The bailout mentality seems to be everywhere. Here’s an example. Customers borrow money from a bank to finance their car purchases. They default on their loans, and the bank undertakes court actions to recover the vehicles. The consumers discover that the loan officer they dealt with had pled guilty to defrauding the bank. The consumers decided that was reason enough to let them keep their cars.

Wait a sec, Tom, let me get this straight. The bank’s loan officer pleads guilty to defrauding the bank, so the bank’s customers decide that the loan officer’s fraud means they should get free cars?

That’s about the size of it. We couldn’t make this stuff up if we tried. Here are the facts from the actual case.

Regions Bank N.A. made loans to a number of borrowers. The loans were secured by cars. After the borrowers defaulted on the loans, Regions filed replevin actions to take possession of the cars.

In resisting Regions’ replevin action, the borrowers argued that they should be able to keep their cars because Regions fraudulently induced them to sign the loan documents. As proof of fraud, the borrowers relied on the fact that the loan officer who processed their loans had pled guilty to defrauding Regions by engaging in bank fraud. They were evidently unable to offer proof that their own transactions were fraudulent.

A magistrate recommended that the court award the cars to Regions. The borrowers objected. The U.S. District Court for the Western District of Tennessee followed the magistrate’s recommendation and awarded the cars to Regions. The court found that the borrowers did not offer any evidence that the loan officer engaged in fraud in connection with their loans. The court found that the borrowers agreed to the loan terms, including Regions’ right to repossess the cars upon default. As a result, Regions was entitled to possession of the cars.

As the mortgage mess continues to unwind, we will continue to see borrowers arguing that their creditors made loans to them that the borrowers did not have the capacity to repay, or made them loans that were unlikely to be repaid from the get-go, and that the making of such loans constituted fraud or created some other grounds for suit. And they’ll make this argument despite the fact that they agreed to the terms of the credit transaction.

This case, Alston v. Regions Bank, N.A., might be a handy one to have in your arsenal if your dealership or sales finance company ends up as the target for such a suit.

Vol. 6, Issue 4