Ally Financial Hit with Vehicle Repo Debt Forgiveness Class Action

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Ally Financial Inc. has been hit with a class action lawsuit for allegedly improperly claiming debt forgiveness on consumers’ repossessed vehicles in violation of state and federal law. The class action lawsuit was removed to federal court last week.

Plaintiffs Joseph and Danielle Riley filed the class action lawsuit alleging that Ally, formerly known as GMAC Inc., failed to comply with the federal Automobile Sales Finance Act when notifying consumers that it was repossessing their cars. The Rileys argue that Ally issued deficient repossession notices and therefore never had a valid claim to collect the sale deficiency debt from the putative Class Members. Subsequently, Ally purported to forgive the debts and filed 1099-C debt cancellation notices with the Internal Revenue Service, which provided the bank with significant benefits but burdened consumers with tax liability.

“Due to the wrongful 1099-C claims, Class Members have paid substantial additional taxes to the IRS, face onerous IRS collections activities, require tax liability consultation and defense expenses, among other economic harm, all for the alleged benefit of Ally Financial’s unfair, false, fraudulent, unlawful and deceptive claims of debt forgiveness,” the class action lawsuit says. The Rileys argue that Ally’s conduct offends public policy and harms consumers. Further, they argue that Ally knew or should have known that the post-repossession notices were defective and that Ally “continues to hold ill-gotten gains from, inter alia, unearned tax benefits from the alleged debt cancellation and debt forgiveness, together with profits and interest derived from that money.”

By filing the class action lawsuit, the Rileys seek to represent a class of “California consumers whose vehicle was repossessed pursuant to a California Retail Installment Sales Contracts, who were entitled to reinstate their contract, for whom Ally Financial issued an IRS Form 10990C for post-repossession sale deficiency amounts, and where the 1099-C was issued within four years prior to the filing of this Complaint.”

The Rileys argue that under California’s Unfair Competition Law, Ally must issue corrective forms, publicly admit that its notices were improper and participate in a corrective campaign. They also seek an order requiring Ally to indemnify the Class Members for any and all losses regarding IRS tax assessments and defense costs stemming from the issuance of the 1099-C.

The plaintiffs are represented by John W. Hanson and Michael E. Lindsey.

The Ally Financial Vehicle Repo Debt Forgiveness Class Action Lawsuit is Riley, et al. v. Ally Financial Inc., Case No. 3:14-cv-010305, in the U.S. District Court for the Southern District of California.