CONSUMER PROTECTION

CONSUMER PROTECTION IN VIRGINIA

Introduction.

When consumers enter into contracts, they do so to obtain credit, goods, land, or services for personal, family, or household purposes. Consumer protection laws address the rights and remedies of consumers regarding contract inducements, sales practices, contract terms, warranties, credit, and remedies for breach.

Both the common law and consumer protection laws affect consumer contracts. Common law fraud and constructive fraud affect consumer contracts that are entered into because of fraudulent misrepresentations. Consumer protection statutes affect consumer contracts entered into because of nondisclosures and deceptive, unfair, monopolistic, and unconscionable business practices. Examples of these statutory protections include state and federal standards for truth in lending, warranties, and fair debt collection practices.

Consumer protections statutes often authorize various remedies. Examples include agency and administrative relief, criminal prosecution, arbitration, injunctive and declaratory relief, and specific statutory civil recourse. Consumer contracts should be analyzed not only for common-law requirements, but also for the limits, supplements, and exceptions interposed by the various consumer statutes.

Common Law Actual and Constructive Fraud.

A. In General. Consumer contracts can be induced by either actual fraud or constructive fraud. The principal difference between actual fraud and constructive fraud is that constructive fraud does not require knowledge of falsehood and the attendant intent to deceive. In cases of fraudulent inducement, the party who discovers the actual or constructive fraud is faced with a choice. A contract induced by actual or constructive fraud is not void, but voidable at the option of the party injured by the fraud.

Upon its discovery, the innocent party has the option to rescind the contract, if he can restore what he has received in the same state or condition in which he received it, and sue for and recover back the consideration he has paid or given; or if he has not paid or given anything, he may repudiate the contract and rely, when sued, on the fraud as a complete defense; or he may elect to retain what he has received under the contract, and bring an action to recover damages for the injuries he sustained from the deceit.

B. Actual Fraud. Virginia common-law fraud arises when the speaker makes a false statement with the knowledge that it is false and with the intent to deceive. The elements of common-law contractual fraud in Virginia are (i) a false representation; (ii) of a material fact; (iii) made intentionally and knowingly; (iv) with the intent to mislead; (v) reliance by the party misled; and (vi) resulting damage to the party misled. Although "sales puffing" is not generally considered to be fraud when the parties deal on equal terms, as the difference in bargaining power between the parties increases, the likelihood that a seller's representation would be viewed as mere "sales puffing" decreases.

C. Constructive Fraud. Virginia common-law constructive fraud arises even when the speaker does not have knowledge of the falsehood. This absence of knowledge also removes an intent to deceive. Instead, the speaker may only mistakenly make a false statement. The speaker's intent need only be that the statement be acted upon. Attorneys should advise parties that the truth and the fact that the speaker knows the representation to be the truth are sound policies for sellers making sales representations. On the other hand, attorneys should advise parties that the seller's honest mistake is not a defense. The elements of common-law constructive fraud in Virginia are (i) that there was a material false representation; (ii) that it was meant to be acted upon; (iii) that the hearer believed it to be true; (iv) that it was acted upon; and (v) that damage was sustained. As with ordinary fraud, the seller's representations are more likely to be viewed as mere "sales puffing" as the consumer's bargaining disadvantage decreases.

D. The Misrepresentation Must Lie Outside the Contract. A claim for actual or constructive fraudulent inducement will not lie where there is merely a breach of contract, and not a misrepresentation that lies outside the contract. Where the claims for fraudulent inducement are actually material breaches of the contract, there is only an action for breach of contract and not for the tort of fraudulent inducement. For a fraudulent inducement claim, there must be a breach of a common law duty, not a duty that exists merely because of a contract between the two parties. While failure to perform an antecedent promise may constitute a breach of contract, the breach does not amount to fraud.

E. The Duty of Prompt Disaffirmance In Order to Rescind. Where a contract has been induced by fraud, once the deceived party discovers the fraud, he must use great punctuality and promptness to rescind the contract. If he be silent, he will be held to have waived the objection, and will be conclusively bound by the contract, as if the fraud had not occurred. But proof of waiver is usually a question for the trier of fact, and it must be "clear." A waiver, an equitable principle often applied at law must be distinctly made with full knowledge of the rights waived; and the fact that the defrauded party "knows his rights, and intends to waive them, must plainly appear." And mere delay of the deceived party in rescinding a contract after learning of the fraud will not amount to waiver of the wrongful act, if the delay results from a reasonable expectation that the wrongdoer will fulfill the repeated assurances of its agent to grant the relief to which plaintiff is entitled.

F. A Disclaimer or Limitation of Warranty Clause in a Written Contract Does Not Bar a Fraud in the Inducement Claim. In Packard v. Miller, the Court held that an express agreement that there "are no warranties express or implied made by the dealer or manufacturer. . . " (except the manufacturer's ninety day or four thousand mile warranty) and that "the manufacturer warrants each new motor vehicle . . . chassis or parts manufactured by it to be free from defects in material or workmanship . . ." or the further provision in paragraph No. 7 that "this warranty being expressly in lieu of all other warranties, express or implied, and all other obligations or liabilities on its part . . . " did not insulate the dealer from the legal consequences of fraud practiced by its agent to obtain the challenged contract. There the agent to procure the contract had mistakenly represented to the consumer "that the car would be in perfect condition . . . thoroughly checked . . . gone over carefully . . . [and] in a running condition as it could be when delivered to me . . . ." These representations were found to be material representations of an existing fact that was false and which induced him to purchase the car to his damage and permitted the contract to be rescinded based on constructive fraud.

G. Will a Disclaimer of Reliance Clause in a Consumer Contract Negate Reasonable Reliance on a Fraudulent Misrepresentation? In Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., a federal district court in another state rejected the defendant’s counterclaim for fraud in the inducement, finding that the agreement contained not only a limited disclaimer of liability, but also a full disclaimer of reliance that precluded the defendant from having reasonably relied on the purported oral misrepresentations. The court noted: "[Goodyear] disclaimed most liability when it declared that "other than those specifically set forth herein, there are no warranties which extend beyond the description of the products on the face hereof, either express or implied." Significantly, it also disclaimed reliance when it declared that ‘no representative has authority to make any representation, promise, or agreement, except as stated herein.’ These latter terms gave [the defendant] fair warning as to the reliability of any representation external to the terms." Whether such a clause would work in a consumer contract in Virginia seems unlikely unless it addresses the specific representation allegedly made.

H. Does a Failure to Disaffirm Waive All Benefits of and Relief From the Misrepresentations? Some cases contain language that appears to stand for the proposition that if the deceived party accepts the benefits of the bargain and continues to perform under the contract after learning of the fraud, then the cause of action for fraud is waived. For example, "One who, after discovering the untruth of representations, conducts himself with reference to the transaction as though it were still subsisting and binding, thereby waives all benefits of and relief from the misrepresentations…." The majority of these cases involve real estate transactions where there was no prompt recission.

Other cases, however, permit there to be a suit for fraud and deceit. For example, in Horner v. Ahern, the contract signed by Horners, for the purchase of the land and house of the Aherns, required the vendors to supply a termite certificate and provided that purchasers would be released if termite damage was shown. In their suit, the Horners alleged that the Aherns' agent, informed by one termite inspector of damage, procured from another company a certificate showing infestation only, that relying on this, the Horners took title and had been put to heavy added expense. Rejecting the Aherns’ claim that the Horners could only rescind because the contract provided for rescission, the court held that "one complaining of fraud and deceit may either rescind what was done as a result thereof, or affirm the action taken and sue for damages."

Similarly, in Nationwide Ins. Co. v. Patterson, an insurance agent mistakenly misrepresented the meaning of certain language in an insurance policy. Based on those misrepresentations, the customer purchased the policy. Contrary to the misrepresentations, the insurance contract had a "stop loss" payment provision which prevented the customer’s hospital bills that exceeded the "stop loss" from being paid. The customer sued for constructive fraud and won. On appeal his judgment for damages was affirmed.

I. Litigation.

1. Material Misrepresentation. If the misrepresentation is not material to the contract, it will not support an action for fraud. The misrepresentation must state an existing, past, or present fact. Accordingly, the misrepresentation is not material if it is a promise, a future prediction, a broken promise, or an opinion. There, however, is no bright line test that establishes whether a misrepresentation is a fact or an opinion. Moreover, claims of misrepresentation are interpreted in the context of the relative bargaining power of the consumer and the seller. If the consumer is in a relatively weak contractual bargaining position, what would otherwise not be a fact sufficient to prove fraud may be interpreted as such a fact. For example, an opinion may be viewed as an affirmation of fact by the seller sufficient to qualify as a material misrepresentation. Similarly, a seller's statement concerning his or her experience may be perceived by a consumer as an expert's statement of fact, sufficient to qualify as a material misrepresentation. Moreover, a seller's affirmation of the quality of an item for saleCor similar commendationCcould be construed to be sufficient to qualify as a seller's warranty and support a finding of fraud.

2. Present Intent Not to Perform. While fraud usually cannot be predicated on a promise to do something in the future, where the promisor expressly or impliedly avers that he has an existing intention to fulfill his promise, that intention is a fact, and if false or fraudulent is a fraudulent representation which may support an action for deceit.

3. Reliance. Generally, a sales statement likely to induce a purchaser to act will support an inference of reliance. However, an attorney reviewing a consumer's reliance should resolve whether an exception to the rule may apply. For example, if the consumer conducted an examination of the goods before the sale that should have revealed inadequacies in the goods, then the consumer's reliance would not be justified. Moreover, a buyer's knowledge of an inadequacy in a sales item can raise a buyer's duty to inquire, and without inquiry, a buyer cannot rely upon a seller's representations. In comparison, when a consumer is on notice to inquire and does inquire, his or her reliance on sales representations that divert the consumer from the inquiry has generally been found to support the consumer's reliance. Additionally, when a consumer is in an inferior bargaining position and is induced not to read contractual documents, the consumer's reliance upon the misrepresentation of the other party or that party's agent regarding the document contents can support a cause of action for fraud.

4. Standard of Proof. The standard of proof for contractual fraud in Virginia is "clear, cogent and convincing evidence." However, in United States Bankruptcy Court, fraud may be proved by a preponderance of the evidence when a creditor seeks to prove that his or her claim is eligible for exception to discharge under 11 U.S.C. ' 523.

5. Statute of Limitations. The statute of limitations for fraud is two years from when the cause of action for fraud accrues. Some statutory claims may have different limitations. For example, the Virginia Residential Property Disclosure Act has a one-year limitation from when the purchaser received the required disclosures or one year from when the property was sold (or occupied).

6. Rescission or Damages. Generally speaking, when a contract is procured by fraud, the consumer upon discovery may promptly rescind the contract. Or he may affirm the contract and seek compensation for damages for the fraud and deceit. For example, when a person is fraudulently induced to acquire property, he may recover as damages the difference between the actual value of the property at the time the contract was made and the value that the property would have possessed had the representation been true. If the fraud is committed with actual malice, the injured party may also seek punitive damages; actual malice may be shown if the defendant's actions were prompted by ill will, malevolence, grudge, spite, wicked intention or a conscious disregard of the rights of another. Additionally, it may be that attorneys’ fees are recoverable.

7. Proximate Cause Must Exist Between the Misrepresentations and the Damages. Where the consumer claims damages for fraud, he must show the damages were proximately caused by the fraud.

8. The Economic Loss Rule Bars Recovery Under Constructive Fraud. Economic loss is "disappointed economic expectations." It consists of damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits, as well as diminution in value [due to inferior quality or failure to work as expected]. While the economic loss rule does not apply in actual fraud cases, it does bar recovery under a constructive fraud theory; otherwise every breach of contract case would turn into a tort. Instead, a claim for a nonworking product should be brought as a breach-of-warranty action. Or, if the consumer prefers, he can reject the product or revoke his acceptance and sue for breach of contract. "Disappointed customer expectations about product value ‘is precisely the purpose of excess and implied warranties.’"

