In Nevada only a “consumer” has standing to assert a claim against a motor vehicle dealer bond. The bond is only “for the use and benefit of the consumer….” NRS 482.345(5). The term “consumer” is defined as “any person who comes into possession of a vehicle as a final user for any purpose other than offering it for sale.” NRS 482.345(10). This legislation limiting a bond beneficiary to a “consumer” corrected a Nevada Supreme Court decision holding that a lender was a qualifying “person” under the bond. See, W. Surety Co. v. ADCO Credit, Inc., 251 P.3d 714, 716-18 (Nev. 2011).
Many times lenders assert a bond claim based on the failure of the dealer to provide clear title, to provide title at all, or similar claims. Claims are asserted based on fraud, breach of contract, or a statutory violation. When these lender claims are denied for lack of standing, the lender may then re-assert the claim based on an assignment from the consumer – the person who obtained the loan to purchase the car. Are these assigned claims valid?
A. Prohibition of Assignment Based on Nevada Law.
Nevada is one of several jurisdictions that prohibits the assignability of certain causes of action, regardless of how the assignment is accomplished. Reynolds v. Tufenkjian, 136 Nev. Adv. Op. 19, 6 (Nev. Apr. 9, 2020) (generally prohibiting the assignment of unasserted legal malpractice claims on public policy grounds); Gruber v. Baker, 20 Nev. 453, 469, 23 P. 858, 862 (1890) (voiding the assignment of a right to bring a claim in action for fraud as being contrary to public policy because a fraud claim is personal to the one defrauded); Prosky v. Clark, 32 Nev. 441, 445, 109 P. 793, 794 (1910) (fraud claims are not assignable because they “are personal to the one defrauded.”). Also, subrogation clauses allowing the assignment of claims in insurance contracts violate public policy due to the potential that only the insurer would receive payments from a personal injury action. Maxwell v. Allstate Insurance Co., 102 Nev. 502, 506-07, 728 P.2d 812, 815 (1986) (holding that such a result would deprive the injured party of “his actual damages [and] the benefit of the premiums he has paid”). Hence any fraud or personal related claims are not assignable, as opposed to the proceeds of a lawsuit. See, Achrem v. Expressway Plaza Ltd., 112 Nev. 737, 739-41, 917 P.2d 447, 448-49 (1996). This is because the assignment of the proceeds from a tort action still permits the injured party to retain control of his lawsuit “without any interference” from a third-party assignee. Id. Under the current state of the law, a fraud claim cannot be assigned, particularly if the entire claim is assigned.
B. Prohibition of Assignment Based on the FTC Holder Rule, 16 CFR 433.
The FTC Holder Rule makes the Lender subject to the claims and defenses that the consumer has against the Dealer. So, as to the consumer, the Lender is the Dealer.
By law, every consumer Retail Installment Sales Contract (“RISC”), must include the following language:
NOTICE
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.[1]
As explained by one court:
The purpose of the Rule is to reallocate the costs of seller misconduct in the consumer market, “compel[ling] creditors to either absorb seller misconduct costs or return them to sellers. . . .” 40 Fed. Reg. at 53523. The FTC noted a variety of measures by which assignees could shift any liability back on the sellers. Id. In so doing, it observed that “where a consumer claim or defense is valid, but limited in amount, a creditor may choose to accept less payment from the consumer to save transaction costs associated with pursuing the seller whose conduct gave rise to the claim.” Id. Such language strongly indicates that the FTC contemplated that consumer claims could be smaller than total rescission and that it was for an assignee to determine which mechanisms for allocating costs of seller misconduct best served its purposes.
The Statement also expressly notes the need for consumer actions against assignees because “the worst sellers are likely to be the most volatile entities where market tenure is concerned. They prove difficult to locate and serve, and the marginal liquidity which characterizes their operations makes collection of a judgment difficult or impossible even if they are successfully served.” 40 Fed. Reg. 53512. As a result of this history, as the Statement expressly observes, the FTC intended to shift the risk of seller misconduct from the consumer to the seller and assignees. See 40 Fed. Reg. at 53523 (“This rule approaches these problems by reallocating the costs of seller misconduct in the consumer market.”). (Emphasis added). Maberry v. Said, 911 F. Supp. 1393, 1402 (D.Kan. 1995) (“The FTC holder rule reallocates the cost of seller misconduct from the consumer to the creditor.”). Lozada v. Dale Baker Oldsmobile, Inc., 91 F. Supp. 2d 1087, 1095-96 (W.D. Mich. 2000).
What is a RISC subject to the FTC Holder Rule? A retail installment sale is a transaction between a consumer and a dealer to purchase a vehicle. The consumer agrees to pay the dealer over time, paying both the value of the vehicle plus interest, and the parties enter into a RISC memorializing this agreement. A dealer can sell RISC to a lender or other party. Often the assignment is in the RISC. The RISC is arguably the most important document the consumer will sign when financing a car. Not all loans fall within the FTC Holder Rule, so the specific facts must be reviewed and this issue is beyond the scope of this article.[2]
Because consumers have the same claims against the lender as the dealer, allowing an assignmentviolates the purpose of the FTR Holder Rule by allowing lenders to avoid direct obligations to consumers. This constitutes a second deceit on the consumer because the consumer will likely assign rights without even knowing the consumer’s rights.
