Federal Trade Commission crackdown on auto loan deception

The Federal Trade Commission (FTC) has issued more than more than $2.6 million in monetary judgments against four auto dealerships and two financial services which the agency said had used deceptive practices towards consumers involved in purchasing or leasing a car.

Along with 32 law enforcement agencies, the FTC took 187 enforcement actions in the US and a further 65 in Canada as part of a nationwide and cross-border crackdown, dubbed Operation Ruse Control.

“For most people, buying a car is one of the largest purchases they’ll make,” said Jessica Rich, director of the FTC’s bureau of consumer protection. “Car ads must be truthful, loan terms must be clear, and dealer practices must be honest. That’s why our partners are working together to crack down on deceptive marketing about car sales, leasing and financing.”

For the first time since receiving expanded authority over auto dealers under the Dodd-Frank Act, the FTC has taken two auto enforcement actions involving add-ons, which is the practice of a dealer or other third party adding to the vehicle sales, lease, or finance agreement charges for other products or services.

Examples cited by the agency include extended warranties, payment programs, guaranteed automobile protection (commonly called GAP or GAP insurance), credit life insurance, road service, theft protection, and undercoating.

The FTC alleged that California-based National Payment Network (NPN) violated the FTC Act by deceptively pitching consumers an auto payment program – both online and through a network of authorized auto dealers — that it claimed would save consumers money. NPN failed to disclose that the significant fees it charged for the service often cancelled out any actual savings. The fees to enroll in NPN’s program averaged $775 on a standard five-year auto loan.

In a related case, the FTC alleged that Matt Blatt auto dealerships, with multiple locations in New Jersey, violated the FTC Act by failing to disclose or adequately disclose the fees associated with NPN’s add-on service and that many consumers would not save money overall due to the program’s significant fees. Matt Blatt dealerships received a commission for each of the more than 1,000 consumers they enrolled.

NPN and Matt Blatt dealerships have agreed to settle the FTC charges, and under proposed consent orders are prohibited from misrepresenting that a payment program will save consumers money, unless the amount of savings is greater than the total amount of fees and costs charged in connection with the program. They also are prohibited from misrepresenting that the payment programs or their associated fees will improve, repair or otherwise affect a consumer’s credit record.

NPN will refund more than $1.5 million to consumers, and waive another $949,000 in fees to current customers during the fee waiver period. Matt Blatt dealerships also will pay $184,000 to the FTC as part of the settlement.

In addition, three auto dealers, Florida-based Cory Fairbanks Mazda, Jim Burke Nissan of Alabama and Ross Nissan, based in California, have agreed to settle charges that they ran deceptive ads that violated the FTC Act, and also violated the Truth in Lending Act (TILA) and/or Consumer Leasing Act (CLA). According to the FTC complaints, the ads touted sales, lease or financing options that seemed attractive but were cancelled out by fine-print disclaimers. In other instances, the disclaimers did not disclose relevant terms, such as required down payments.

The proposed settlements in these actions prohibit the defendants from misrepresenting the purchase cost or any other material fact about the price, sale, financing or leasing of a vehicle. Jim Burke Nissan and Cory Fairbanks Mazda are also prohibited from representing that a discount, rebate, bonus, incentive or price is available unless it is available to all consumers or all qualifications and restrictions are clearly and conspicuously disclosed.

As a result of the FTC investigation, the Florida authorities have temporarily halted the practices of Regency Financial Services and its CEO Ivan Levy, who allegedly charged consumers upfront fees to negotiate an auto loan modification on their behalf, but then often provided nothing in return. The court also froze their assets, and the authorities are seeking a permanent injunction to stop deceptive practices and to return money to consumers.

Responding to the FTC’s actions, the National Automobile Dealers Association (NADA) said in a statement: ‘It is important to recognize that the enforcement actions announced today are not indicative of any systemic problems within the auto industry – nor, as the agencies acknowledged, are they reflective of the overwhelming number of honest businesses that make up the nation’s franchised dealer network.”

NADA went on to add: “They do, however, involve serious allegations, and while we have no first-hand knowledge of the facts surrounding these individual cases, we share the agencies’ view that there is absolutely no place for fraud or deceptive practices in any part of the business community.”