FTC Bears its Teeth

For several years, we have been reminding you that the Federal Trade Commission is a federal agency about which dealers should be particularly concerned. When the Dodd Frank financial reform act created the CFPB, Congress gave the FTC greater budget and powers to oversee auto dealer practices to make up for the CFPB’s intrusion on the FTC’s historic jurisdiction. The FTC has been increasingly active in using its powers against auto dealers, most visibly in consent orders for advertising violations against dealers around the country.

A recent consent order with a California auto dealer group should raise red flags for dealers. The defendants who signed the consent order were nine new car dealers, a used car dealer, their holding and management companies, and their senior officials. The order was no ordinary “thou shalt not” administrative slap. Instead, it resulted from a multi-count complaint filed by the FTC in federal court against the dealer group for a variety of sales and advertising practices. The result is an order requiring the group to pay $3.6 million in consumer restitution/government compensation and a long list of “thou shalt nots” that can be backed by further federal court punitive action.

The investigation that led to this appears to have been an outgrowth of the FTC’s look at spot deliveries about which we have reported. The court order refers to spot delivery practices used by the settling dealers by the old consumer standby – yoyo sales – but the requirements the dealer must follow for the future mirror those we have told you about in warning you to be careful about your spot delivery practices. These are:

  • Failing to return the downpayment and trade in if the deal falls through.
  • Disposing of the trade before financing has been finalized.
  • Charging the customer for the terminated transaction.
  • Threatening or commencing abusive repossession or debt collection practices.

But that is not all.

The dealer is prohibited from making a long list of prohibited “misrepresentations relating to the sale, financing, or leasing of vehicles”, including a gray area prohibition of misrepresenting any “material fact”.

The complaint in the case alleged that the dealer had been loading the internet with false or misleading testimonials. The dealer is required to make true and accurate disclosures about a sale including refraining from “an opinion, belief, finding, or experience of any person unless the opinion, belief, finding, or experience is not misleading and the representation clearly and conspicuously discloses any material connection between such person and [the dealer group].”

The order prohibits the dealer from charging a consumer for any “add-on product or service” without having obtained express, informed consent. It also includes requirements that the dealer comply with advertising under the Truth in Lending Act and the Consumer Leasing Act, which is common in consent orders.

Finally, the order contains punitive oversight, record-keeping, and monitoring obligations with which the dealer group must comply for twenty years.

All in all, the dealer group wound up paying a lot of money to have the FTC set up shop in its showroom to monitor each deal it does for the next twenty years.