April 2022
By Michael G. Charapp
Charapp & Weiss LLP
A multi-state franchised dealer group recently settled a federal lawsuit with the FTC and the state of Illinois for $10 million. The FTC and Illinois charged that the group sold vehicles using unfair and deceptive practices. The most serious charges, however, involved alleged improper sales of voluntary protection products and discrimination in pricing for vehicle financing.
For some time, we have warned dealers of a crackdown in these areas. Discrimination in pricing finance has been on the radar for consumer activists for two decades. The attack on sales of voluntary protection products is newer, but it has gained traction recently because of appointment of regulators who have raised concerns about sales of voluntary protection products as chairman of the FTC and director of the Consumer Financial Protection Bureau.
In this matter, the charges went beyond pricing of voluntary protection products. The FTC and Illinois charged that customers were tricked into buying VPPs. The complaint charges that so-called add-on products (or what the FTC called misleadingly in its press release “junk fees”) were added to contracts without buyers’ knowledge and agreement or were added because consumers were told purchase was necessary to obtain financing. The complaint also charges that African-American buyers paid higher rates of interest on vehicle purchases than were charged to non-Latino whites.
The dealer agreed to settle the charges by paying $9.95 million for consumer compensation and $50,000 as a penalty.
How can a dealer avoid these troubles?
We have recommended on several occasions that a dealer should have in place written programs to prevent the appearance of discrimination in sales of finance and in sales of Voluntary Protection Products. Every dealer should implement and follow a fair credit compliance policy and program to protect against what would appear to be differences in finance rates between buyers in protected classes and those who are not. An example is the NADA Fair Credit Compliance Policy and Program available to all NADA members.
NADA offers a similar program for sales of VPPs. The NADA Model Dealership Policy for Voluntary Protection Products assures uniform pricing and price reductions for non-discriminatory reasons. This program is also available to NADA member.
Dealers should consider one other policy for their employees. The importance of compliance with laws and ethical conduct starts at the top. The dealer and senior managers of the dealership must emphasize their commitment to legal and ethical conduct. They must also inform dealer personnel how they wish for them to carry out the functions of their jobs. Included with this newsletter are standards of conduct a dealer may want to consider adopting for their employees. This tells employees what is expected of them, and it can guide employees in many situations for which they have not been trained.