Imagine you’re walking in to buy a car. The dealership is the best you can afford, and it’s not great, but you need the car to get to work and take your kids to school.
You pick out a car that isn’t your dream car, but from the outside at least, it looks reliable enough. You sit down and they hand you a giant stack of paperwork. You sign most of it without reading it. You don’t get to ask any questions. When you do ask questions, you only get short answers.
What you don’t know is that you’ve signed papers saying the car dealership can take everything you own if you don’t pay them back. They can take any money in your bank account and any other personal property you may have. They’ve made you sign a document stating that they can take your child support, your food stamps, and your social security benefits.
When your car stops working a few months later, you take it back to the dealership, and you think you’re done with this company. But then they sue you. And then they have the right to come after everything you own.
Three clients of Legal Services Alabama (LSA) found themselves in this situation when they purchased cars from a car dealership in Montgomery. They had signed contracts with “waiver of exemption” clauses, in which they purportedly gave up their rights to claim any exemptions under Alabama law. Since shortly after the Civil War, Alabama law has provided judgment debtors – that is, people who owe their creditors money and have been sued – with the right to protect a certain minimum amount of personal property. Alabama’s exemptions have not increased much in the 150 years since then, and are still some of the lowest in the country. For example, in many other states, the home you live in is protected – but not in Alabama. Until a few years ago, you could only claim a $5,000 exemption in your home. (It is now $15,000.)
However, in spite of this, this car dealership wanted customers to waive even their rights to claim that minimum amount of property as exempt. They wanted to be able to take any money their customers have or become entitled to. And in making their customers sign this document, they wanted them to waive rights they don’t even have the ability to waive. There is no practical way for a car dealership to take someone’s food stamps or child support, but they used that threat to get more money out of their unwitting customers. This type of behavior is prohibited under the Fair Debt Collection Practices Act, which specifies what debt collectors can and can’t do to collect debts. They’re not allowed to take or threaten to take action which is prohibited by law.
Hilaire Armstrong and Peyton Faulk, Staff Attorneys in the Montgomery Office, brought these cases to the attention of LSA’s High Impact Litigation team, which seeks to address issues that affect all low-income Alabamians. Farah Majid, a member of the High Impact team, filed a suit in federal court alleging that this was an illegal, unconscionable practice. They’re unconscionable because, if enforced, the low-income people who go to dealerships like this one, would become even more destitute. LSA Director of Advocacy Michael Forton, was also involved in strategic decisions during the litigation.
Now, the dealership has agreed to stop asking customers to waive these rights. If you buy a car, you shouldn’t be subject to losing everything you own if you can’t afford to pay for it anymore. Dealerships can’t take your food stamps or Social Security. Now, this dealership is going to stop threatening to. And they can’t clear out your bank account or take your house either. You can protect up to a certain amount of your wages from being garnished. That shouldn’t change just because you had to buy a car from the only place you could afford. Additionally, the dealership agreed to forego all of the money it claimed each client owed, paid them additional money on top of that, and paid Legal Services Alabama a small amount of attorney’s fees. Thanks to LSA’s work, low income consumers who go to dealerships like these won’t be subject to losing everything they own.
By: Farah Majid, REIP Coordinating Lead Attorney and member of LSA’s High Impact Litigation Unit