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Psensky v. American Honda Finance Corporation

378 N.J. Super. 221, 875 A.2d 290 (App. Div. 2005)

CONSUMER PROTECTION; PRE-EMPTION; TRUTH IN LENDING ACT—The Truth in Lending Act preempts state laws that conflict with the Act and compliance with the Act by a car loan assignee is a complete defense to state claims against the assignee that are factually based upon the disclosure requirements of the Act.

A buyer entered into a retail installment contract with a car dealer to purchase a used car. The car dealer later assigned the contract to a finance company that regularly financed cars sold by the car dealer. Shortly thereafter, the man filed a class action against both the car dealership and the finance company. The buyer alleged, among other things, that the car dealer violated New Jersey’s Consumer Fraud Act by failing to disclose and itemize in the contract certain fees charged for registration, title, and document preparation. In addition, the car buyer contended that the finance company was liable for the car dealer’s wrongdoing through the Federal Trade Commission Holder Rule, the New Jersey Retail Installment Sales Act, as well as by reason of provisions within the retail installment contract. The finance company moved for summary judgment asserting that no specific wrongdoing was asserted against it and that the federal Truth in Lending Act (TILA) trumped the FTC Holder Rule as well as preempted the New Jersey Retail Installment Sales Act. The Truth in Lending Act requires certain disclosures to be made in loan documents and authorizes consumers to sue for violations of the statute. However, TILA only permits buyers to sue consumer loan assignees when the violation is facially apparent in the loan. The lower court rejected the finance company’s preemption arguments, holding that TILA limits assignees’ liabilities only to claims based on the TILA. It held that TILA did not apply in the present case because the buyer was not asserting any TILA claims against the defendants.

To the relief of the finance company, the Appellate Division reversed. In doing so, the Court first evaluated the purpose behind the assignee liability provisions of TILA. It held that it was to limit the liability of voluntary assignees to violations apparent on the face of the loan. The Court then conducted a preemption analysis. It evaluated the provisions of the FTC Holder Rule and the New Jersey Retail Installment Sales Act being asserted by the buyer to determine whether the provisions conflicted with the purpose of TILA. The Court ruled that the provisions of the statutes being asserted by the buyer would make an assignee liable for violations that were not facially apparent on the loan, which would contradict the purpose of TILA. As a result, the Court ruled that TILA trumped the FTC Holder Rule as well as the New Jersey Retail Installment Sales Act. It rejected the lower court’s reasoning that the finance company could not assert TILA in its defense because the buyer had not filed any claims based on TILA. It held that the claims being asserted by the buyer were factually based on TILA disclosure requirements; therefore, the finance company could assert TILA as a defense. Accordingly, the Court granted the finance company’s motion for summary judgment based on the assignee liability provisions of TILA.

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