9. Defenses. At common law, the seller who defends a claim of fraud may assert several equitable defenses including, for example, the defenses of laches or waiver. The laches defense includes delay to the prejudice of the party raising the defense. The waiver defense includes when a claimant has affirmed a contract by not promptly disaffirming or waived a term of the contract; waiver may be argued to preclude the claimant's remedy. Similarly, an attorney should examine whether a return of property would effect a contractual rescission.

Statutes Affecting Consumer Contracts.

A. In General. Modern statutes that prohibit deceptive and unfair trade practices often eliminate the common-law requirement of intent by the seller and provide specific remedies. For example, the Virginia Consumer Protection Act (VCPA) generally prohibits misrepresentations and deceptive practices by "suppliers" in consumer transactions. It also enforces at least seventeen other state consumer statutes. The VCPA authorizes administrative, injunctive, and public and private civil remedies. In addition, actions under section 18.2-214 et seq. of the Virginia Code include civil, injunctive, and criminal actions for misrepresentation and other offenses connected with sales.

B. Federal Trade Commission Act. The Federal Trade Commission Act (FTCA) states that "[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful." Examples of unfair competition include unauthorized use of another's trade name and business activities in restraint of trade. Examples of deceptive acts or practices include false advertising and other misrepresentations related to consumer sales. The FTCA also authorizes the Federal Trade Commission (FTC) to issue rules, investigate and obtain information, issue administrative orders, and obtain compliance by administrative, injunctive, civil, and criminal enforcement. Consumers may request the FTC to investigate, or they may pursue their own private actions under the FTCA.

The FTC has issued several regulations, including, for example, the regulation prohibiting the "holder in due course doctrine" in consumer transactions. The Virginia codification of the "holder in due course doctrine" allows a creditor to sell a debt to a third party that does not have notice of any claims or defenses regarding the debt, and the third party takes the debt without being subject to the defenses that a consumer might otherwise have to its collection. This statutory provision should be considered with section 8.3A-106(d) of the Virginia Code, which enforces the FTC rule. Thus, the Virginia "holder in due course doctrine" is limited with respect to consumers and is now consistent with the FTC rule. Accordingly, it is a deceptive trade practice to use an installment contract that does not state in conspicuous type that third parties are subject to all the claims and defenses that a consumer could raise against the seller. Deceptive trade practices should also be reviewed under the VCPA.

C. Virginia Consumer Protection Act.

1. In General. The intent of the Virginia legislature in enacting the Virginia Consumer Protection Act (VCPA) "is that this chapter shall be applied as remedial legislation to promote fair and ethical standards of dealings between suppliers and the consuming public." In addition to the prohibitions set forth in the VCPA itself, the VCPA also enforces a number of other Virginia consumer laws as enumerated in the VCPA.

2. Personal, Family, or Household Transactions. The VCPA applies to contracts involving advertisements, offers, sales, or leases of land, goods, intangibles, and services used primarily for personal, family, or household purposes. These are called "consumer transactions."

3. Suppliers. The VCPA is designed to promote fair and ethical standards of dealings between suppliers and the consuming public. The VCPA applies to products in consumer transactions and to products destined for consumer transactions. The term "supplier" includes, for example, manufacturers or distributors who advertise and sell or lease goods or services to be resold or leased by other persons in consumer transactions. Additionally, the remedies under the VCPA apply to persons who personally approve actions by others that violate the VCPA. Thus, corporate officers and joint venturers who approve contracting actions by others may be liable as suppliers.

4. Exclusions. The relationship between enforcement under the VCPA and enforcement under other consumer laws is not always clear. For example, certain regulated industriesCsuch as savings and loan associations, small loan companies, and insurance companies (regulated by the State Corporation Commission)Care excluded from enforcement under the VCPA. The reason for these exclusions is that the agencies overseeing certain industries are perceived to actively regulate and to prevent deceptive consumer practices in their transactions. Actions under the regulatory authority of the Landlord and Tenant Act and the Virginia Residential Landlord and Tenant Act are also generally excluded from enforcement under the VCPA. Arguably, however, these exclusions may not apply to, for example, landlord misrepresentations or fraud. Although the practices of doctors, contractors, or other professionals are regulated by other statutory authorities, they arguably are not entirely excluded from enforcement under the VCPA. For example, if another regulatory authority fails to forbid a certain practice, that particular practice may not be excluded from enforcement under the VCPA. Therefore, if misrepresentations (for example, those concerning certain charges for services) are not "permitted by law" by another regulatory agency and the contract is silent regarding the charges, the VCPA may apply to the misrepresented charges. In comparison, federal law can pre-empt enforcement under the VCPA. For example, litigation interpreting the federal Consumer Credit Protection Act has drawn distinctions between those parts of a transaction that are regulated by that Act and those that are not.

5. Prohibitions. Attorneys reviewing consumer contracts should consider the prohibitions under the VCPA regarding misrepresentations, deceptions, and unfair practices. Examples of misrepresentations include false or misleading statements of characteristics, uses, benefits, origins, approvals, certifications, and quality. Examples of deceptive advertising include "bait and switch," advertising a consumer product for sale without the intention of selling it, and failing to describe clearly and unequivocally the goods that are irregular, imperfect, repossessed, or blemished. Additionally, misleading prices are prohibitedCfor example, misleading price comparisons or amounts of price reductions. The unfair practice of including unlawful terms in contracts or attempting to collect on unlawful contract terms when they are void or unenforceable is also prohibited. Examples include liquidated damages, penalties, and waivers of defenses. Other prohibited misrepresentations and deceptions include misrepresentations regarding the terms of layaway purchase programs, the terms of open-end credit, and other terms of consumer contracts.

6. Enforcement.

a. In General. Any deception used in connection with a consumer transaction is a violation of the VCPA.

b. Intent. Proof of intent is not necessary. However, the VCPA provides that a supplier is not liable if a violation occurred when the supplier had no control or the violation was a result of a bona fide error if procedures had been adopted to prevent such an error. This is the unintentional error defense. Importantly, even if the supplier is successful in the defense, restitution and attorney fees may still be awarded to the consumer.

c. Enforcement of Other Statutory Provisions. The VCPA, by its terms, also enforces the following statutory provisions:

(1) Virginia Health Spa Act;

(2) Virginia Home Solicitation Sales Act;

(3) Automobile Repair Facilities Act;

(4) Virginia Lease-Purchase Agreement Act;

(5) Prizes and Gifts Act;

(6) Virginia Public Telephone Information Act;

(7) Motor Vehicle Manufacturers Warranty Adjustment Act;

(8) Pay-Per-Call Services Act;

(9) Extended Service Contract Act;

(10) Virginia Membership Camping Act;

(11) Comparison Price Advertising Act;

(12) Virginia Travel Club Act;

(13) Rights of purchaser to return hearing aid;

(14) Merchandise pricing;

(15) Towing of trespassing vehicles;

(16) Pawnbroker requirements; and

(17) Animal sales requirements.

7. Civil Remedies.

a. Civil Enforcement. Under the VCPA, the Attorney General, attorneys for the commonwealth, and attorneys for any county, city, or town in Virginia may seek investigative orders, injunctions, civil penalties, costs, and restitution. Governmental authorities enforcing the VCPA are required to give the defendant advance written notice when seeking injunctive relief. This notice must provide written notice of intent to sue and either (i) an offer of opportunity to explain that the alleged violation did not occur or (ii) an offer of opportunity to execute an assurance of voluntary compliance. The VCPA provides broad powers to the foregoing governmental authorities. For example, the VCPA also authorizes ex parte investigative orders to inquire into the contractual activities of the respondent if voluntary requests are unproductive. Prerequisite to such orders is reasonable cause to believe that a violation of the VCPA has occurred or is about to occur. Reasonable cause is viewed as a lower standard than probable cause. Moreover, if an alleged violator receives a notice from one of the foregoing governmental authorities by certified mail that an act or practice is in violation of the VCPA, and the act or practice continues, it is prima facie evidence of a willful violation. For a willful violation of the VCPA, the commonwealth is authorized to recover civil penalties, costs, attorney fees, and expenses.

b. Private Causes of Action. Any person who suffers a loss under a consumer contract may seek to recover the greater of $500 or actual damages, plus attorney fees and court costs. Moreover, if the violation is found to be willful, a court may increase the damages to an amount not exceeding three times the actual damages or $1,000, whichever is greater. A contractual limit on liability for negligence will be strictly construed, limiting the likelihood that such a contractual limit will be enforced.

The remedy for an unintentional violation of the VCPA is merely restitution plus payment of reasonable attorney fees and costs. This limit to restitution is available when a bona fide error can be shown, under a rationale similar to the federal Truth-in-Lending Act. To obtain this limit, the supplier is required to show that the violation of the VCPA was unintentional. Good faith alone, without procedures reasonably adopted to prevent the violation, is not sufficient to succeed with the defense.

The statute of limitations under the VCPA is two years from the date the right to bring an action accrued. However, persons initiating an action under the VCPA are authorized to toll the time attributable to a case, and all appeals therefrom, brought by the commonwealth.

8. No Duty to Elect Between Remedies when also Suing for Fraud.

In Wilkins v. Peninsula Motor Cars, Inc., 266 Va. ___ 022983, ___ S.E.2d ___ (2003), Wilkins purchased a 1998 BMW 540I from Peninsula. An employee of Peninsula represented to Wilkins that the car was new despite the fact that the car's odometer was at 972 miles. In fact, the car had been previously titled and was considered a used car. Wilkins discovered Peninsula's misrepresentations when he received the title to the car in the mail. Wilkins brought an action against Peninsula for, inter alia, fraud and violating the VCPA. A jury awarded Wilkins under the VCPA enhanced damages of $12,000 (a trebling of his $4,000 in actual damages) under his common law actual fraud claim $1,862.86 in actual damages and $100,000 in punitive damages. The court under the VCPA awarded Wilkins attorney's fees and costs of $34,183. The trial court made Wilkins elect between the remedies, but the Supreme Court held the case did not present irreconcilable causes of action which would require Wilkins to elect between them. Because Wilkins conceded that he was only entitled to one award of compensatory damages, one award of exemplary damages, and one award of attorney's fees, the Court remanded with directions to enter judgment for Wilkins in the amount of $138,183 plus an award of reasonable attorney's fees and costs for successfully prosecuting this appeal.

D. Additional Virginia Statutes Affecting Consumer Contracts.

1. Virginia Home Sales Solicitation Act.

a. In General. Home sales solicitation involves contracts for sale or lease in which the seller uses personal solicitation (or telephonic or other electronic means) at any residence other than the residence of the seller. The Virginia Home Sales Solicitation Act (VHSSA) excludes farm equipment sales or leases, cash sales less than $25, sales or leases pursuant to an existing revolving charge account, and sales or leases made pursuant to prior negotiations between the parties.

b. Notice Requirements. The seller is required to provide to the consumer a copy of the full receipt or offer to purchase containing all the terms of the contract. The receipt or written contract must contain the items set forth in the VHSSA, including a statement of the consumer's rights and a "Notice of Cancellation" as set forth in the VHSSA. Additionally, the seller is prohibited from misrepresenting the nature or purpose of the transaction. The seller is required, immediately at the time of the solicitation, to identify himself or herself as a seller or a lessor, or the consumer has 30 days to cancel the sale and tender the goods or merchandise back in good condition.

c. Three-Day Cooling Off Period. The consumer is authorized to cancel a home solicitation sale until midnight of the third business day after the day on which the consumer signs an agreement or offer to purchase. However, if a consumer gives the seller a request, signed by the consumer and dated, that the seller provide the goods or merchandise without delay because of an emergencyCand the seller makes substantial good faith performanceCthe consumer's three-day right to cancel the contract will not apply. All other waivers of the consumer's right to cancel the contract are void. The seller is not entitled to compensation if there has been a proper cancellation.

d. Tenders Required. After proper cancellation, the seller must tender any payments back to the consumer within 10 days after the cancellation. Until the seller complies with this requirement, the consumer may retain the goods, but the seller has a lien on the goods. The consumer is not required to make tender of the goods or merchandise at any place other than the consumer's residence.

e. Additional Remedies. In addition to the relief authorized under the VHSSA, several other bases for consumer relief are authorized. For example, a violation of the VHSSA may be enforced as a VCPA violation. And a civil action for damages or a penalty, along with attorney’s fees, is also provided by Virginia Code § 59.1-68.3. The attorney should also review the transaction for common-law contractual fraud. Truth-in-lending and other statutory contractual disclosure requirements should be reviewed as well. In addition to the seller's loss of right to compensation if a proper cancellation under the VHSSA has been made, a request for quantum meruit by the seller is also susceptible to rejection.

