LEGAL
Plaintiff Class Action Attorneys Continue Assault on Consumer Credit By Keith Thornburg, Vice President and General Counsel
Bankers are great risk managers. However, managing legal risk in the consumer credit space is challenging because class action attorneys are adept and creative in finding and exploiting seams and ambiguities in the Uniform Commercial Code and the Consumer Lending Code. Because “violations” oſten carry penalties such as forfeiture of interest or claims for a deficiency, losses can add up quickly. Te exposure can be multiplied through a bank’s entire lending portfolio if a court “certifies” a case for a class action. Banks, no matter how implausible the legal theory presented, can be compelled to settle some cases rather than risk the liability of a class-action judgment.
MBA has recently engaged in a case to present an amicus brief (friend of court) to present the deleterious impact for our member banks and Missouri consumers by a novel plaintiff ’s claim. MBA offers an industrywide and communitywide perspective to the court. In many cases, we demonstrate the history and policies behind the complex statutes and regulations that our industry navigates daily.
In a case pending in the Missouri Eastern District Court of Appeals, Central Bank v. Barbara and Alexis Branch (Case No. ED 109020), the bank repossessed a Chevrolet Impala and provided a standard notice under UCC 9-614 that the vehicle would be disposed in a private sale. Central subsequently sued for a deficiency, and the respondents counter claimed that the pre-sale notice was defective because the sale, which occurred via a dealer auction, was a public sale because all auctions are considered public sales. Te trial court accepted this argument and denied Central’s request for a deficiency judgment. Te same plaintiffs and attorney have since initiated a class action against the bank to represent all defaulted borrowers who received a similar notice under similar facts.
Our brief on appeal demonstrates that many jurisdictions across Missouri and the United States have ruled that dealer auctions are private sales. Only dealers are permitted to attend these sales, physically or remotely, and the sales are not advertised to the public.
Dealer auctions present a commercially reasonable means to dispose of vehicles aſter repossession because the dealer auction process and auction facilities provide for vehicle transport, secure storage, vehicle evaluation, display, bidder vetting, substantial bidder turnout and competitive pricing. Dealers from many parts of the United States participate, and vehicles can be sold and delivered to markets where a particular vehicle carries its highest value. In contrast, many authorities note that public auctions oſten produce inferior bids.
In addition, describing a dealer auction as a “public sale” is inherently misleading because the public and the borrower would not be permitted to attend and bid. Te second shoe that would eventually drop would be that that lenders would be sued for providing the form of notice the plaintiffs in this case seek to mandate because the notice would be an unfair and deceptive practice.
Plaintiff attorneys in Missouri appear to have been shopping for a scenario, trial record and a sympathetic judge to spring this argument. Early in the appeal, three out-of-state law professors filed a surprise amicus brief in support of the borrowers.
MBA always stands ready to advocate for our member interests.
THE MISSOURI BANKER 9
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