On January 10, 2017, the Arizona Court of Appeals rendered its decision in Hayward v. Arizona Central Credit Union in which a consumer, who won a judgment against a car dealership, sued the holder of her installment sales contract in order to collect on the judgment. The consumer’s claim was brought under 16 C.F.R. Sec. 443.2 which renders “the holder of consumer debt subject to ‘all claims’ a buyer could bring against the seller.” [Note: it is almost universal that car dealerships sell and assign their sales contracts to financial institutions. Following such sale and assignment, the financial institution becomes the “holder” of the contract.]
In Hayward, the consumer made a cash down payment on a car and traded in a vehicle worth $79.09 more than she still owed on it. Under the sales agreement, the dealership was to pay off the indebtedness owed on the trade-in, however following the transaction, one of the dealership’s employees stole the trade-in. The dealership,then, refused to pay the balance owed as it had agreed to. The consumer sued the dealership and won a judgment which included compensatory damages, substantial punitive damages, attorney’s fees and costs, and which the dealership could not afford to fully pay. As such, the consumer sued Arizona Central Credit Union which had purchased the installment sales contract for the unpaid judgment balance under the referenced Federal Regulation. The superior court dismissed the consumer’s claim.
The Credit Union’s argument was that while the Federal Regulation creates liability for “all claims…the debtor could assert against the seller,” it limits the amount of those claims because any recovery “shall not exceed amounts paid by the [consumer in the underlying transaction].” Because punitive damages do not reflect actual amounts paid by the consumer, the Credit Union argued that the amount claimed by the consumer exceeded the maximum recoverable liability under the Regulation. The Court of Appeals did not address the Credit Union’s argument. Instead, it noted that the “Credit Union identifies no authority to support its contention that monies a judgment creditor recovers through [collection efforts] be allocated first to satisfy the compensatory damages portion of a judgment, or otherwise…allocated in a manner so as to reduce potential exposure of the holder of the installment sales contract…” As such, the consumer was free to allocate any money she had actually recovered on her judgment against the punitive damages portion of her award and pursue the balance from the credit union.
As such, the dismissal by the Superior Court was reversed.