Talking Points: Auto Group Settles with FTC Over Deceptive Finance and Sales Claims

This week, the Federal Trade Commission (FTC) announced that an Auto Group in Los Angeles had agreed to pay $3.6 million to settle charges it used deceptive and unfair sales, advertising and financing practices.

According to the FTC’s press release, the amount was returned to consumers. In addition, the dealerships involved were barred from “engaging in other unlawful conduct when a sale is cancelled, such as failing to return any down payment or trade-in or seeking legal action, arrest, repossession or debt collection unless the action is lawful and the defendants intend to take such action." It also prohibits them from violating the Truth In Lending Act , Regulation Z, the Consumer Leasing Act and Regulation M.

While a multi-million dollar settlement is important news in the automotive world, what may also be useful and practical for dealer managers is the story behind the agreement – from the extent of the investigation to the findings included in the complaint. For starters, just getting to the settlement phase took much effort: According to a statement published by the auto group, they “fully cooperated with the FTC over the course of many years, and the review of thousands of pages of advertising and other documents.” As a result of that action, the FTC cited four key areas in the complaint:

1. Yo-Yo Financing

The complaint is the first time that the FTC has brought a claim of “yo-yo” financing against an auto dealer. Basically, yo-yo financing is defined by the FTC as “using deception or other unlawful pressure tactics to coerce consumers who have signed contracts and driven off the dealership lots into accepting a different deal.”

2. Aftermarket Packing

The FTC also claimed that the dealerships were adding charges for aftermarket products without consent, by claiming the products were required – or free. According to the Commission, that’s an alleged violation of the FTC Act.

3. Misleading Advertising

Violations of the Truth in Lending Act, Consumer Leasing Act, Regulation M and Regulation Z were also included in the complaint, for a variety of issues including misleading claims about the ability to finance, and the failure to disclose credit information in advertising.

4. Fake Online Reviews

Just as social media has become an ever-larger marketing and advertising opportunity for dealerships, so too has it become an area of interest for regulators. In this case, the FTC alleged that the dealerships involved used “phony online reviews to tout their dealerships and discredit negative reviews.”

So, what's the takeaway for automotive retail managers? It depends on a number of variables, of course. But one thing is sure: it underscores the importance of staying on top of sales activity, and keeping up-to-date on changes to regulations. Just as integration into the daily work flow is an important part of making sure compliance steps aren't missed during a deal, it's just as important to be informed about compliance regulations, whether it's aftermarket disclosures, advertising terms, finance notices or social media requirements.