2. Prizes and Gifts Act.

a. In General. The Prizes and Gifts Act requires that anyone stating that a person has "won" something in connection with a sale or lease of goods, property, or services must actually deliver the prize within 10 days without obligation or expense to the recipient. The Prizes and Gifts Act also prohibits false representations that a person has been specially selected and simulation of checks and invoices unless they are clearly identified as something other than checks and invoices.

b. Exclusions. The Prizes and Gifts Act excludes solicitations for books, recordings, video cassettes, periodicals, and similar goods regulated by the Federal Trade Commission Rules and contractual plans to which the consumer has consented in advance.

c. Disclosures Required. The sponsor must be clearly and conspicuously identified, and all material conditions that the participant must satisfy must be disclosed. Additional required disclosures include the retail value of the prize, the actual number of prizes to be awarded, and the odds of receiving each prize. The Prizes and Gifts Act requires a separate disclosure statement (set forth in the Prizes and Gifts Act) in the prize solicitation materials, and the statement is required to be in at least 10-point boldfaced type. A seller's misleading statements made instead of the disclosures required under the Prizes and Gifts Act are a violation of the Act.

d. Remedies. The Prizes and Gifts Act authorizes a consumer's private cause of action, reasonable attorney fees, and costs. Moreover, the Act may be enforced under the provisions of the VCPA.

3. Virginia Membership Camping Act.

a. In General. The Virginia Membership Camping Act (VMCA) applies to campgrounds and recreational facilities that use contracts for periods of one or more years to grant certain nonexclusive rights to the purchaser. Specifically, the VMCA applies when the seller grants a nonexclusive right or license to use a campground or any portion thereof on a first come, first serve or reservation basis. The requirements of the VMCA include registration and bonding by the sellers as well as a disclosure statement in the contract setting forth the purchaser's statutory rights of cancellation, contractual services and financial obligations, escrow of purchase money, and statutory bases for voiding the contract. Moreover, the VMCA requires several contractual terms, including a disclosure statement, in at least 10-point boldfaced type, containing the right to cancel without penalty by midnight of the seventh day following the date of contract. Additionally, any noncomplying contract is voidable at any time at the option of the purchaser.

b. Maximum Fifteen Contracts per Camping Site. The VMCA prohibits the sale of any membership camping contract that causes the total number of contracts to exceed a ratio of fifteen such contracts for each camping site.

c. Enforcement. The VMCA includes provisions for misdemeanor prosecutions under several specific sections including those requiring disclosures and those prohibiting misrepresentations. Additionally, any violation of the VMCA is also a prohibited practice under the VCPA and is subject to its enforcement provisions.

4. Virginia Travel Club Act.

a. In General. The Virginia Travel Club Act (VTCA) applies to for-profit entities that charge an advance fee or annual charge of more than $100 for the privilege of arranging or obtaining future travel services. The VTCA sets forth several requirements, including registration and bonding by the sellers, a disclosure statement in the contract identifying the purchaser's statutory rights of cancellation, services and financial obligations, escrow of purchase money, and prohibitions against misleading statements.

b. Exemptions. The VTCA exempts credit card issuers whose cards are honored by 100 or more merchants other than the issuer. Additionally, the VTCA does not apply to selected investment contracts regarding timeshares under section 55-360 et seq. of the Virginia Code or membership camping contracts under section 59.1-311 et seq.

c. Disclosures.

(1) Travel Services Agreement. The VTCA requires the travel services agreement to contain a written disclosure of all terms and limitations on the membership. These disclosures must be provided to the purchaser at the time the agreement is executed. Also, the VTCA sets forth the specific terms of the purchaser's right to cancel within seven calendar days from the date of execution of the contract. The VTCA requires that this right to cancel be printed immediately above the buyer's signature, in capital letters under the caption, in no less than 10-point boldfaced type.

(2) Public Offering Statement. The VTCA also requires that a public offering statement be prepared and given to any prospective buyer before a travel services agreement is executed. The public offering statement must include, for example, the name and address of the club and a copy of the audited balance sheet if the seller's net worth is below $500,000 and must describe the services offered, the duration and types of memberships, and the fees.

d. Prohibitions. It is unlawful for the travel club to offer a promotion where the cost is more than what the cost would be without a club membership. The VTCA also prohibits several material misrepresentations and the use of several terms including, for example, "timeshares," "vacation ownership," "interval ownership," "time-share benefit," and "incidental benefit."

e. Enforcement. Any violation of the VTCA is subject to the enforcement provisions of the VCPA.

5. Virginia Lease-Purchase Agreement Act.

a. In General. The Virginia Lease-Purchase Agreement Act (VLPAA) applies to personal property agreements by natural persons primarily for personal, family, or household purposes. The VLPAA further limits its application to agreements (i) that are for an initial period of four months or less; (ii) that are automatically renewable; (iii) that are not required to continue leasing or use beyond the initial period; and (iv) that permit the consumer to become the owner of the property. The VLPAA also sets forth several disclosure requirements as well as several exceptions, inclusions, prohibitions, and contractual provisions. An attorney reviewing a consumer contract under the VLPAA should use the provisions of the VLPAA as a checklist.

b. Disclosures. The VLPAA requires specific disclosures before the lease-purchase agreement is executed. These disclosures must be stated on the face of the contract above the line for the consumer's signature. The statutory disclosures are extensive and include, for example, (i) the number, amount, and timing of all payments necessary to own the leased property; (ii) a statement that the consumer will not own the property until all payments are made; (iii) a statement that the consumer is responsible for the fair market value if the product is lost, stolen, damaged, or destroyed; and (iv) a statement of the cash price.

c. Reinstatement. A consumer in default may reinstate the agreement without losing any rights or options under the agreement by paying all past due rental charges, costs to the seller if the property has been repossessed, and any late fee. This right to reinstatement must be affected within five days for contracts with monthly payments and within two days for contracts with payments made at lesser intervals.

d. Inapplicability of Other Laws. The VLPAA provides that lease-purchase agreements which comply with the VLPAA are not governed by laws relating to home solicitation sales, certain installment contracts, and certain security interests.

e. Exempted Transactions. The VLPAA does not apply to lease-purchase agreements primarily for business, commercial, or agricultural purposes or those made with governmental organizations or other organizations; moreover, the VLPAA does not apply to the lease of safe deposit boxes, the lease of automobiles, or the lease of certain personal property that is incidental to the lease of real property and that provides that the consumer has no option to purchase the leased property.

f. Enforcement. A violation of the VLPAA is subject to the enforcement provisions of the VCPA.

6. Comparison Price Advertising Act. The Comparison Price Advertising Act (CPAA) prohibits advertising a former price unless there is veracity demonstrated by the following: (i) the date of the former price is also stated in the advertisement; (ii) substantial sales of the item in the normal course of business were made at the advertised former price; or (iii) the former price that is advertised is based on the cost to the supplier plus the ordinary markup. Further, the CPAA prohibits knowing advertisements of comparison prices that are not verified by the seller. The CPAA is enforced under the Virginia Consumer Protection Act.

E. Motor Vehicles.

1. Federal Odometer Disclosure Requirements.

a. In General. When an application for title to a motor vehicle is made to a state, the transferor must certify on the title either that the cumulative mileage is registered on the odometer or that the mileage is unknown. The statute also provides for verifying the mileage in cases of a lienholder possessing the title, a lost title, and the use of secure powers of attorney.

b. Prohibitions. The statute prohibits tampering with the odometer, removing or altering the required notice of adjusted mileage from the left door frame, and violating the disclosure requirements when transferring the motor vehicle.

c. Enforcement. Private parties and government authorities and are authorized to enforce these requirements. A private person may seek $1,500 or treble damages, whichever is greater, when an intent to defraud exists. The consumer is also authorized costs and reasonable attorney fees. Or the consumer may sue for the defrauding of a third person (i.e., the DMV), damages are limited to $1,500.00 if the consumer has suffered only minimal damages. The statute of limitations is two years after the claim accrues.

The Secretary of Transportation may impose a civil penalty of not more than $2,000 for each automobile and not more than $100,000 in the aggregate. The United States Attorney may bring a civil action to enjoin the offense, to collect civil treble damages where intent to defraud exists, and to collect any penalty awarded by the Secretary of Transportation. Additionally, the United States Attorney may prosecute a knowing and willful violation as a criminal offense. The Attorney General may seek a civil injunction or seek treble damages (or $1,500, whichever is greater) when intent to defraud exists.

2. Automobile Repair Facilities Act. The Virginia Automobile Repair Facilities Act (ARFA) sets forth requirements for automobile repair facilities' contracts with consumers. Written estimates are required, if requested, and must be provided before work of more than $25 is commenced. Unauthorized charges for repairs that exceed 110 percent of the estimated costs are prohibited. Additionally, the ARFA requires that a sign be posted in a conspicuous place where automobiles are normally received for repairs that sets forth the consumer's right to an estimate and other rights under the ARFA. The repair facility is also required to offer to return the replaced parts, as well as to provide a written invoice that clearly states the work performed and the charges for parts and labor. A violation of the ARFA is a violation of the VCPA and is subject to its enforcement provisions.

3. Virginia Motor Vehicle Warranty Enforcement Act. The Virginia Motor Vehicle Warranty Enforcement Act provides that a good faith motor vehicle warranty complaint made by a consumer within the lemon law rights period should be resolved by the manufacturer or its agent within that period. The lemon law rights period is 18 months. Proof of any one of three sets of facts will create a rebuttable presumption that a consumer has made a reasonable number of attempts to conform the vehicle to the warranty during the 18 months. These sets of facts are (i) that the same problem has been the subject of three or more attempts to repair it by the manufacturer; (ii) that a serious safety defect has been the subject of one or more attempts to repair it by the manufacturer and it continues to exist; or (iii) that the motor vehicle is out of service due to repair for a cumulative total of 30 calendar days. The manufacturer may also provide an informal settlement procedure, and it is the consumer's choice whether or not to use it. A suit by the consumer against the manufacturer is barred unless it is filed within 18 months of the consumer taking delivery of the vehicle or within one year of the final decision of the manufacturer's informal dispute settlement procedure. If the consumer properly reports a nonconformity under applicable warranties during the lemon law rights period, and the manufacturer or its agent does not conform the vehicle to the applicable warranties within that period (or applicable extensions), the consumer may seek either a refund or a replacement.

In Chase v. DaimlerChrysler Corp., 266 Va. ___ 022575, ___ S.E.2d ___ (2003), the Court held that a consumer who ended her case against a car manufacturer under the Virginia Motor Vehicle Warranty Enforcement Act ("VMVWEA") in a settlement that did not conclude with an order or judgment in her favor, was not a "successful party" entitled to attorney's fees pursuant to Virginia Code § 59.1-207.14.

In Kniska v. Subaru of America, Inc., 19 Cir. L207998 (Cir. Ct. Fairfax Co. 2003), the Kniskas asserted that the VMVWEA permits an extension of the limitations period if the claimant notifies the manufacturer of the nonconformities during the lemon law rights period as provided in Virginia Code § 59.1-207.13(C). They further claimed that Subaru received actual notice of the vehicle's nonconformities during the lemon law rights period since the car was brought in for repairs at least 4 times before the 18 months ran and each time its nonconformities were reported to the dealer. Pointing out that "Notice" is given when either: (1) a written complaint of the defects has been mailed to the manufacturer; or (2) the manufacturer has responded to the consumer in writing regarding the complaint; or (3) a factory representative has either inspected the vehicle or met with the consumer or an authorized dealer regarding the nonconformity, the court found that notice to the dealer was not notice to the manufacturer. Moreover, the Kniskas having brought their car in for repair for a variety of alleged nonconformities to two different car dealerships wasn’t sufficient to find that Subaru had notice based on the warranty history.

