FTC takes action against auto dealer over deceptive advertising and pricing practices

Federal Issues FTC Enforcement Fees ECOA FTC Act Discrimination UDAP Auto Finance Consumer Finance

On October 18, the FTC announced an action against an auto dealer group and two of its officers (the owner/president and the vice president) for engaging in deceptive advertising and pricing practices and discriminatory and unfair financing. According to the complaint, the FTC alleged that the defendants violated the FTC Act by deceptively advertising cars as “certified,” “inspected,” or “reconditioned” at specific prices, but then charged customers fees above the advertised price for costs related to “inspection,” “reconditioning,” or “certification.” The FTC also alleged that the defendants “unlawfully discriminate[d] on the basis of race, color, and national origin by imposing higher borrowing costs on Black and Latino consumers than non-Latino White consumers,” in violation of ECOA. Specifically, the FTC claimed that the defendants charged a higher markup to the interest rate for Black and Latino consumers than to non-Latino White consumers. Black and Latino consumers paid on average about $291 and $235, respectively, more in interest than non-Latino White consumers did. The FTC also alleged that Black and Latino consumers paid on average at least one extra fee 24 percent and 42 percent more often, respectively, than non-Latino White consumers. In addition to alleging that this conduct violated ECOA, the FTC also alleged that this discriminatory practice was an unfair act or practice in violation of Section 5 of the FTC Act.  According to the order, the defendants are required to establish a fair lending program to ensure they do not discriminate in the future, including a provision that will require each associated dealership to either charge no financing markup or charge the same markup rate to all consumers, and must pay the FTC $3.38 million to refund harmed consumers. Among other things, the defendants are also prohibited from misrepresenting the cost or terms to buy, lease, or finance a car, or whether a fee or charge is optional. Two of the commissioners issued dissenting statements (see here and here), challenging the fair lending claims being brought under Section 5 of the FTC Act and the imposition of liability against the individual officers.