In Harold v. TMC Enterprises, LLC, 2016 WL 6069023 (W.D. Va. 2016), Judge Moon held that a car buyer adequately pleaded a TILA violation due to an inflated purchase price of the vehicle where the buyer also alleged that the finance price of a vehicle is higher than its cash price.

Plaintiff asserts that Defendants violated the TILA by failing to disclose all financing charges as required. Compl. ¶ 63–65; 15 U.S.C. § 1638 (requiring that all financing charges be disclosed prior to the extension of credit). Plaintiff claims that, although a rate of 24.989%— which amounts to a financing charge of $11,811.05—was disclosed to Plaintiff, the price of the vehicle was inflated to hide additional financing fees buried within the sales price. Id. ¶ 61. . .Defendants argue that Plaintiff has failed to state a claim upon which relief can be granted because a financing charge does not include the sales price of the vehicle. (Dkt. 9 at 2). They argue that an inflated sales price alone, absent proof that the financing price is higher than the cash price, is insufficient to state a claim under the TILA. See Poulin v. Balise Auto Sales, 2010 U.S. Dist. Lexis 33456, at *14–15 (D. Conn. Apr. 5, 2010). To support this position, Defendants provided an affidavit from JD Byrider stating that the same price would have been quoted to a customer seeking to pay cash rather than finance the purchase. (Dkt. 9 at 2). Thus, they argue that their disclosure of the interest rate and finance charge in the RISC was sufficient to satisfy the TILA, because TILA was not intended to require fair pricing, only proper disclosure. Plaintiff responds by citing Limitiaco v. Auction, LLC, No. 2:11-cv-370, 2012 WL 4911726, at *3 (D. Nev. Oct. 15, 2012) for the proposition that “[a] ‘hidden’ finance charge may exist where the price is above true market value.” Furthermore, Plaintiff asserts that a “cash sales price might be meaningless if the vast majority of the seller’s business is credit sales.” In re Russell, 181 B.R. 6161. 621 (M.D. Ala. 1995). Plaintiff alleges in her brief that JD Byrider has a practice of selling only cars that are financed by CNAC, so there may be little or no history of cash sales, and discovery will be needed in order to investigate further. (Dkt. 16 at 3). In fact, Plaintiff provided a transcript from a deposition from another case implying that JD Byrider has a practice of turning away potential cash customers. Id. Ignoring Defendants’ affidavit and Plaintiff’s deposition transcript, which cannot be considered at this stage, Mujahid v. M/V Hector, 948 F.2d 1282 (4th Cir. 1991), I conclude that Plaintiff has a plausible claim that Defendants’ artificially inflated the sales price for the vehicle because it was financed as opposed to purchased with cash. The excessive sales price in relation to the NADA and Kelley Blue Book value creates an inference that JD Byrider would not truly charge the same price to a cash customer, and thus failed to disclose the true extent of the financing charges. In fact, Defendants concede that “[t]he dispositive issue for TILA purposes thus necessarily must be whether the same price would have been quoted to a cash customer.” (Dkt. 17 at 3). I need not reach the legal question of whether an inflated sales price alone is enough to establish a hidden financing fee, because the facts alleged by the Plaintiff create a reasonable inference that JD Byrider would not charge the same price to a cash customer, which in turn implies that a hidden finance charge was baked into the sale price. Taking Plaintiff’s factual assertions as true at this stage, she has stated a claim under the TILA upon which relief can be granted because she has adequately alleged that JD Byrider has baked hidden financing charges into the sales price of their vehicles. Thus, Defendants’ motion to dismiss as to the TILA claims will be denied.

The Court also held that the FTC Holder Rule allowed Virginia UDAP claims to be asserted derivatively against the Holder because “all claims” means “all claims”.

Defendants argue that despite the plain language of this clause, the FTC’s Statement of Basis and Purpose (“SBP”) for the Holder Rule—as well as subsequent case law—paint a different picture about the meaning of the FTC Holder Rule and the accompanying contract clause. The SBP states that the clause permits a buyer who was aggrieved by a breaching seller to “defend a creditor suit for payment of an obligation by raising a valid claim against the seller as a setoff,” or to bring “an affirmative action against a creditor who has received payment for a return of monies paid on account.” 40 Fed. Reg. 53,524 (Nov. 18, 1975). The SBP appears to limit this affirmative use to “where a seller’s breach is so substantial that a court is persuaded that rescission and restitution are justified.” Id. Some courts have interpreted this language to limit the applicability of the FTC Holder Rule to narrow circumstances. See, e.g., Irby-Greene v. M.O.R., Inc., 79 F. Supp. 2d 630, 636 (E.D. Va. 2000) (refusing to apply the FTC Holder Rule where the seller lied about an automobile’s mileage); Crews v. Altavista Motors, Inc., 65 F. Supp. 2d 388, 391 (W.D. Va. 1999) (limiting the use of the FTC Holder Rule to cases where the buyer received “little or nothing of value”); Ford Motor Credit Co. v. Morgan, 536 N.E.2d 587, 589–90 (Mass. 1989) (“Thus, the function of the rule is to allow consumers to stop payments, and, in limited circumstances, … where equity requires, to provide a return of monies paid.”). More recently, however, many courts have chosen to interpret the FTC Holder Rule—and its accompanying contract clause—in accordance with the plain meaning of the text. See, e.g., Johnson v. Auto Showcase of Bel Air, Inc., No. CV WMN-15-3839, 2016 WL 1597115, at *2 (D. Md. Apr. 21, 2016); Diaz v. Paragon Motors of Woodside, Inc., 424 F. Supp. 2d 519, 544 (E.D.N.Y. 2006); Beemus v. Interstate Nat. Dealer Servs., Inc., 823 A.2d 979, 984 (Pa. Super. Ct. 2003). In fact, the FTC clarified the meaning of the Holder Rule in a 2012 advisory opinion, stating that the SBP quotes discussed above were taken out of context. Letter from Donald S. Clark, Secretary, FTC, to Jonathan Sheldon, et al., National Consumer Law Center (May 3, 2012) [hereinafter FTC Advisory Opinion], holderrule.pdf; see Press Release, Fed. Trade Comm’n, FTC Opinion Letter Affirms Consumers’ Rights under the Holder Rule (May 10, 2012), The FTC stated that “the Rule is unambiguous, and its plain language should be applied.” FTC Advisory Opinion at 3. In fact, the FTC explicitly repudiated the approach of Ford Motor Credit Co. v. Morgan and its progeny. FTC Advisory Opinion at 4–5. My opinion in Crews v. Altavista Motors, Inc., 65 F. Supp. 2d 388 (W.D. Va. 1999),—which relied upon Morgan and was appropriate at the time—is not consistent with the subsequent FTC Advisory Opinion and the trend in other courts. Therefore, I decline to follow the reasoning from Crews. Considering the plain language of the contract and the FTC Advisory Opinion, I find that CNAC, as a holder, is “subject to all claims and defenses which the debtor could assert against the seller.” (Dkt. 2-1 at 5). The Virginia Supreme Court has made it clear that “[w]hen the terms in a contract are clear and unambiguous, the contract is construed according to its plain meaning.” City of Chesapeake v. States Self-Insurers Risk Retention Grp., Inc., 271 Va. 574, 578 (2006). There is no reason here to deviate from that bedrock standard of contract interpretation, so Defendants’ motion to dismiss the VCPA claims will be denied.