GMAC Faces $125 Million Hit After Losing Class Action Trial: Chavez & Gertler Hail Decision in Smith v. GMAC - Santa Clara County Superior Court Case No. CV-776152.

Business Editors/Legal Writers

SAN JOSE, Calif.--(BUSINESS WIRE)--Dec. 8, 2003

General Motors Acceptance Corporation, one of the largest finance companies in the country, is facing the prospect of a $125 million hit after losing a class action trial in the Santa Clara Superior Court.

The class action lawsuit, brought on behalf of over 30,000 California borrowers, alleged that GMAC was violating the law in collecting and attempting to collect amounts from borrowers whose vehicles were repossessed and sold by GMAC.

In an 18-page Statement of Decision, the Honorable Jack Komar found that GMAC violated the requirements of California law governing automobile repossessions throughout a seven year period, and was engaging in unlawful collection activities.

The lawsuit, Smith v. GMAC, alleged that between August 20, 1994 and June 30, 2001 GMAC repossessed the automobiles of thousands of its customers and sold their vehicles without providing the customers with a legally adequate post-repossession notice. Judge Komar agreed, finding GMAC's post-repossession notices to be "legally defective".

Typically, when a car is repossessed and sold, the borrower will still owe the lender, such as GMAC, thousands of dollars. This is because the cars are generally sold at auction for prices that do not cover the amounts outstanding on a borrower's loan. The bill for this "deficiency balance" often comes as an unpleasant shock to consumers, who are already in financial trouble, and who mistakenly assume that once the car is gone, so is the debt.

California law, however, provides a measure of protection for consumers whose cars are repossessed. A lender such as GMAC is required to send its borrowers a written notice containing very specific information about their legal rights following a repossession. If the lender does not send such a post-repossession notice containing all of the required disclosures, the law says that the borrower is not liable for any deficiency balance.

In the Statement of Decision, Judge Komar ruled that because GMAC's post-repossession notices were "legally defective" class members "are not liable for any deficiency balances assessed to their accounts by GMAC, and never owed those amounts." (Decision at 16:23-28). Nevertheless, GMAC had collected and was attempting to collect millions of dollars from class members who GMAC had sent "legally defective" notices. In rejecting GMAC's claim that it was entitled to this money, Judge Komar specifically found that "GMAC was not and is not legally entitled to demand, to collect, or to retain payments on deficiency balances that it assessed to the accounts of" class members. (Decision at 16:28-17:1-2).

"The evidence in the case indicates that GMAC assessed approximately $125 million in deficiency balances during the class period" stated Kim E. Card of Chavez & Gertler, counsel for the class. Card estimated that GMAC had collected more than $15 million of the deficiency balances prior to the trial and was trying to collect another $110 million in outstanding deficiency balances from borrowers who did not owe the money to GMAC.

Judge Komar ruled that GMAC collected deficiency balances "by means of its unlawful and unfair practices" (Decision at 14:21-22) and that "such monies must be disgorged by GMAC and returned as restitution to those persons in interest from whom they were taken" (Decision at 14:25-26). The Court also found that an injunction should be issued to prohibit GMAC from collecting any more of the deficiency balances from class members.

Under the Court's Statement of Decision, which addresses liability issues and reserves the damages award for later, a notice and questionnaire will be sent to all potential class members. They will have the right to seek refunds of any payments they made to GMAC after a repossession on a deficiency balance, plus interest on those payments.

Class Counsel, Mark A. Chavez, of Chavez & Gertler, hailed the decision as a "gratifying victory for consumers after 5 long years of litigation". He characterized the decision as a "stunning wakeup call for lenders who violate California law."

The trial of the class action, which began in San Jose on July 22nd, was concluded on July 28th. After the close of evidence, the case was taken under submission.

Chavez & Gertler, a consumer law firm based in Mill Valley, represents consumers in class actions. The firm handles lawsuits involving banks, automobile finance companies, mortgage lenders and insurance companies.

For further information contact:

Mark A. Chavez

Kim E. Card

Chavez & Gertler LLP 

42 Miller Avenue

Mill Valley, CA 94941

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Website: www.chavezgertler.com

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