The Federal Trade Commission is broadening its enforcement of car dealerships to crack down on deception and fraud in operations that go beyond advertising.
The latest actions also target auto-loan application fraud and deceptive practices related to add-on products and services.
The FTC is pairing up with 32 enforcement agencies to conduct a “nationwide and cross-border crackdown on deception and fraud in the auto marketplace,” the agency said.
It included 252 actions that include charges of deceptive advertising, criminal automotive loan application fraud, odometer fraud and deceptive marketing of car title loans. There were 187 enforcement actions in the U.S. and 65 in Ontario and British Columbia, Canada, since the FTC’s last sweep in January 2014.
While the U.S. civil charges can carry hefty fines, criminal charges carry the possibility of prison time. For example, a salesperson charged with conspiracy fraud could face up to 5 years in prison. A conviction against a dealer for wire fraud could carry a 20-year maximum sentence and a finance manager convicted of bank fraud could serve up to 30 years in federal prison, said Joyce White Vance, U.S. attorney for the Northern District of Alabama.
Among the six new actions announced by the FTC are its first auto enforcement cases involving add-on products or services. The six new FTC cases include more than $2.6 million in judgments.
The FTC defines add-on products as products or service a dealer or other third party adds to the vehicle lease or finance contract. A few examples given during a media conference call included undercoating, extended service contracts and road service.
Three auto dealers settled charges that they ran deceptive ads that violated the FTC Act and the Truth in Lending Act and/or Consumer Leasing Act.
The ads promoted sales, leases or financing that seemed like good deals until fine-print disclaimers canceled it out. In other instances, the disclaimers did not disclose relevant terms, such as required down payments.
The three dealers listed as having settled are Cory Fairbanks Mazda of Longwood, Fla., Jim Burke Nissan of Birmingham, Ala., and Ross Nissan of El Monte, Calif.
The proposed settlements in these actions prohibit the dealerships from misrepresenting the purchase cost or any other material fact about the price, sale, financing or leasing of a vehicle.
Jim Burke Nissan and Cory Fairbanks Mazda are also prohibited from representing that a discount, rebate, bonus, incentive or price is available unless it is available to all consumers. They also must clearly disclose all qualifications and restrictions.
There is no specific demographic for the victims in these cases. In the case of deceptive advertising, it can be far reaching given how many people read newspaper ads or go online searching for vehicle pricing, Rich said.
In both the advertising deception and in these loan modifications, companies in general, not just auto dealers, exploit language differences to exacerbate the deception problem. There have been ads that put the ad in Spanish, but the disclaimer in English.
U.S. Attorney Vance said, “We did see a lot more activity against financially depressed sectors. So all I can say is that these practices are used to hurt poor people.”
Vance has worked closely with the FTC and has prosecuted criminal cases at dealerships. She said the Mortgage, Loan Fraud and Discrimination Working Group of the Attorney General’s Financial Fraud Enforcement Task Force is working with other law enforcement agencies “to determine what we can do now to prevent fraud during the auto lending process.”
Vance said she finds loan fraud to be most offensive.
“It’s dealerships that inflate a buyer’s income so they can buy a car they can’t afford, dealers who permit and encourage a straw purchaser to be on a loan so they can get a car they cannot afford. And, finally, putting add-ons on the car with hidden costs,” White Vance said. “These are practices dealers do to boost their bottom line without any concern for the purchasers’ income and family’s well being and I find that to be most offensive.”
In January 2014, when Operation Steer Clear was announced, the agency warned that it wouldn’t let up. “Protecting consumers in the auto marketplace remains a top priority for the FTC,” the agency said. “If auto dealers are not following the rules of the road, we will step in to apply the brakes.”