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Financial Services Law Insights and Observations

FTC reaches settlement with dealership to resolve UDAP and fair lending allegations

Federal Issues FTC Fair Lending FTC Act TILA ECOA Enforcement Settlement

Federal Issues

On May 27, the FTC announced settlements with a New York City auto dealer and its general manager (collectively, “defendants”) to resolve allegations that the defendants engaged in illegal auto financing sales practices and maintained a policy of charging African-American and Hispanic car buyers more for financing that similarly situated non-Hispanic white consumers. The complaint alleges that the defendants violated the FTC Act, TILA, and ECOA. According to the complaint, the defendants engaged in deceptive and unfair practices by, among other things, allegedly (i) advertising low sales prices but failing to honor them; (ii) inflating the cost through a variety of methods, including telling buyers that they had to pay unnecessary charges to purchase “certified pre-owned” cars, double-charging consumers for taxes and fees without their consent, and altering the terms in the middle of a sale; and (iii) charge higher financing “markups” and fees to African-American and Hispanic customers.

The defendants—who neither admit nor deny the allegations—have each agreed under the terms of the settlements (see here and here) to pay $1.5 million in consumer redress. The orders also prohibit the defendants from misrepresenting the cost or terms to purchase, lease, or finance a car, and require the defendants to obtain express, informed buyer consent for all charges and provide clear financing disclosures. The defendants are also banned from engaging in unlawful credit discrimination, and are prohibited from engaging in credit transactions unless they establish a fair lending program that will, among other things, provide training for employees and cap the allowed rate markups.

The Commission vote authorizing the filing of the complaint and stipulated final order was 5-0. Commissioner Chopra issued a concurring statement addressing disparate impact and unfair discrimination in the auto industry, and emphasized it is time for the FTC to use its rulemaking authority to establish protections for car buyers and honest auto dealers. Commissioner Slaughter agreed that there is a need for auto financing and sales market reform, and suggested that the FTC can begin by initiating a rulemaking under Dodd-Frank to regulate dealer markups.

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