It should also be noted that Congress in the Magnuson-Moss Warranty provisions ("MMWA") of the Federal Trade Commission Improvement Act created a limited federal consumer warranty law. 15 U.S.C. §§ 2301-2312. Thus, the consumer may also have a claim under the MMWA. A consumer may bring a suit in federal court under MMWA if the amount in controversy exceeds $50,000 or where supplemental jurisdiction is properly exercised under 28 U.S.C. § 1367. A consumer may also bring suit in any court of competent jurisdiction in any State or the District of Columbia. 15 U.S.C. § 2310. In Barnes v. West, Inc., 249 F. Supp. 2d 737 (E.D. Va. 2003), a disgruntled car purchaser who resided in the District of Columbia sued a Virginia car dealership who allegedly sold her a new car when, in fact, the car was used and had been severely damaged. Her MMWA claim survived a motion to dismiss for lack of subject matter jurisdiction in federal court even though she had paid only $18,235.85 for the car because she had also filed a fraud claim seeking $350,000 in damages, and thus the fraud claim met the requirement for federal diversity jurisdiction. If the fraud claim not met the federal diversity jurisdiction amount, the court noted in dicta that the plaintiff could not have aggregated her state claims to meet the MMWA’s amount in controversy.

4. Collision Damage Waiver Act. In a contract for the lease of a motor vehicle that imposes upon the lessee an obligation to pay for any damage to the motor vehicle, the Virginia Collision Damage Waiver Act (CDWA) applies. The CDWA prohibits collision damage waivers from containing an exclusion from the waiver of damages caused by the ordinary negligence of the lessee. Written notice in the text of the contract is required, stating that the lessee has the option to purchase a collision damage waiver and that purchase of the collision damage waiver is not mandatory. The text of the notice is set forth in the CDWA, and the notice is required to be in type no smaller than boldfaced 10-point type. Any violation of the CDWA is subject to the enforcement provisions of the VCPA.

F. Credit.

1. Truth-in-Lending Act.

a. In General. Attorneys who review consumer credit transactions should review for compliance with the federal Truth-in-Lending Act (TILA). The TILA and Regulation Z apply to each individual or business that offers or extends credit when four conditions are met: (i) the credit is offered or extended to consumers; (ii) the offers or extensions are done regularly; (iii) the credit is subject to a finance charge or by a written agreement is payable in more than four installments; and (iv) the credit is primarily for personal, family, or household purposes. The TILA requires written disclosures, including for example, the annual percentage rate and total finance charge. The TILA also requires refunds of all unearned interest. Calculation of refunds by the Rule of 78s is prohibited for loans of a duration of over 61 months. In such a case, the TILA requires a method for calculating refunds at least as favorable to the consumer as the actuarial method.

b. Creditor Civil Liability. The creditor is liable when failing to comply with any requirement imposed under the TILA, including for example, failure to make the required disclosures. The TILA contains provisions for correcting an error to avoid liabilityCfor example, when the creditor corrects an error within 60 days of discovery of the error, the creditor is not liable for the error. Also, when a creditor has made an error using the Federal Reserve Board model forms or in conjunction with the creditor's compliance with the Federal Reserve Board's published commentary to Regulation Z, the creditor is not liable for the error.

An action may be brought by a consumer within one year of the violation. However, the consumer may exercise his or her right of rescission within three years of the transaction if the required disclosures are not made. Moreover, if a court determines that the requirements for the right of rescission under 15 U.S.C. ' 1635 have been violated, the court may award damages and other relief under 15 U.S.C. ' 1640 in addition to rescission. Importantly, regardless of whether the three-year or the one-year limitation applies, neither limits the consumer's right to raise the violation as a counterclaim or as a setoff after the limitations period has expired, except as provided by state law.

In Nigh v. Koons Buick Pontiac GMC, Inc., 319 F.3d 119 (4th Cir. 2003), Nigh initially purchased a truck from Koons Buick ("Koons") on February 4, 2000, when Nigh signed the first Buyer’s Order and "Retail Installment Sales Contract" (RISC I), reflecting that Nigh would pay $4,000 down, and trade in his prior vehicle. Nigh was given a temporary certificate of ownership and left with the Blazer. Koons, however, was unable to find a willing lender and the deal was restructured to require an additional $2,000 down payment. The dealership represented this change to Nigh as a "better deal" at a lower rate, necessitating a new RISC (RISC II). Nigh returned to the dealership on February 25 based on this representation, but told Koons he did not have an additional $2,000. He asked to return the new truck, retrieve his trade-in vehicle, and walk away from the deal. Koons, however, told him he could not withdraw because it had sold his trade-in. Nigh, unaware of this statement's falsity, signed RISC II and a $2,000 Promissory Note to cover the added down payment. Koons, again unable to find a willing lender, had Nigh come back and sign a new RISC (RISC III) on March 5 which was backdated to February 25 under a threat that if he didn’t, the Blazer would be reported as stolen.

Subsequently, Nigh learned that his trade-in vehicle had not been sold as Koons had told him but was subsequently repossessed from the Koons’ lot by its noteholder because Nigh failed to make required payments thinking that Koons now owned it. Nigh also learned that one of the reasons Koons had been unable to get a lender to accept RISC II was that it contained an unaccounted for charge, later determined to be for a product whose sale to Nigh had not been properly documented, which Nigh did not recall seeing on the transaction documents, and which he never requested, agreed to accept, or received. The product, a Silencer car alarm, was listed on the second Buyer's Order and on RISC II at a price of $965. But absent from the transaction documents was a Silencer "we owe" form, which is used in retail car sales to document the sale of "after market" products in financed transactions.

Nigh sued and at trial prevailed on his TILA claim that Koons intentionally included the charge for the Silencer on RISC II without a basis for the charge and on his VCPA claim that Koons violated the VCPA by telling him that he did not have valid possession of the Blazer in order to induce him to sign RISC III. In upholding Nigh’s verdict, the Fourth Circuit noted that Regulation Z (12 C.F.R. § 226.2) defines consummation as the "time that a consumer becomes contractually obligated on a credit transaction" and that here Nigh had become committed to the transaction when he signed and gave the documents to Koons and that consummation, or extension of credit, could therefore encompass an unfunded financing agreement. The Fourth Circuit further upheld the trial court’s allowing statutory damages of twice the finance charge in connection with the transaction.

In Barnes v. West, Inc., 243 F. Supp. 2d 559 (E.D. Va. 2003), discussed above, the car dealer also erroneously calculated the annual percentage rate ("APR") of interest based on interest commencing on the date she made the down payment and drove the car away and not on the date, nine days later, when she signed the Retail Installment Service Contract ("RISC"). Mrs. Barnes included with her other claims a violation of TILA. The dealer moved to dismiss since the suit was filed more than one year after the transaction. Mrs. Barnes countered arguing equitable tolling. Noting that every circuit that has considered the issue has concluded that the TILA is subject to equitable tolling when there has been fraudulent concealment of the plaintiff's cause of action, the court examined whether she was entitled to equitable tolling on the facts she alleged. To invoke fraudulent concealment as a ground for equitable tolling, the court noted that a plaintiff must demonstrate three elements: "(1) the party pleading the statute of limitations fraudulently concealed facts that are the basis of the plaintiff's claim; (2) the plaintiff failed to discover those facts within the statutory period, despite (3) the exercise of due diligence." It, however, found that defendant's act of backdating the RISC is unavailing since that act concealed nothing from her and that her ignorance of the law stemmed from no act of concealment of the defendant since it had no duty to explain the law.

In Scroggins v. LTD, Inc., 251 F. Supp. 2d 1277, 1278 (E.D. Va. 2003), on November 16, 2001, Scroggins agreed to trade in her old car towards the purchase of a 2002 Toyota RAV 4 from Lustine Toyota Dodge ("LTD"). At that time, Scroggins was advised by the LTD representative that if she traded in her old car and made a $1,000 down payment, LTD would finance the remaining $22,104.74. In the salesman's words, the financing given the trade-in and the $1,000 payment was "a done deal." Scroggins then signed a Buyer's Order and RISC, and gave LTD a post-dated check for $1,000. LTD, in turn, provided Scroggins with a temporary certificate of ownership and allowed her to drive the car away. Scroggins returned a few weeks later to pay $1,000 to replace the post dated check and again signed a Buyer’s Order and RISC. Both Buyer’s Orders contained a clause stating: "This sale is conditioned upon approval of your proposed retail installment sale contract. . . ." About 3 months after Scroggins' initial agreement in November to buy the car, LTD advised Scroggins that LTD would not provide the financing for her purchase of the car. Instead, according to Scroggins, LTD demanded that she return the car, which she did. Yet, when Scroggins demanded that LTD return her trade-in car, LTD informed her that it had already been sold at an auto auction. She therefore sued alleging among other counts a violation of TILA. The court concluded, however, that the dealer did not violate the TILA by declining to provide the financing promised in the retail installment sales contract ("RISC") or by failing to pay a license and registration fee listed in the RISC.

In Rucker v. Sheehy Alexandria, Inc., 244 F. Supp. 2d 618, 621 (E.D. Va. 2003), on April 3, 2001, Rucker purchased a car from Sheehy Alexandria, Inc. ("Sheehy") and after the parties executed an initial agreement, including a buyer's order, a retail installment sales contract (RISC), and a bailment agreement, he drove the car away. The deal was conditioned upon financing being obtained from a third party under the terms of the RISC within five days, but no such financing was obtained. Sheehy did not immediately demand that Rucker return the car, rather on April 13, 2001, it received a counteroffer approving financing on terms less favorable to Rucker, and Rucker was asked to return to the dealership. Once there, a second agreement was reached which required an additional $1,000 down payment from Rucker and resulted in financing a smaller amount for a shorter term at a stated APR of 24.95%, an increase of 2% over the originally proposed rate. Rucker signed a new buyer's order and RISC which were backdated to April 3, 2001. The 24.95% APR disclosed on the April 13 RISC was calculated based on an interest accrual date of April 3, 2001, the nominal date of the agreement, not April 13, 2001, the actual date that the agreement was consummated which resulted in the APR being understated by .4%. Relying upon Regulation Z (See 12 C.F.R. § 226 app. J(b)(2)) as well as Krenisky v. Rollins Protective Services Co., 728 F.2d 64, 67 n. 3 (2nd Cir. 1984), which held that Regulation Z precludes the use of an earlier effective date when calculating an APR, the court granted summary judgment to Rucker on the TILA claim. Plaintiff was awarded statute damages in the amount of $13,345.82 and $18,871 in attorneys' fees. See, Rucker v. Sheehy Alexandria, Inc., 255 F. Supp. 2d 562, 568 (E.D. Va. 2003).

In awarding attorney’s fees, the court noted that where multiple claims are involved, which rest on "distinctly different" facts and legal theories, the "burden of showing which hours are recoverable for work on the successful claims" rests on the fee applicant. It is the applicant’s burden to submit documentation that reflects "reliable contemporaneous recordation of time spent on legal tasks that are described with reasonable particularity," so that the court can determine reasonable hours expended and then multiply that amount by a reasonable hourly rate, in this case $250 for a senior partner, to obtain the lodestar amount. Rucker v. Sheehy Alexandria, Inc., 255 F. Supp. 2d 562, 563 (E.D. Va. 2003).

c. Remedies. In private actions, the consumer may recover damages, including actual damages, costs, attorney fees, and a penalty. Additionally, an assignee may be liable if there is a violation apparent on the face of the contract. The TILA also allows rescission, as against the creditor and assignees, for failure to make the disclosures required by the TILA. As described above, violation of this right of rescission, when proved, can trigger additional remedies. In consumer credit transactions in which the security for the credit is the principal dwelling of the person to whom credit is extended, the consumer is authorized to rescind the sales agreement within three days after receiving the disclosure statement required by the TILA. The creditor may also be liable for criminal penalties if the creditor's violation of the TILA is willful and knowing.

