by Faux Law Group. on August 18, 2022

Attempts to Circumvent the Nevada DMV Dealer Bond Coverage by Financial Institutions

Nevada law requires that motor vehicle dealers in Nevada post a $100,000 surety bond. NRS 482.345. Its metes and bounds are determined by statute, specifically NRS 482.345. Per the statute, the bond is “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). So, in order to qualify as a consumer under the statute and be entitled to make claim upon the Bond, the person must 1) be the final user of the vehicle and 2) possess the vehicle for any purpose other than offering it for sale.

In 2017, the Nevada legislature amended the statute to exclude bond claimants other than “consumers” from bond coverage, thereby preventing financial institutions from asserting claims. However, this has not kept them from doing just that, and although we have denied their claims on multiple occasions, they persist, and Lobel Financial, for example, has made at least a dozen such claims, often repeating the same claim against a particular bond in spite of the denial.

Some of these companies, which typically are either financing and flooring companies, have now attempted to get around the restrictive Nevada statute and bond by asking consumers to assign their rights against the bond principal to them, and by then making a bond claim on behalf of the consumer. Such claims should be rejected for the following reasons.

  1. The consumer can assign only the rights which he or she actually has against the bond principal, and the finance company can prosecute only those rights, not its own rights.
  2. There must be consideration by the finance company for the assignment.
  3. Such claims are not assignable in any case.
  4. The holder rule.

THE CONSUMER CAN ASSIGN ONLY THE RIGHTS WHICH HE OR SHE ACTUALLY HAS AGAINST THE BOND PRINCIPAL, AND THE FINANCE COMPANY CAN PROSECUTE ONLY THOSE RIGHTS, NOT ITS OWN RIGHTS

An assignment operates to place the assignee in the shoes of the assignor and provides the assignee with the same legal rights as the assignor had before assignment.” First Fin. Bank v. Lane, 130 Nev. 972, 978, 339 P.3d 1289, 1293 (2014); see also Reynolds v. Tufenkjian, 136 Nev. 145, 151-53, 461 P.3d 147, 153 (2020).

In most of the cases we deal with, the consumer purchases a used car from the dealership, makes a down payment and then finances the remainder of the purchase price through a high interest lender, such as Lobel Financial or PAC Auto Finance. The lender will then send a check to the dealer with the expectation that the dealer will turn over the title to the motor vehicle. Then typically, the dealer fails to transmit the title, ultimately preventing the consumer to register the car and causing him or her to make the loan installment payments, and the financing company is out of its money and cannot repossess the vehicle because it doesn’t have the title. In most such cases, the dealer never had the title, and therefore it may be impossible to obtain a replacement title.

The title company now wants to recover its losses and contacts the consumer, sometimes telling the consumer that it will repossess the vehicle without disclosing that it doesn’t have the title. The consumer then agrees to the assignment and signs an assignment document. However, that consumer can only assign the rights and damages which he or she can assert against the dealer, which in a typical case may involve the down-payment and the recovery of loan payments already made. In prosecuting such an assignment, the finance company is thus restricted to those rights and damages, not its own damages. It could, of course, separately sue the dealer for those damages.

THERE MUST BE CONSIDERATION BY THE FINANCE COMPANY TO OBTAIN THE ASSIGNMENT

A valid consideration by the finance company would be payment to the consumer of his or her actual damages, but this will probably never happen. Instead, the finance company will tell the consumer that it will forego its collection on the vehicle loan and thereby convince the consumer to sign the assignment.

An enforceable contract requires “an offer and acceptance, meeting of the minds, and consideration.” Certified Fire Prot., Inc. v. Precision Constr., Inc., 283 P.3d 250, 255 (2012). “Consideration is not adequate when it is a mere promise to perform that which the promisor is already bound to do.” Cnty. of Clark v. Bonanza No, 1, 96 Nev. 643, 650-51, 615 P.2d 939, 944 (1980). 

Here, the credit agreement between the finance company and the consumer is unenforceable because the finance company cannot keep its promise to the consumer to provide the title to the vehicle once all the installment loan payments are made. Thus, the purported promise by the finance company not to enforce the credit agreement is a false and meaningless promise and therefore holds no consideration at all. Furthermore, flooring companies, which finance the dealership’s acquisition of vehicles have no standing to make any promises to the consumer, as there is no relationship between them. Finally, under the FTC Holder Rule, 165 CFR 433, the Federal Trade Commission intended to shift the risk of seller misconduct from the consumer to the seller and its assignee in cases where the dealer assigns the credit agreement to a finance company, as is the case in most of these cases.

CLAIMS UNDER NRS 482.345 ARE NOT ASSIGNABLE IN ANY CASE

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.

The Reynolds case cited above is clearly on point. It involved the assignment of a statutory claim under Nevada’s elder exploitation law (NRS 41.1395) to a person who was not an “older person” as defined by that statute. The Nevada Supreme Court rejected the assigned claim and held:

The elder exploitation statute’s plain language clearly provides that only the older person can bring the claim. See Beazer Homes Nev., Inc. v. Eighth Judicial Dist. Court , 120 Nev. 575, 579-80, 97 P.3d 1132, 1135 (2004) (explaining that this court “will not go beyond the language of [a] statute” where “the plain meaning of [the] statute is clear on its face”). Indeed, NRS 41.1395(1) provides that “if an older person […] suffers a loss of money or property caused by exploitation, the person who caused the […] loss is liable to the older person .” (Emphasis added.) And while NRCP 17(a) permits a party to “sue in their own names without joining the person for whose benefit the action is brought” under certain circumstances, none of those circumstances exist here. Respondents neither claim to be any of the parties entitled to bring claims without naming appellants as the real parties in interest, see NRCP 17(a)(1)(A)-(F) (listing parties, such as guardians and trustees, that can bring claims in their own name without joining the real party in interest), nor does the elder exploitation statute allow a party other than the affected older person to bring a claim for damages, see NRCP 17(a)(1)(G) (permitting a party authorized by statute to maintain a cause of action without joining the injured party); NRS 41.1395(1) (providing that the liability for an elder exploitation claim lies to the older person with no language permitting another party to maintain such a claim on the elder person’s behalf).

THE HOLDER RULE

Pursuant to the FTC Holder Rule, a Retail Installment Sales Contract must provide in capitalized and bold letters the following:

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.

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). The FTC Holder Rule makes the lender stand in the shoes of the dealer.  Therefore, the faults of the dealer are the faults of the lender and may serve as a defense to any bond claim asserted by the lender.

CONCLUSION:

While a consumer can assign his or her claims against a motor vehicle dealership to a finance company, such assignments are not enforceable against the dealership’s license bond.