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Judge stays CFPB, NY AG lawsuit against auto lender
On August 7, the U.S. District Court for the Southern District of New York granted a defendant’s motion to stay a lawsuit against an alleged predatory auto lender until the Supreme Court determines the constitutionality of the CFPB’s funding in a separate lawsuit (CFSA Case; covered by InfoBytes here).
The CFPB and the New York Attorney General (AG) brought the complaint in January, accusing the lender of UDAAP and TILA violations that involved tricking consumers into loans financing used cars with high interest rates (typically above 22 percent) and add-on products they could not afford. The CFPB and AG alleged the dealers affiliated with the company (i) engaged in deceptive conduct; (ii) used high pressures sales tactics; (iii) pressured consumers into unaffordable auto loans; (iv) pressured family and friends to cosign the loans; (v) withheld prices of vehicles; and (vi) misrepresented key financial terms of the purchase, violating the CFPB, the Martin Act, and fraud and UDAP statutes, among other allegations.
In its decision, the district court reasoned that the stay awaiting the Supreme Court’s decision would (i) allow for clarity and guidance on the legal issues at hand and it may help the defendant avoid unnecessary litigation costs; and (ii) promote judicial efficiency and minimize the possibility of conflicts with other courts. Furthermore, the court determined that although it would be in the public interest to enforce consumer protection laws, the potential harm to the public caused by the stay is outweighed by the benefit to consumers “in proceeding in a streamlined fashion.” The order requires the parties to file a joint letter updating the court by the earlier of November 3 or one week after a major development in the CFSA case.
New York restores Martin Act’s six-year statute of limitations
On August 26, the New York governor signed S 6536, which returns the statute of limitations within which the state’s attorney general must bring financial fraud claims under the Martin Act to six years. As previously covered by InfoBytes, in 2018 the New York Court of Appeals issued a ruling that claims brought under the Martin Act are governed by a statute of limitations of three years, not six. According to the majority in that court decision, the three-year period applied because the Martin Act “expands upon, rather than codifies, the common law of fraud” and “imposes numerous obligations—or ‘liabilities’—that did not exist at common law,” which justified the imposition of a three-year statute of limitations. However, Governor Andrew Cuomo noted that “[b]y restoring the six-year statute of limitations under the Martin Act, we are enhancing one of the state’s most powerful tools to prosecute financial fraud so we can hold more bad actors accountable, protect investors and achieve a fairer New York for all.” Effective immediately, S 6536 will amend Section 213 of the state’s Civil Practice Law and Rules to include Martin Act cases among those that must be brought within six years.