2. Federal Fair Credit Billing Act.

a. In General. The federal Fair Credit Billing Act (FCBA) provides a consumer 60 days after receipt of a bill to give the creditor written notice of an error in the bill. The creditor then has 30 days in which to respond. During this period, the consumer is not required to pay the disputed amount. Moreover, the creditor cannot restrict or close the consumer's account during that period, except to include the disputed amount when computing expenditures toward the credit limit. Furthermore, a credit card issuer cannot set off any disputed credit card transaction with other funds on deposit with the card issuer without the written consent of the consumer.

b. Disclosure Reports to Consumer Reporting Agencies. If a consumer persists in disputing the bill beyond the 30-day period (in which the creditor sent its reply to resolve the problem), the creditor must state in any report to a consumer reporting agency that the consumer disputes the bill and send to the consumer the name and address of each party to whom the creditor sent the report.

c. Credit Card Issuers. For many claims that the consumer may make against the seller, the consumer may also make the same claims against the credit card issuer for the pertinent transaction. However, a credit card issuer's liability is limited to the amount charged to the card in the transaction. Before the credit card holder makes a claim against the credit card issuer, the credit card holder is required to make a good faith effort to obtain satisfactory resolution. When more than one transaction is disputed, the initial disputed transaction is required to have been over $50 and to have occurred within 100 miles of the consumer's address as listed with the credit card company. The question of where the initial transaction took place is determined under state law.

3. Consumer Leasing Act. The federal Consumer Leasing Act (CLA) requires that creditors disclose the terms of personal property leases that extend for more than four months and are in an amount of less than $25,000. The CLA also requires advertising disclosures and prohibits unreasonable charges for default or early termination of a lease. A lessor who fails to comply with the CLA can also be liable under the TILA. Any action alleging failure to disclose or otherwise comply with the requirements of the CLA must be brought within one year of the termination of the lease agreement. For consumer leases under state law, an attorney should also review the Virginia Lease-Purchase Agreement Act, which is enforceable under the VCPA.

4. Fair Credit Reporting Act.

a. Requirements for Credit Reporting Agencies. The federal Fair Credit Reporting Act (FCRA) requires credit reporting agencies to follow reasonable procedures to assure accuracy. Consumer credit reporting agencies can only supply information that the recipient intends to use in connection with a credit, employment, insurance, license, or governmental benefit application or other legitimate need for a business transaction. These broad authorizations can be expanded by consumer instructions to the reporting agency. On the other hand, additional limits on the credit reporting agencies include, for example, a prohibition against reporting obsolete information (over 7 years old or bankruptcies over 10 years old). There are several exceptions from the FCRA: (i) credit transactions involving a principal amount of $150,000 or more; (ii) underwriting life insurance policies of $150,000 or more; and (iii) employment of persons with salaries of $75,000 or more.

b. Consumer Rights. Upon request, the consumer reporting agency must clearly and accurately disclose to the consumer all information in the consumer's file and its source. The consumer may also request the names and addresses of all entities that obtained reports regarding the consumer in the preceding 12 months or, if the reports were for employment purposes, in the preceding two years. The consumer reporting agency must provide to the consumer, with each response to the consumer's request for disclosure, a summary of the consumer's rights set forth in the FCRA.

c. Remedies. If the consumer notifies the consumer reporting agency that he or she disputes the accuracy of a report by the agency, the agency is required to reinvestigate the matter. Additionally, if the consumer proves that the agency acted with negligence in failing to comply with the FCRA, the consumer's remedy includes actual damages, costs, and attorney fees. Furthermore, if the consumer proves that the agency acted in willful noncompliance with the FCRA, the consumer may also obtain punitive damages.

d. Statute of Limitations. When the consumer seeks to prove negligent noncompliance with the FCRA, the case must be filed within two years of when the cause of action arose. In such a case, there is no discovery rule. However, when the consumer seeks to prove material and willful misrepresentation of any of the information required to be disclosed under the FCRA, the same two-year statute of limitations applies, but a discovery rule also applies.

5. Equal Credit Opportunity Act. The federal Equal Credit Opportunity Act (ECOA) prohibits discrimination against any credit applicant based upon sex, marital status, race, color, religion, national origin, age, receipt of income from any public assistance program, or good faith exercise of rights under the Consumer Credit Protection Act. Attorneys reviewing credit applications under the ECOA should review its numerous exceptions and the fact that the ECOA applies to all stages of a credit transaction (including, possibly, an oral request). The consumer may seek actual and punitive damages, costs, attorney fees, and equitable and declaratory relief.

The statute of limitations is two years from the occurrence of the violation. However, in cases where a state or federal agency has started an action based upon an event in which the consumer also seeks recovery, the statute of limitations is tolled so that the consumer is authorized an additional year after the commencement of a federal or state government administrative action or suit. There is conflicting case law interpreting when and how the statute of limitations applies. For example, when a consumer seeks to use the provisions of the ECOA as a counterclaim or a defense, the statute of limitations has been applied with varying resultsCboth to bar and to allow the counterclaim or defense.

6. Virginia Equal Credit Opportunity Act. The Virginia Equal Credit Opportunity Act (VECOA) is the Virginia counterpart to the federal Equal Credit Opportunity Act. The VECOA prohibits discrimination against any applicant with respect to any aspect of a credit transaction. The State Corporation Commission is authorized to enforce the VECOA via mediation. Additionally, any consumer who has a cause of action for violation of the VECOA may seek actual damages, attorney fees, costs, and $10,000 (or less) in punitive damages if actual damages are awarded. In a loan involving a married couple, a creditor may require both spouses to execute a secured transaction. However, the VECOA prohibits a creditor from taking sex or marital status into account in connection with the evaluation of creditworthiness of any applicant. The VECOA does not require both spouses to sign a deed. Any action under the VECOA must be brought within two years of the occurrence of the violation.

7. Virginia Credit Services Businesses Act.

a. In General. A credit services business attempts, for a fee, to improve a consumer's credit record, to obtain a credit extension for a consumer, or to provide assistance in those services. Credit services businesses must register with the Commissioner of Agriculture and Services and maintain a bond or a letter of credit with the Commissioner. Additionally, the Virginia Credit Services Businesses Act (VCSBA) requires several disclosures and prohibits misleading statements and certain payments. For example, a credit services business is not entitled to payment for its services (i) when the credit services have not been completed and (ii) when the consumer is referred to a credit grantor that provides the same opportunities to the general public without referral from the credit services provider. Moreover, the consumer credit service is prohibited from making false or misleading statements to consumer reporting agencies or prospective creditors regarding the consumer's creditworthiness.

b. Consumer Rights. Before executing a contract with, or receiving any consideration from, a consumer, a credit services business must provide to the consumer an "information statement." This statement includes, for example, notice of the consumer's independent rights regarding the consumer's credit reports and notice that the credit service business will provide the consumer a copy of the consumer's credit report for a nominal fee. Attorneys should review the substantial statutory provisions regarding prohibitions and disclosures and consider that any breach of these requirements can render the contract null and void. For example, the credit services contract must contain a conspicuous statement that the consumer can void the contract with the credit services business until midnight of the third day after signing the contract. Under the VCSBA, contracts without the statement are void. Furthermore, any waiver of a right under the VCSBA by the consumer is void.

c. Enforcement. To enforce the VCSBA, the Attorney General, any attorney for the commonwealth, or any attorney for a county, city, or town may institute a proceeding under the VCPA. Negligent noncompliance by a credit services business can incur liability to a consumer for actual damages. Willful noncompliance can incur liability for actual damages plus any punitive damages that the court will allow. The statute of limitations is two years from the violation, unless a misrepresentation is willful and material, in which case the discovery rule applies.

G. Unclaimed Gift Certificates Which Were Purchased.

Gift certificates that were purchased often contain a time limit in which they must be used. But many businesses do not realize that a gift certificate issued in the ordinary course of the issuer's business that has remained unclaimed by the owner for more than five years after becoming payable is presumed abandoned. Virginia Code § 55-210.8:1. This means that if the business is unable to locate the owner, it must voluntarily report the property to the State Treasurer, prior to the statutory due dates, and the property becomes subject to the custody of the Commonwealth as unclaimed property. Virginia Code §§ 55-210.2:2 - 210.10:2. Thus, consumers have a strong argument with gift certificate issuers that the issuer must honor a purchased gift certificate even though the time to use it has expired.

This rule, however, does not apply to credits, gift certificates, coupons, layaways, and similar items, which are redeemable in merchandise, in services, or through future purchases. Virginia Code § 55-210.8:1.

Virginia Recovery Funds.

A. Contractor Transaction Recovery Fund. The Virginia Contractor Transaction Recovery Fund (the Fund) assists consumers who have received a judgment against a home improvement or home building contractor that involves improper or dishonest conduct. The Fund is generated by assessments upon contractors at the time they pay their contractor license fees. Procedurally, the consumer must first obtain a state civil judgment against the contractor. The consumer is required to send copies of all pleadings and documents to the Board of Contractors. When the consumer files a claim with the Fund, he or she must file a verified claim and must also file a copy of the underlying judgment and additional information set forth by statute. The consumer is authorized to recover actual damages, attorney fees, and costs. There is a limit of $10,000 per claim and $40,000 per contractor for each biennium. The claim must be filed within 12 months of the judgment.

B. Motor Vehicle Transaction Recovery Fund. The Virginia Motor Vehicle Transaction Recovery Fund assists consumers who have been defrauded by motor vehicle dealers or their salespersons. All initial court complaints and subsequent pleadings and documents must be served on the Motor Vehicle Dealer Board. A consumer may file a verified claim for the amount of an unpaid judgment. The claim must be filed not less than 30 days and not more than 12 months after the judgment becomes final. Section 46.2-1527.5 of the Virginia Code authorizes consumer recovery of not more than $15,000 per claimant ($50,000 to $75,000 aggregate) for actual damages and excludes interest and exemplary and punitive damages.

C. Real Estate Transaction Recovery Fund. The Real Estate Transaction Recovery Fund (the Fund) assists consumers who receive a final judgment for loss or damages as the result of improper or dishonest conduct in connection with the sale, lease, or management of real estate. Recovery is authorized from the Fund only for licensed real estate brokers or salespersons against whom a judgment has been obtained but not totally paid. The consumer must serve upon the Real Estate Board a copy of all pleadings and documents in the underlying case. The maximum recovery for a single claimant in a single transaction is $20,000, regardless of the amount of the unpaid judgment. The maximum aggregate recovery against a single licensee is $50,000 (single incident) and $100,000 (more than one incident) per biennial licensing period. Claims in excess of the applicable maximum amounts are pro-rated among claimants. The claim is required to be a verified claim and to be filed no later than 12 months after the judgment becomes final. The claimant may recover damages, costs, and attorney fees but may not recover interest or exemplary or punitive damages.

D. Manufactured Housing Transaction Recovery Fund. The Manufactured Housing Transaction Recovery Fund (the Fund) assists consumers who experience a loss or damage in connection with purchases of manufactured homes that occurred as a result of a statutory violation. The Fund has some unique requirements that do not apply to the funds discussed in the preceding paragraphs. For example, recovery is authorized only after the licensed or registered manufactured home dealer, broker, or salesperson who committed the violation has been directed by the Virginia Manufactured Housing Board (the Board) to pay the amount to the consumer and has failed to do so within 30 days of the Board's direction. The maximum recovery for a single claimant for a single transaction is $20,000, regardless of whether there is a greater amount of unpaid judgment. The maximum aggregate recovery is $75,000 per manufacturer, $35,000 per broker or dealer, and $25,000 per salesperson. Claims in excess of the maximum aggregate amounts are pro-rated among the claimants. Claims are limited to actual compensatory damages during the license period and do not include attorney fees for representation before the Board.

Consumer-Related Business Promotions.

A. Pyramid Sales. A "pyramid promotional scheme" is a pyramid or chain process by which participants give valuable consideration for the opportunity to receive compensation in return for inducing other persons to participate. All contracts in which any part of the consideration given is for the opportunity to participate in a pyramid promotional scheme are void and unenforceable. "Valuable consideration" does not have to be cash payment. Time and effort expended to generate sales to third parties also constitute valuable consideration. In determining whether compensation is based on sales of goods to non-participants (as opposed to inducement of other persons to participate in the pyramid promotional scheme), the predominant theme of songs, cheers, printed materials, and representations about large profits from inducing others to participate should be considered. Proof of the establishment of a pyramid promotional scheme does not require that intermediate parties receive commissions from the efforts of their recruits. Participants may be agents of their out-of-state promoters, and their actions may bind the out-of-state promoter corporation. Violation of the statute is a Class 1 misdemeanor. Attorneys should also review pyramid promotional schemes for violation of the VCPA.