C. Prohibition of Assignment Based on the Deceptive Trade Practices Act.
Bond claims can be based on Nevada’s Deceptive Trade Practices Act (“NDTPA”). Courts have held that Deceptive Trade Practices Act (“DCPA”) claims are not assignable. PPG Industries, Inc. v. JMB/Houston Centers Partners Ltd. Partnership, 146 S.W.3d 79 (Tex. 2004); Horton v. New South Ins. Co., 122 N.C. App. 265, 268 (N.C. Ct. App. 1996) (“It is well settled that claims for unfair and deceptive trade practices under N.C. Gen. Stat. section 75-1.1 are not assignable. See Investors Title Ins. Co. v. Herzig, 330 N.C. 681, 688, 413 S.E.2d 268, 271 (1992)”); Consumer Crusade, Inc. v. Crevecor Mortgage, Inc., Civil Action No. 06-cv-00861-EWN-KLM (D. Colo. Mar. 4, 2008) (“Claims brought under the CCPA are also unassignable”). DTPA claims are assignable because the damages arising from such claims, such as treble damages, would result in a third party receiving a windfall from another person’s injury. “If a claim for violation of the Act is assignable, insurance companies and other powerful parties could buy these potentially profitable causes of action and ultimately profit from another’s injuries, further negating the statutory intent of protecting the consumer. The assignment of an unfair practice claim would wreak havoc by creating a market for claims of a personal nature.” Investors Title Insurance Co. v. Herzig, 330 N.C. 681, 688-89 (N.C. 1992). Also, appraising the value of a chose in action is never easy, due to the absence of objective measures or markets. Consumers are likely to be at a severe negotiating disadvantage with the kinds of entrepreneurs willing to buy DTPA claims cheap and settle them dear.
The result of making DTPA claims assignable is that some consumers will be deceived twice. PPG Industries, Inc., 146 S.W.3d 79, 86 (Tex. 2004). Consumers may assign claims without even knowing they have claims. Id. In sum, allowing assignment of DTPA claims would ensure that aggrieved consumers do not file them, that some consumers receive nothing in compensation, and others are deceived a second time. All would defeat the very purposes for which the DTPA was enacted. Id at 87. Claims under the DTPA are personal and punitive and therefore not assignable. Id. The NDTPA provides a right of action to individuals who are “victim[s] of consumer fraud.” NRS 41.600(1). Nevada has not directly addressed whether NDTPA claims are assignable, but Nevada case precedent is consistent with those decisions rejecting the assignability of DTPA claims.
D. Other Assignment Deficiencies.
There are additional concerns regarding assignments. The lender must show the assignment is valid. “It is essential that in order for there to be a legal assignment of rights, the obligee must manifest an intention to transfer the right to another person. Restatement (Second) of Contracts § 324 at 37 (1979).” Stuhmer v. Centaur Sculpture Galleries, 110 Nev. 270, 275 (Nev. 1994) (“Moreover, the record reveals an absolute lack of evidence that a legal assignment took place.”).
Any assignment puts the Lender in the shoes of the consumer. Citibank, N.A., v. Tele/Resources, Inc.,724 F.3d 266, 269 (2d Cir. 1983) (citing 3 Williston on Contracts § 432, at 182 (3d ed.) (“Insofar as an assignment touches on the obligations of the other party to the underlying contract, the assignee simply moves into the shoes of the assignor.”). If the consumer did not incur a loss, then there is no loss to assign to the lender.[3]
The facts should also be reviewed with the volunteer doctrine in mind. “The voluntary payment doctrine is an affirmative defense that prevents recovery of amounts voluntarily paid ” Nev. Ass’n Servs. v. Eighth Judicial Dist. Court, 130 Nev. 949,954, 338 P.3d 1250, 1253 (2014); Jpmorgan Chase Bank, N.A. v. SFR Invs. Pool 1, LLC, No.71839, at *5 (Nev. Mar. 15, 2018).
E. Conclusion.
The Nevada legislature makes
it clear in NRS 482.345 that only consumers in a specific context are to be
benefitted by the bond, not lenders. Nevada law is clear that fraud and other
personal claims are not assignable. States with law similar to Nevada hold DPTA
claims are not assignable. Finally, the lender has direct and primary
duties to the consumer under the FTC Holder Rule, which the lender should not
be able to avoid through assignment.
[1] It is an unfair or deceptive trade practice within the meaning of Section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to take or receive consumer credit or accept full or partial payment without including the FTC Holder Rule provision in the contract in at least ten-point, bold face type. 16 C.F.R. 433.2(a) and (b).
[2] Nevada law requires that all agreements in a motor vehicle retail installment transaction be contained within a single document. NRS 97.165(1). The single document used by the parties must be a standardized form prepared by the Nevada Commissioner of Financial Institutions. NRS 97.299; NRS 97.301; NAC 97.010. Violation by the dealer may bar collection. NRS 97.305.
[3] This also underscores the public policy against assignment under the FTC Holder Ruler. Otherwise, the lender would receive the consumer’s Holder Rule claim against the lender, which the lender could then dismiss. It may also constitute an unlawful end run around Nevada’s single document doctrine.
