Client Alert  12/26 /2011

From our Commercial Litigation department comes case alert of importance to both consumers and lenders:

          In Ramirez v. National Coop. Bank, 2011 NY Slip. Op. 08810 (1st Dep't, December 6, 2011), the First Department, in a unanimous decision, ruled in favor of the plaintiff, an immigrant who spoke little English, against the defendant bank that had purchased a car loan made by the plaintiff to buy a car from the defendant dealership.  Ramirez,  an Honduran immigrant, relied on social security disability and food stamps for support.  After he received letters and telephone calls from the defendant dealership that he had won a prize, Mr. Ramirez went to claim it at the dealership in Brooklyn.  When he arrived, instead of claiming his prize, he was induced to purchase a car, which he could not afford.  The dealership told him to come back at a later time to refinance the car loan at a lower rate.  When Mr. Ramirez returned to the dealership, he was told that his car was irreparably damaged and that it could not be refinanced.  Instead, he was induced to purchase another car, the Ford Escape at an excessive price, which is the subject of this lawsuit.  Mr. Ramirez was again told that he should return on another day to refinance the loan for the Ford Escape.  On his next visit, Mr. Ramirez was told that the Escape was also irreparably damaged and could not be refinanced.  Instead, Mr. Ramirez was induced to buy a third car.  Some time later, National Cooperative Bank ("NCB") acquired the loan for the Escape from the dealership.  When Mr. Ramirez became unable to afford the payments on the Escape loan, the car was repossessed by NCB and sold.  NCB then sent a bill to Mr. Ramirez for the deficiency, $23,041, on the loan.

            Mr. Ramirez brought a suit in New York Supreme Court against NCB and the dealership for fraud, fraud in the inducement, unconscionability, and violation of the New York General Business  Law.  The general rule in New York is that the assignee of a consumer loan acquires all the claims and defenses of its transferor and can be liable for the transferor's wrongdoing, unless an exception applies such as the Truth in Lending Act ("TILA").  Based on that, NCB alleged that the plaintiff's claims against it, which are the claims that it would make against the dealership, were preempted by TILA.  The First Department disagreed finding that the plaintiff's claim against the dealership, which was imputed to NCB, was not based on false disclosures in the loan agreement for the Escape, but was based on conduct carried out by the dealership that amounted to fraud, deception and false advertising.  Thus, the plaintiff's claims against both the dealership and the bank could go forward.    

This case has important consequences for consumers and lenders alike.  It is important that individuals understand that there are laws that protect them against deceptive practices of merchants and sellers.  Consumers should also be aware that they may also have a right of recovery against the lender, especially if the lender acquires a loan that was fraudulently obtained.  Lenders are obliged to do their due diligence.  Should you require legal assistance related to a consumer credit transaction, Barr Post & Associates has over 40 years of experience in commercial litigation.