B. Referral Rebate Sales. A referral rebate promotion is an inducement to contract by an offer of value that is contingent upon specific future events. An example of a referral rebate promotion would be an offer to give a rebate as an inducement in return for the buyer giving to the seller names of potential buyers, where earning the rebate is contingent upon sales to the potential buyers. Contracts executed in conjunction with such a scheme are void and unenforceable. Moreover, the consumer may retain the goods or recover the sums paid to the seller or lessor.

C. Home Businesses. Attorneys reviewing home business contracts should examine the VCPA. Under the VCPA, the term "business opportunity" means the sale of any products, equipment, supplies, or services that are sold to an individual for the purpose of enabling the individual to start a business to be operated out of his or her residence but does not include a business opportunity that is subject to the Business Opportunity Sales Act. Additionally, to the extent that a business is operated from a home and also involves a pyramid promotional scheme or a referral rebate sales scheme, see the preceding paragraphs.

D. Business Opportunity Sales Act. The Business Opportunity Sales Act (BOSA) applies to the "sale of any products, equipment, supplies or services which are sold to a purchaser upon payment of an initial required consideration exceeding $500 for the purpose of enabling such purchaser to start a business" and in which the seller (i) represents that it will provide locations or help find locations for vending devices; (ii) represents that it will buy back any items that the purchaser does not sell; (iii) guarantees income or a refund; or (iv) represents that it will provide a sales program in which the income derived will exceed the price paid by the purchaser. The BOSA requires substantial disclosures regarding the identity of the seller and prohibits misrepresentations regarding the seller's identity, the prospects of income and, interestingly, reference to the seller's compliance with the BOSA. The BOSA is not specifically identified as being enforced under the VCPA, and the following sales are excluded from enforcement under the BOSA: securities, franchises, licenses, newspaper distribution systems, sales of ongoing businesses, sales demonstration equipment, and contracts in which a retailer is granted a right to sell goods or services within a retail business as a department thereof. If the seller uses untrue or misleading statements in the sale of a business opportunity, fails to give proper disclosures, or fails to deliver the equipment and supplies necessary to begin substantial operation of the business within 45 days of the delivery date stated in the business opportunity contract, then within one year of the date of the contract, the purchaser may void the contract with written notice to the seller. In such a case, the purchaser is required to tender the seller's property at the purchaser's address; unjust enrichment by the purchaser is not authorized under the BOSA for this rescission. The BOSA also authorizes a civil action for damages and attorney fees by the purchaser.

E. Unsolicited Merchandise. Receipt of unsolicited merchandise offered for sale is deemed for all purposes to be an unconditional gift. The unsolicited merchandise may be used or disposed of without any contractual or lawful obligation to return or pay for it.

Contractual Merger and Disclaimer.

A. Misrepresentation. A merger clause in a contract that disclaims all other representations outside the four corners of the written contract can be unenforceable if a misrepresentation outside the four corners induced the contract. Accordingly, an express contractual warranty given in lieu of all other warranties or disclaiming all other warranties "as is" is ineffective if the contract is induced by misrepresentation.

B. Collateral Agreements. When a contract states that verbal agreements or modifications will not change the contract, this statement must be printed in a separate paragraph in the contract in type not smaller than pica. The Virginia Uniform Commercial Code (UCC) requirement regarding disclaimer of the implied warranty of merchantability, however, is that the disclaimer must be conspicuous.

Civil Actions for Criminal Misrepresentations and Criminal Offenses Connected with Sales. Section 18.2-214 et seq. of the Virginia Code sets forth several bases for criminal prosecution regarding misrepresentations connected with sales, including but not limited to, changing or removing trademarks, removal or alteration of identification numbers, false advertising, advertising for sale with no intent to sell at price or terms advertised, failure to indicate goods are "seconds," improper use of the word "wholesale," etc. A civil action for damages or penalty is authorized to enforce these provisions, with either the amount of damages or $100, whichever is greater. Additionally, attorney’s fees are authorized. The statute of limitations on these civil actions is the "catch-all" limitation period of Virginia Code § 8.01-248 or two years after the right to bring the action has accrued.

Some of the grounds for allowing damages are similar to the VCPA in the context of prohibiting misrepresentations in consumer contracts. These grounds for a civil action should be considered in conjunction with other consumer contract prohibitions. For example, section 18.2-214 et seq. prohibits removal and alteration of trademarks, serial numbers, and identification numbers, and the VCPA prohibits misleading statements (which would arguably include, for example, removed or altered trademarks, serial numbers, and identification numbers). The criminal statutes also prohibits untrue, deceptive, or misleading advertising, inducements, or documents, just as does the VCPA. The prohibitions of the criminal statutes, however, have been held not to apply to oral misrepresentations, while the VCPA, the common law, and other statutes addressing consumer contracts arguably can be applied to oral misrepresentations by suppliers to consumers.

Collections.

A. Fair Debt Collection Practices Act.

1. In General. In response to "abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors," Congress enacted the Fair Debt Collection Practices Act (FDCPA). Congress expressed concern that "[a]busive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy." Accordingly, the FDCPA requires disclosures, prohibits false and misleading statements, and prohibits unfair practices by debt collectors.

2. Venue. A collection case under the FDCPA must be filed in the jurisdiction where the debtor resides or where the contract was signed. The FDCPA's venue requirements apply to both federal and state courts.

3. Disclosures. Any voice or written communication to a consumer debtor is a "communication," requiring a statement of the amount of the debt, the name of the creditor to whom the debt is owed, and a clear statement that any information obtained will be used to collect the debt. Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector must, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing: (i) the amount of the debt; (ii) the name of the creditor to whom the debt is owed; (iii) a statement that the debt will be assumed to be valid by the debt collector unless the consumer disputes the validity of the debt or any portion thereof within 30 days of the notice accompanying the statement; (iv) an additional statement that, if the debt or any portion thereof is disputed in writing within 30 days of the notice, the debt collector will obtain and send a copy of a verification of the debt or judgment to the consumer; and (v) a statement that, upon the debtor's written request within the 30-day period, the creditor will provide the name and address of the original creditor, if different from the current creditor.

4. Applicability to Attorneys. The FDCPA has been held to apply to attorneys who regularly, through litigation, attempt to collect consumer debts. Moreover, an in-house attorney who takes debt collection actions can be a debt collector under the FDCPA and not an employeeCparticularly when the attorney writes a letter on a letterhead containing his or her own name only, and the sole reference to the employer/creditor relationship is to the "client." While collections practices can benefit from the efficiencies of nonlawyer support, attorneys using such support are limited in their payment options with the nonlawyer support organizations. For example, an attorney cannot enter into a fee-splitting arrangement with a nonlawyer corporation that supplies a case tracking system to collection lawyers such that the attorney would agree to pay a percentage of the attorney's net collections to the nonlawyer corporation.

5. False or Misleading Representations. Sixteen misrepresentations are specifically prohibited under the FDCPA. Examples include (i) a false representation that a bill collector is an attorney; (ii) false simulation of legal process; (iii) a false representation that a consumer has committed a crime; and (iv) a false threat of an action that a debt collector has no intent of taking. Attorneys advising clients concerning these prohibitions against deception should apply the "least sophisticated debtor" standard."

6. Unfair Practices. Eight unfair or unconscionable means of collection are specifically prohibited under the FDCPA. Examples include collecting excess amounts, taking or threatening to take property without a right to do so, and communicating by post card with a consumer regarding a debt.

7. Civil Liability. Private plaintiffs are authorized to recover actual damages (and additional damages that the court will allow not exceeding $1,000) plus attorney fees and costs. On the other hand, the defendant's attorney fees and costs are authorized against the unsuccessful plaintiff who brings a case in bad faith for the purpose of harassment.

B. Consumer Defenses to Enforcement of Security Interests.

1. Security Interests.

a. In General. A security interest is an interest to secure payment or other obligation. One way to create a security interest is by a statutory lien. There are over 30 statutory liens authorized in Virginia. A security interest can also be created by a written agreement, such as a deed of trust, an automobile loan, or other secured credit transaction. Generally speaking, the collateral must be identified, and the agreement must be enforceable against the debtor. To be valid, an agreement creating a security interest must be in writing, signed by the debtor, with value given by the creditor, the buyer having rights in the collateral or the power to transfer rights, and reasonably identifies the collateral. A security interest in consumer goods, generally speaking, can only be an interest in the goods sold. The Consumer Finance Act, however, allows non-purchase money security interests in household goods. A security agreement under the Consumer Finance Act must be signed by the borrower or, if married, both spouses unless they have been living separate for five months. A security interest in household goods under this section does not impair any rights to exemption under the poor debtor or other applicable exemption law.

b. Requirements. The attorney should review security agreements for impermissible blank spaces and changes. At the time of the execution of the security agreement, it is prudent for the parties to initial the document at the places where blanks and changes occur. It is impermissible to change the agreement after signing. The attorney should also ensure that the consumer entering into the security agreement has valid rights to the collateral or the power to transfer rights. Moreover, the collateral must be reasonably identified. The attorney should also review security interests for unconscionability.

c. Accessions and After-Acquired Property. Generally speaking, the agreement must describe the property that is agreed to be an accession. Otherwise, an accession is arguably not collateral for the security agreement. Moreover, with regard to after-acquired property, the debtor must acquire rights to after-acquired property within 10 days after the secured party gives value. The attorney should review after-acquired property clauses for defects, as an improper after-acquired property clause can void a security agreement.

d. Termination of a Security Interest. If the actions of the parties terminate a security interest, those actions may also preclude repossession, because the security interest upon which the repossession would be based may no longer exist. For example, when the collateral changes, the security interest may terminate. Similarly, the act of renewing a note, without renewing the security interest, may invalidate the prior security interest. Moreover, if a security agreement is not assigned with the note, the security interest may be terminated by the assignment of the note. Of course, if the obligation is extinguished, there is no payment or performance to secure, and the security interest is terminated when the obligation is terminated.

2. Consumer Default.

a. In General. Nonpayment can trigger the creditor's contractual (and other lawful) remedies for default, including acceleration of payments and repossession. Attorneys reviewing a consumer default should consider a consumer's potential responses under the authorities cited below.

b. Missed or Late Payments. If accepted by the creditor, consistently missed or late payments may modify the contract such that the debtor may be found not to be in default. Additionally, if the creditor has accepted late payments, the creditor may be estopped from repossessing without notice. Even if the contract has a waiver of notice provision, a creditor's acceptance of late payments can be construed as a waiver of the payment provisions of a consumer contract, and such waiver may be construed to waive the acceleration of payments and the repossession without notice provisions as well.

c. Debtor's Limited Right to Cure Default. Virginia law authorizes acceleration clauses. However, a purchaser of consumer goods may cure within 10 days after default, and the creditor may not require acceleration of payments during that period. Moreover, if a creditor repossesses and sells the collateral when the debtor is not in default or when the 10-day right to cure period applies, the proceeds of the creditor's sale may be required to be given to the debtor.

3. Repossession.

a. Proceeding in Detinue. The sheriff or other proper officer may seize the property subjected to a security interest under a pretrial order from a judge or magistrate, and the court will retain jurisdiction over the property until the parties' rights are determined. Attorneys providing advice for repossessions should examine whether the presence of state officials at the scene of a repossession without a proper order violates due process.

b. Self-Help Repossession. Although the existence of a state statute authorizing self-help repossession may support an argument that self-help is encouraged, attorneys advising clients concerning repossessions should review the restrictions on self-help repossessions imposed by the courts, for example, those involving a "breach of peace." If a repossession involves a "breach of peace," the creditor can incur liability for damages. A "breach of peace" arises when bodily force or threats occurCviolence is not required. Importantly, if a debtor objects to an attempted seizure of the property and the property is seized contrary to the objection, the creditor may be liable for damages. However, a debtor's objection after seizure is not valid. A creditor's trespass into a residence can also support damages against the creditor. Moreover, the creditor may incur liability for the presence of the law enforcement officials, such presence being construed as constructive force. However, the debtor must know that the law enforcement officials are present.

c. Consent to Repossession. The debtor may give voluntary consent to repossession. However, consent given under duress is not valid. Consent given by a third party must be under proper and sufficient authorization.

d. Criminal Concealment. Debtors are prohibited from selling, hiding, destroying, or disposing of collateral with the intent to defraud the creditor.

