Dealers should continue to use caution as the FTC continues to step up enforcement actions in the industry.
October 22, 2024
By Barrie Charapp Beaty
Charapp & Weiss, LLP
bbeaty@cwattorneys.com
It’s no secret that the FTC is the federal enforcer against motor vehicle dealers. The past three (3) years have been heavy with regulation attempts and investigations against them. Often times the FTC’s investigative work is done for them when state attorney generals also are involved in enforcement actions against dealers.
Dealers often settle actions brought against them because of the expense of litigating with the state and/or federal governments. With a very contentions federal election occurring next month that has possible administrative changes, and the desire to pass the CARS Rule, it’s no surprise that the FTC brought enforcement actions against two dealer groups in August.
The FTC filed an action, with the State of Arizona, against Coulter Motor Company, LLC. The allegations brought against Coulter include:
- Unlawful misrepresenting prices to consumers. Coulter was alleged to have advertised vehicles at prices that it never intended to sell at and consumers were charged hundreds or thousands of dollars over the advertised price for “market adjustment,” preinstalled add-ons, and miscellaneous fees.
- Unfairly adding on charges for add-ons. Coulter was alleged to have charged consumers for add-ons they had not agreed to purchase, mispresented that the add-ons were required, and charged consumers twice for the same add-on.
- Unlawfully charging Latino customers from those similarly situated non-Latino White customers for (i) financing at higher interest rates and (ii) costly add-ons. It was also alleged that the Latino consumers were charged more for add-ons (about $800 more than non-Latino White consumers) that they did not know or authorize.
Coulter paid $2.6 million to settle the claims, most of which will refund Coulter’s customers.
In another complaint filed in August 2024, the FTC alleges that Asbury (dealerships located in Texas) along with the General Manager of the stores:
- Unlawfully charged consumers for costly add-ons that they did not agree to or were falsely told were required as part of their purchase, and
- Unlawfully targeted protected class consumers (Black and Latino consumers) for unwanted and higher-priced add-ons than those charged by non-Latino White consumers.
Asbury has denied the allegations and vowed to fight the FTC, which many in the industry are interested in such a fight.
For years, the FTC has relied on what many in the industry have called “racial profiling” and/or “junk science" to “allege” dealers have targeted protected class consumers with unfair lending practices. Essentially, the FTC’s alleged “science” to determine disparate impact determines minorities by looking at surnames, geographic location or a combination of both. However, since many of the FTC cases settle, the “science” used by the FTC to allege that one class was unlawfully targeted, without a clear dealer policy to target said protected class individuals, has never been upheld under the scrunity of a court.
However, the Supreme Court has ruled on disparate impact liability and said that “…a disparate-impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant's policy or policies causing that disparity…”Texas Dep't of Hous. & Cmty. Affs. v. Inclusive Communities Project, Inc., 576 U.S. 519, 542, 135 S. Ct. 2507, 2523, 192 L. Ed. 2d 514 (2015). The industry is very interested in a case that would challenge the “science” in which the FTC makes allegations of “disparate impact” against dealers. However, such a case is costly in time and money for most dealers, and often a settlement is the best business decision for some dealers.
The charges brought against Coulter and Asbury are not unique but rather similar to those continuously brought by the FTC against dealers: (1) misrepresentation of prices; (2) unconsented to or unfairly charged VPPs/add-ons; and (3) claims of discrimination of those in protected classes for VPPs and lending practices.
Dealers need to ensure that they have proper policies and practices in place to ensure compliance with state and federal laws related to financing, add-ons and advertising. Having such policies and practices in place may be your best defense against costly FTC investigations and actions, as well as actions brought by state attorney generals:
- Proper advertising, including advertising vehicles at the price you intend to sell them. Pricing of the vehicle should never be tied to add-ons or financing. Last month’s newsletter has a lengthy article that thoroughly examined proper advertising for dealerships.
- Consumers should not be charged improper fees that are not permitted by law. Consumers should never be charged double for any product or fee (i.e., freight should never be double charged – if the MSRP is your selling price, it already includes the freight charge). Freight cost should be disclosed per vehicle if its not in the price. Any processing fee should be disclosed to the consumer in the advertisement per the state law that permits such a fee.
- For preinstalled dealer add-ons, they should be included in the price and disclosed so that the consumer is not hit with that additional price at the point-of-sale.
- Consumers should know what products are being purchased and at what cost. Dealers should use menus for VPP products and add-ons with customers signing the menus and choosing the products with proper disclosures.
- Dealers should be using the NADA’s VPP and fair lending policies, training on the policies, and enforcing the policies. Those policies include certification forms for deviations for differential pricing for VPPs and lending for non-discriminatory reasons.