiency balance.
When the consumer alleges a violation of the FDCPA, the creditor should first examine whether an FDCPA claim can be maintained against the plaintiff. Although most consumer vehicle contracts are assigned, only those entities taking assignment after the loan is in default are subject to the FDCPA.
A consumer can recover actual or statutory damages for violations of Article 9 of the Uniform Commercial Code. But in most cases, the damages available under the UCC will provide only a partial set-off against the deficiency balance owed by the consumer. Damages are calculated differently depending on the type of violation. For instance, violations for improper notice of sale, improper deficiency calculation, wrongful repossession, and commercially unreasonable disposition of collateral are covered by § 9-625(c). For those violations, the consumer may recover actual damages or statutory damages, whichever is greater. Statutory damages under this section are calculated by adding the credit service charge to ten percent of the principal amount of the obligation. The consumer can only recover one award under § 9-625(c) even if there are multiple violations. For other violations of Article 9, the consumer may receive $500 per violation. A creditor’s failure to send an explanation of deficiency is subject to this flat damage award, if that failure is part of, or consistent with, a pattern of noncompliance.
Other counterclaims commonly seen in auto deficiency cases include those brought under a state’s unfair and deceptive acts and practices (UDAP) statute. UDAP statutes vary greatly from state to state, so some might provide a remedy for matters related to repossession and collection while others do not.
Finally, consumers sometimes counterclaim for conversion when they allege that they were not in default at the time the vehicle was repossessed. Even when the consumer was in default due to late payments, that consumer might be able to maintain a conversion claim if the creditor had a history of accepting similarly late payments from that consumer.