4. The Creditor's Disposition of Property.

a. Creditor Retention. A creditor may retain repossessed collateral in full satisfaction of the underlying debt, with no debtor deficiency, as long as the creditor notifies the debtor and the debtor agrees; otherwise, if the debtor objects within 21 days of notice of the creditor's intended retention of the collateral, the creditor must dispose of the property by public or private sale. In such a case, if the creditor shows a lack of effort, or no effort, to dispose of the collateral, the creditor may be required to keep the collateral, and the debt will be deemed satisfied.

b. Debtor's Redemption. A defaulting debtor may redeem the collateral under the UCC, but the debtor's redemption may be conditioned upon payment of an accelerated amount plus reasonable expenses and attorneys fees incurred in repossession. An attorney who advises a party concerning a debtor's redemption rights should consider the consequences of a creditor's refusing a debtor's full tender of redemption. For example, if the creditor refuses tender of full payment, the creditor may arguably incur liability for conversion of the property.

c. Sale of Collateral.

(1) In General. Unreasonable delay in the sale of collateral is prohibited. Moreover, when 60 percent of the cash price has been paid by the debtor, the creditor must sell the property within 90 days of repossession. Violation of this requirement may be enforced by an action to recover damages.

(2) Notice. The creditor is required to send the notice of sale to the debtor and other interested parties.

(3) Discharge of Maker, Co-Maker, or Indorser. A cancellation of the instrument discharges the debtor. Discharge of an indorser or accommodation party can occur when there is an extension of the due date of payment without permission or an unjustifiable impairment of collateral.

(4) Public Versus Private Sale. A public sale involves, among other things, a public auction and sufficient advertising. The secured creditor may bid at its own public sale as long as the creditor complies with the requirements for a public sale. Also, the secured creditor may buy at a public sale, and if the collateral is of the type customarily sold in a recognized market or is of the type that is the subject of widely distributed standard price quotations, the creditor may buy at a private sale. In comparison, any sale lacking the requirements of a public sale is a private sale, subject nevertheless to the requirement of being commercially reasonable. A transfer of collateral per a guaranty or repurchase agreement is not a sale and does not have the notice and procedural requirements of a sale.

(5) Sale Price. A sale that does not obtain the optimum price is authorized, and a low price does not necessarily make a sale price unreasonable. However, an unreasonably low sale price at a public or private sale is susceptible to dispute.

d. Calculating a Debtor's Deficiency.

(1) In General. After the creditor sells the repossessed collateral, the debtor is normally liable for any deficiency and entitled to any surplus. Attorneys should review the calculations of deficiencies and surpluses, as described below.

(2) Credits to the Debtor. Adjustments in favor of the debtor may include trade-ins, insurance cancellation after repossession, unearned interest, and rebates. Methods for calculating rebates include the following:

(a) Pro Rata Method. The pro rata method takes pro rata calculation of the remaining period of the loan divided by the original period of the loan. This method is overly favorable to the consumer because the creditor earns more interest during the early part of the loan.

(b) Actuarial Method. The actuarial method is the most accurate method of calculation and uses amortization tables to show how much has been paid and how much is owed. This method of calculation of rebates (or one at least as favorable to consumers) is required for all consumer credit transactions over 61 months.

(c) Rule of 78s Method. The Rule of 78s method is authorized in Virginia, to the extent it is not prohibited by state and federal law. The Rule of 78s is overly favorable to the creditor because calculations under the Rule of 78s are based upon assumptions that during the first 1/12 of the contract, 12/78 of the interest was owed, during the second 1/12 of the contract, 11/78 of the interest was owed, and so on.

(3) Charges by the Creditor. Late charges not to exceed five percent of each late payment may be imposed, if set forth in the contract, for payments past due more than seven days. Reasonable charges for repossessing, reconditioning, storage, preparation for sale, and sale are authorized. Reasonable attorney fees are also authorized, if provided in the contract, or otherwise authorized by law.

e. Deficiency Claims. When the creditor retains the collateral, the creditor is susceptible to being barred from claiming a deficiency. When the creditor disposes of the collateral, the creditor may seek a deficiency. However, even after the collateral is sold, a secured creditor may be susceptible to being barred from recovery of the deficiency C for example, if the secured creditor failed to comply with the UCC requirements for sale or if the sale did not obtain market value. A debtor may also raise a defense of setoff or a counterclaim against the creditor's claims. For example, when the creditor has violated a provision of article 9 of the UCC, the debtor may be authorized to recover statutory damages. These damages may be used as a defense of setoff or a counterclaim by the debtor.

Residential Real Estate Contracts.

A. Virginia Residential Property Disclosure Act.

1. In General. The Virginia Residential Property Disclosure Act (VRPDA) applies to transfers by sale or exchange, installment land sales contracts, and leases with an option to buy one to four dwelling units. It affects real estate transactions primarily by imposing disclosure requirements upon the seller. There are substantial limits on remedies if the disclosures required by the VRPDA are properly given. Accordingly, attorneys who review residential real estate transactions should review for proper disclosures under the VRPDA.

2. Disclosures. The VRPDA requires the seller to deliver the statutorily mandated disclosures to the buyer before the buyer's acceptance of the real estate contract. The VRPDA also requires the seller to provide the buyer either (i) a disclaimer statement that the property is sold "as is" without warranty or representation as to condition or (ii) a disclosure statement identifying the defects of which the seller has actual knowledge. Additionally, the VRPDA requires notice of making no representations about the adjoining property and notice regarding registered sexual offenders.

3. Right to Terminate the Contract. The purchaser's remedy under the VRPDA is to terminate the real estate contract before the earliest of

(i) three days after delivery of the disclosure or disclaimer in person, or (ii) five days after the postmark if the disclosure or disclaimer is deposited in the United States mail, postage prepaid, and properly addressed to the purchaser, or (iii) settlement upon purchase of the property, or (iv) occupancy of the property by the purchaser, or (v) the execution by the purchaser of a written waiver of the purchaser's right of termination under this chapter contained in a writing separate from the real estate purchase contract, or (vi) the purchaser making written application to a lender for a mortgage loan where such application contains a disclosure that the right of termination shall end upon the application for the mortgage loan.

4. Exemptions. Under the VRPDA, several transfers are exempt, including transfers pursuant to a court order, to a beneficiary under a deed of trust, to a trustee pursuant to a foreclosure sale, to a beneficiary who has acquired real estate by deed in lieu of foreclosure, by fiduciaries, among co-owners, to a spouse, to or from governmental entities, and first sales of a dwelling. Nevertheless, builders are still required to provide disclosure of known violations of the building code. This requirement for disclosure does not abrogate applicable warranties or contracts of the builder.

5. Real Estate Broker's Responsibility. Real estate brokers and their salespersons licensed in Virginia are also required to inform each purchaser of the purchaser's rights and obligations under the VRPDA. If proper disclosures are accomplished by the broker, then the broker's VRPDA liability ends.

B. Property Owners' Association Act.

1. In General. The Virginia Property Owners' Association Act (POAA) applies to real estate developments in which there are lots and common areasCand with respect to which a lot owner is a member of the association and is obligated to pay assessments in excess of $150 per year. An attorney who reviews real estate contractual documents should examine the disclosure requirements of the POAA and its attendant remedies. For example, the purchaser has the right to a "disclosure packet" and the right to cancel the contract (i) within three days after receiving the packet or notice that it will not be available; (ii) within three days after signing the contract if he or she had received the packet or was notified that the disclosure packet is not available; or (iii) within six days after postmark of notice sent by mail that the disclosure packet is not available. The right to cancel the real estate contract is waived if not exercised before settlement.

2. Association Disclosure Packet. The association is required to provide a copy of the disclosure packet within 14 days of receipt of a written request. The packet must contain twelve items relating to the rights and responsibilities of the association and the purchaser. The disclosure packet should include, for example, past and planned expenditures, fees and assessments, budgetary matters, liabilities and pending legal actions, insurance, bonds, owners' lot restrictions, and association rules and requirements. The association statements in the disclosure packet are binding on the association.

C. New Home Mechanics' Lien Disclosure. All contracts for the purchase of residential real estate are required to provide notice to the purchaser of the possibility of mechanics' liens. The owner of a one- or two-unit residence who is also a contractor or developer must provide an affidavit that the contractors have been paid or list them and the amounts payable.

D. New Home Implied Warranties. In every contract for the sale of a new home, the seller warrants that the dwelling is free from structural defects and constructed in a workmanlike manner. Additionally, if the vendor is a builder, the builder warrants that the dwelling is free from structural defects, constructed in a workmanlike manner, and fit for habitation. These implied warranties may be waived as long as the contract for sale conspicuously states that the property is being sold "AS IS." The implied warranties continue for one year from the date that title transferred or from the date that possession changed, whichever occurred first. Any cause of action for breach of these warranties must be brought within two years of the breach.

E. Settlement Agent Disclosure. The settlement agent (the person conducting settlement and disbursing the settlement or loan proceeds) is required to disclose the availability of title insurance, including mechanics' lien insurance.

Real Estate Settlement Procedures Act.

A. In General. The Real Estate Settlement Procedures Act (RESPA) was passed to provide consumers with greater and more timely disclosures of the nature and costs of the settlement process. The Secretary of the United States Department of Housing and Urban Development (HUD) is responsible for enforcing RESPA and the regulations issued thereunder. RESPA applies to federally-related mortgage loans that are secured by a first or subordinate lien on residential real property. A federally-related mortgage loan includes any loan made by a lender that is (i) regulated or insured, in whole or in part, by an agency of the federal government; (ii) intended to be sold to the Federal National Mortgage Association, the Government National Mortgage Association, or the Federal Home Loan Mortgage Corporation; or (iii) made in whole or in part by a "creditor" under the Consumer Credit Protection Act that makes more than $1,000,000 in residential loans. Enforcement under RESPA is subject to several exemptions, including loans for property of 25 acres or more, for businesses, for temporary financing, and for unimproved property. RESPA contains extensive disclosure requirements. RESPA requires not only disclosures concerning loan settlements but also disclosures concerning loan servicing and loan servicing transfer procedures.

B. Disclosures. The lender must, within three business days after the application for loan is received, provide the applicant with a "Special Information Booklet." The booklet includes information about the settlement process, real estate settlement costs, the nature and purpose of escrow accounts, the choice of available settlement services, and an explanation of unfair practices under RESPA.

Within three days after an application for a loan is received or prepared, the lender must give a good faith estimate of the closing costs. This information must be provided with the "Special Information Booklet." A completed HUD Uniform Settlement Statement must be provided before or at settlement, unless waived, and must contain all items known to the settlement agent from inspection of the home (one day before settlement). No fee for this statement is authorized.

Within three business days of application for a mortgage servicing loan, the lender or mortgage broker must provide a servicing disclosure statement, identifying whether the servicing of the loan may be transferred and related information. Moreover, when the mortgage servicing is actually transferred, a notice of transfer must be sent to the borrower no later than 15 days before the effective date of transfer. This notice of transfer must provide information related to the transfer, including a toll-free number for questions. A 60-day grace period from the date of transfer is also required. This 60-day period is designed as a waiver of late fees if the original mortgage service received the payment.

C. Damages. Actual damages, costs, and attorney fees are authorized plus, when a pattern of noncompliance exists, an additional amount of not more than $1,000. Class action damages are similar, except an additional $1,000 is authorized for each class member (not to exceed the lesser of $500,000 or one percent of the net worth of the servicer). A mortgage servicer can avoid this liability before suit by correcting the problem within 60 days of discovery of the error.

Mortgage Lending Contracts.

