Not California, but in Fitts v. King Richard’s Auto Sales, Inc. 2009 WL 256379 (D.R.I. 2009), Judge Lisi held that an automobile dealer properly disclosed trade-in negative equity by increasing the cash price of the vehicle purchased.  The Court explained:


The parties agree that Plaintiffs had negative equity in the Taurus.  TILA does not require that negative equity in a traded-in vehicle be separately disclosed on the RISA. Slover-Becker, 409 F.Supp.2d 1158. The staff commentary to Regulation Z specifically addresses the reporting of negative equity on a traded-in vehicle:


Content of Disclosures, 18(c) Itemization of Amount Financed


Comment 18(c)-2 is revised in response to requests for guidance by creditors offering credit sales when downpayments involve a trade-in and an existing lien that exceeds the value of the trade-in. (See comment 2(a)(18)-3, where a consumer owes $10,000 on an existing automobile loan and the trade-in value of the automobile is $8,000, leaving a $2,000 deficit.)


The amount by which the lien exceeds the trade-in value would be reflected in the amount financed. (See § 226.18(b).) Assuming the cash price for the new car was $20,000, the amount financed would be $22,000 ($20,000 representing the cash price plus $2,000 representing the excess of the lien over the trade-in value financed by the creditor.) 


The regulation provides great flexibility for disclosing the itemization of amount financed. Comment 18(c)-2 iii … is revised to clarify that any amounts financed by the creditor and representing the excess of the lien over the trade-in value ($2,000 in this example) must appear in the itemization of the amount financed. However, creditors may also add other categories to explain, in this example, the consumer’s trade-in value of $8,000, the creditor’s payoff of the existing lien of $10,000, and the resulting amount of $2,000 included in the amount financed.  Truth in Lending, 63 Fed.Reg. 16,669, 16,673 (April 6, 1998) (emphasis added). 


EPM insists that it did exactly what the staff com-mentary to regulation Z allows, “namely [it] … increas[ed] the sales price on the RISA.”Defendant’s Post-Trial Memorandum at 4. Plaintiffs argue that a representative from EPM stated that EPM would sell the Mercedes for the same price as the Focus; how-ever Plaintiffs presented no evidence whatsoever as to the price of the Focus. Plaintiffs, however, clearly understood that the Taurus trade-in was part of the purchase price of the Mercedes. Plaintiffs also understood that EPM would be paying off the outstanding lien encumbering the Taurus as part of the purchase of the Mercedes. Consequently, in order for Plaintiffs to be credited with the actual cash value assigned to the Taurus, the outstanding lien on the Taurus had to be paid off.  ¶ The record reflects that the actual cash price of the Mercedes was $14,800, which was comprised of $9,300 from the Plaintiffs by cash or financing and the $5,500 figure that EPM assigned as the cash value of the Taurus trade-in. The cash price of $14,800, however, did not take into account the negative equity of $4,500 in the Taurus. Consequently, EPM increased the cash price of the Mercedes, $14,800, by the negative equity in the Taurus trade-in, $4,500, and arrived at a RISA cash price of $19,300. The manner in which EPM treated the negative equity in the Taurus was consistent with TILA requirements. See generally  Slover-Becker, 409 F.Supp.2d 1158;  see also 63 Fed.Reg. at 16,673.


The Court also rejected the Plaintiffs’ argument that the dealer “violated TILA by “disclosing a sales price for the Mercedes that was higher than that which a cash buyer would have paid, thereby failing to disclose the true cost of credit being extended”. 


Slover-Becker also closes this purported avenue of relief.  ‘There was no difference in the amount [Plaintiffs], or anyone else in a comparable transaction, would be required to pay [Defendant] for the Mercedes … whether the transaction was for cash or finance. The increase in the sales price was not a product of the fact that [Plaintiffs were] buying the Mercedes on credit … it was the result of the equity in the [Taurus]’ Slover-Becker, 409 F.Supp.2d at 1163. ¶  The “cash price was clearly inflated; however the Staff Interpre-tation permits a creditor to include charges that are equally imposed in cash and credit transactions to be included in the cash price.”  Id. 


This decision should be contrasted with the California Court of Appeal’s decision in Thompson v. 10,000 RV Sales, Inc. 130 Cal.App.4th 950 (2005), where the Court of Appeal held:  


In its statement of decision, the trial court judicially noticed the definition of “cash price” under the ASFA by the California Department of Consumer Affairs. The state’s official policy relating to negative equity reflects that adding either disclosed or undisclosed negative equity to the cash price of the vehicle is illegal under the ASFA, CLRA and UCL because the cash price cannot be influenced by a trade-in value. Here, the uncontroverted evidence showed 10,000 RV determined the cash price of the Safari by overvaluing Thompson’s trade-in vehicle by $24,000 and then increasing the cash price of the Safari by $24,000. In so doing, 10,000 RV did not properly disclose the cash price as required by section 2982, subdivision (a)(1)(A). By overvaluing the Shasta, 10,000 RV did not disclose its accurate net trade-in value. (§ 2982, subd. (a)(6)(C).) This, in turn, made the disclosure of the itemization of the amount financed inaccurate, in violation of the ASFA and Regulation Z.