Raceway Ford Cases

When a dealer spot delivers a car but later recalls the buyer to rewrite the deal, the dealer may charge interest from the date of the spot delivery and may backdate the new contract to the delivery date without violating California’s Automobile Sales Finance Act so long as the rewritten contract discloses an APR accurately or within Truth in Lending Act tolerances.  Disapproving Nelson v. Pearson Ford Co. (2010) 186 Cal.App.4th 983, in part, this decision holds that when a dealer spot delivers a car to a customer and later calls the customer back to rewrite the deal, the dealer may—but does not necessarily—violate TILA and therefore ASFA by backdating the second contract to the date of the initial revoked contract.  TILA requires the APR to be calculated from the date of consummation which is when the customer becomes obligated on the finance agreement—here the second contract—not obligated on the purchase contract, the first contract.  However, even though the second contract is backdated to the date of the first one, neither TILA nor ASFA may be violated if the misstated APR falls within TILA’s tolerance limits.  Contrary to Nelson, this decision holds that TILA does not substantively prohibit the charging of interest or finance charge for a period prior to consummation of the second credit contract.  Rather TILA merely requires the APR to be calculated as if the entire finance charge is earned post-consummation. Having a second contract does not violate section 2981.9 since the second contract incorporates all of the terms of the credit sale ultimately agreed upon whereas the first contract is voided.  The dealer violated ASFA by charging smog fees on diesel powered cars for which no smog check was required.  However, the charge was the result of a computer programming error and once notified of the error, the dealer promptly refunded the improper charges together with interest.  As a result, the dealer could invoke the bona fide computational error defense to plaintiff’s ASFA claim.

California Supreme Court (Liu, J.); December 15, 2016; 2 Cal.5th 161

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