A. Mortgage Lender and Broker Act.

1. In General. The Virginia Mortgage Lender and Broker Act (MLBA) requires mortgage lenders and brokers to be licensed by the Commonwealth. There are numerous exempted persons, including, for example, lenders making ten or fewer mortgage loans during a 12-month period, insurance companies, and licensed real estate brokers (to the extent they do not receive mortgage brokerage fees). The MLBA contains comprehensive requirements for mortgage lending. For example, specific disclosures regarding loan commitments are required, and specific prohibitions regarding mortgage lenders' and brokers' practices are set forth.

2. Prohibited Practices. The MLBA prohibits delaying the closing of the loan for the purpose of increasing the interest rate, costs, fees, or charges payable by the borrower. The following practices are also prohibited: (i) obtaining an agreement that leaves blanks to be filled in after execution of the loan documents; (ii) taking interest in collateral other than real estate to secure the loan; (iii) obtaining an exclusive agency agreement from any borrower; (iv) obtaining an acceleration clause for any reason other than failure to make timely payments; and (v) failing to provide settlement statement disclosures under the Truth-in-Lending Act and Regulation Z (if acting as a mortgage lender). Compensation is prohibited under the following circumstances for a mortgage broker required to be licensed under the MLBA: (i) before a written commitment is given to the buyer; (ii) from a mortgage lender in which the broker is a principal, stockholder, partner, trustee, director, officer, or employee of the lender; (iii) from a borrower in connection with any mortgage loan transaction in which the broker is affiliated with the lender; (iv) from a borrower other than that specified in the written contract signed by the borrower; and (v) for placing a loan with an affiliated lender. The State Corporation Commission may suspend or revoke a lender's license, award fines and penalties up to $1,000, and refer a case to the Attorney General, requesting investigation. The MLBA also authorizes civil recourse by individuals for damages or restitution, costs, and attorney fees.

B. Additional Mortgage Lending Requirements.

1. Appraisal Fee. A mortgage lender who charges the borrower for an appraisal must furnish a copy to the borrower free of charge.

2. Assignments of Mortgages. Recording of an assignment of the mortgage is not required, but it may be recorded, and the MLBA sets forth a certificate format.

3. Assumptions of Mortgages. A borrower under a residential mortgage has the right to request a written disclosure as to whether an assumption of the loan by another borrower will be permitted by the lender. The lender must respond to the request within 10 business daysCincluding the terms of assumption set forth under the statute.

4. Discrimination Prohibited.

a. Virginia Fair Housing Law. Under the Virginia Fair Housing Law, it is unlawful to engage in real estate transactions that discriminate against any person because of race, color, religion, national origin, sex, age, familial status, or handicap. Additionally, certain restrictive covenants and related reversionary interests purporting to restrict occupancy or ownership of property on a discriminatory basis are void. The Real Estate Board is authorized to investigate allegations of discrimination in violation of the MLBA, engage in conciliation to the extent feasible, and refer the matter to the Attorney General for civil action. Private parties may seek civil remedies under the MLBA.

b. Virginia Equal Credit Opportunity Act. The Virginia Equal Credit Opportunity Act (VECOA) prohibits any creditor from discriminating against an applicant on the basis of race, color, religion, national origin, sex, marital status, or age (if the applicant has the capacity to contract), or because any part of the applicant's income derives from any public assistance program. The VECOA also requires creditors either to provide applicants in writing the reasons for any adverse actions or to notify applicants of their right to request a statement of reasons within 60 days. Violations of the VECOA can subject creditors to actual damages, punitive damages not in excess of $10,000, court costs and attorney fees, and other declaratory and equitable relief as the court deems appropriate.

5. Due on Sale Clause. Virginia lenders are not prohibited from imposing a "due on sale" clause in a security instrument. For a mortgage or a deed of trust, disclosure is required either in the margin or in the text, with capital letters or underlined, as follows:

NOTICECTHE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF BEING MODIFIED IN THE EVENT OF SALE OR CONVEYANCE OF THE PROPERTY CONVEYED.

Lenders, however, may not receive a pre-payment penalty on loans secured by real property composed of one to four residential dwelling units if the prepayment is in response to a due on sale clause.

6. Escrow Accounts. Virginia law requires that the escrow account be maintained separately from the funds of the lender without commingling with other funds of the lender.

7. Loan Fees and Charges. Lenders may charge a loan fee as agreed between the parties. Other charges are authorized for title examination, title insurance, recording charges, taxes, hazard insurance, mortgage guaranty insurance, appraisals, credit reports, surveys, drafting papers, and closing loans. However, in a loan for a one- to four-family residence, the lender cannot require the services of a particular attorney, surveyor, or insurer but has the right to approve the same, as long as approval is not unreasonably withheld.

8. Fire Insurance. The amount of insurance a lender can require is limited to the replacement value of improvements on the real property as determined by the insurer or by the appraisal obtained by the lender.

9. Private Mortgage Insurance. Private mortgage insurance may be required by a lender, but the lender is required to return any unused premium to the borrower.

10. Late Charges. Late charges are limited to five percent of the payment. Moreover, if payment is made within seven days, the charges cannot be collected. Further, any late charges must be set forth in the note or deed of trust. Late charges do not include acceleration charges or attorney fees and costs of collection. To the extent loan documents seek to collect more than the amount authorized by the statute, the terms as to the excess are void, and the debt remains unimpaired. Federal requirements, such as FHA or VA, control in cases of conflict with state requirements.

11. Prepayment. If under $75,000 remains in principal, no more than a one-percent prepayment penalty charge can be made. No more than a two-percent prepayment penalty charge can be made for a loan secured by a mortgage of an occupied (or soon-to-be occupied) home. In comparison, if the prepayment arises out of a refinancing with the same lender or a subsequent noteholder, or if the loan is accelerated due to default, no prepayment penalty may be imposed.

12. Loan Payoff. The borrower is entitled, once each 12 months, to a written statement of the payoff amount, within 10 business days of the request. Upon payment in full, the noteholder is required to promptly send the canceled loan documents to the borrower. Inadvertent mistake (for example, misplacing a decimal) does not relieve the obligations of the noteholder or the borrower. A certificate of satisfaction or partial satisfaction must be filed in the clerk's office within 90 days after notice that final payment in full, or at least 25 percent, has been made. The noteholder is required to forfeit $500 to the lien obligor if the noteholder does not, within 90 days, file in the clerk's office the certificate of satisfaction or partial satisfaction. Moreover, attorney fees and costs for enforcement may be awarded if payment of the $500 to the obligor is not made within 10 business days of demand for payment.

Foreclosure on Real Estate.

A. In General. The beneficiary of a deed of trust secured by real property can accelerate payments upon default and require the trustee to sell the property securing the loan. At least 30 days' written notice from the trustee to the debtor is required. Also, newspaper notices of the sale must be published at least 8 days and not more than 30 days before the sale.

B. Consumer Defenses.

1. Equitable Arguments. In defending against a real estate foreclosure, an attorney should examine whether the foreclosure is unfair. A purchase of property at foreclosure for less than 50 percent of its assessed value may be unconscionable. Additionally, when a trustee participates in a corporation's decision about the amount of the corporation's bid at the foreclosure sale, it is a breach of the trustee's fiduciary duty and renders the sale voidable. Attorneys arguing equity should consider that the applicant for an injunction is normally required to provide a bond. Additionally, when a party files for declaratory relief, all of the parties must be brought before the court.

2. Bankruptcy.

a. In General. When a consumer is confronted with foreclosure on his or her home, one source of potential relief is chapter 13 of the United States Bankruptcy Code (the Bankruptcy Code). Under chapter 13, a debtor may file a plan to pay his or her debts and retain his or her assets. To be eligible under chapter 13, a debtor must have a regular and stable income. When a debtor files for chapter 13 relief, an automatic stay of creditors' actions immediately goes into effect. Moreover, under chapter 13, the debtor's plan can modify the rights of all creditors, except those with a mortgage secured by the debtor's principal residence. Thus, unsecured creditors' claims are susceptible to being reduced to a percentage of their claim. A debtor may also avoid a lien, or part of it, under authorized exemptions such as the homestead exemption. Similarly, there may not be sufficient value in the residence secured by subordinate liens on the property after the rights of the primary lienholder are covered. Thus, under chapter 13, a debtor can reduce the amounts that he or she will be required to pay for some of the secured debts on the home and for some of the unsecured debts. Attorneys reviewing property subject to the Bankruptcy Code should also consider that home equity loans are arguably not protected by 11 U.S.C. ' 1322(b)(2) because they do not affect home purchasing. Similarly, secondary home mortgages are often undersecured and, if so, under chapter 13, may not be fully-protected as secured liens under 11 U.S.C. ' 1322(b)(2).

A debtor who proposes a plan in good faith may seek chapter 13 relief, despite having discharged other debts under chapter 7 of the Bankruptcy Code within the previous six years. Accordingly, a debtor may discharge unsecured debts under chapter 7 and then, "subject to the requirements of good faith and local rules," seek to prevent foreclosure by proposing a payment plan under chapter 13.

b. Equity of Redemption. Attorneys reviewing the possibility of equity of redemption should also consider the potential for uncertainty. On one hand, property sold under foreclosure is sold in Virginia when the gavel falls, and the debtor cannot thereafter equitably redeem the property by paying the creditor the amount due. On the other hand, the statute of frauds requires a memorandum of sale by the seller to the purchaser, and the transaction may be reviewed for compliance. Moreover, if the sale was one in which Virginia foreclosure law was not completely complied with, it may be argued that the sale should be avoided under the fraud on the creditors provisions of the Bankruptcy Code. This argument must be made within one year after filing for bankruptcy. Additionally, this argument may be resisted by the counter argument that a foreclosure is not the type of "transfer" required under the Bankruptcy Code.

3. Truth-in-Lending Act Rescission. The right to rescission under the Truth-in-Lending Act (TILA) does not apply to "residential mortgage transactions" that finance the acquisition or initial construction of a consumer's residence and certain other transactions. However, TILA rescission for other consumer credit secured by the primary dwelling of an obligor is authorized in cases involving, for example, home equity loans. If the TILA disclosures are not made by the seller, it is not a seller's defense to a buyer's rescission that the error was de minimis. However, the buyer may, under the TILA, waive the disclosures in an emergency.

4. Lis Pendens. When a party has a claim or litigation against real estate that is subject to a foreclosure sale (for example, a pending counterclaim or motion in the underlying case), an attorney for either party may file a memorandum of lis pendens with the clerk of the court where the property is located. A memorandum of lis pendens provides notice to the potential foreclosure purchaser that there is a claim or litigation pending against the real estate. This memorandum should only be made in good faith for a valid reason under the statute.

5. Soldiers' and Sailors' Civil Relief Act. The Soldiers' and Sailors' Civil Relief Act prohibits foreclosure against active duty service members who are prejudiced by their active duty in their ability to defend against the foreclosure or in their ability to pay the debt on the property. A service member can waive this protection, but the waiver must be obtained after the member begins active duty.

6. Federal Equal Credit Opportunity Act. A violation of the federal Equal Credit Opportunity Act may be argued for damages in defense or counterclaim to an underlying debt but will not likely void the debt.

7. Selected Federal Requirements Regarding Home Mortgages.

a. Housing and Urban Development Act. Within 45 days of an eligible homeowner failing to make a home loan payment, the creditor must send to the debtor a notice of the availability of financial counseling. This requirement applies generally to mortgages, except certain Farmers' Home Administration mortgages.

b. Fair Housing Act. The Fair Housing Act prohibits discrimination in the sale or rental of housing.

c. Federal Housing Authority-HUD Insured Mortgages. Before foreclosure, a written delinquency notice (no later than the end of the second month of delinquency) and a face-to-face meeting with the debtor are required. HUD requires that the mortgagee reinstate the mortgage, subject to several exceptions set forth by HUD regulation, if a lump sum payment for arrears, attorney fees, and costs is made.

d. Veterans' Administration Insured Mortgages. The Veterans' Administration (VA) authorizes notice of default if the debtor fails to pay for a period of three months (or for more than one month on an extended loan or term loan). The creditor must provide notice to the VA within 45 days after the debtor is in default for 60 days. The VA then has several options.

e. Farmers' Home Administration. Mortgages by the Farmers' Home Administration are subject to several procedural requirements and appeals similar to other federal programs.