We closed 2024 with a Tip of the Week about the Federal Trade Commission's recent action (along with the Illinois Attorney General) against an Illinois dealership group and the substantial $ 20 Million settlement that was obtained. Unfortunately, in our first Tip of the Week of the New Year, we find ourselves focused on another FTC action, this time taken along with the Attorney General of Maryland against a dealer group with stores in Virginia and Maryland.
What's This Case About?
The allegations in the complaint, filed in the Eastern District of Virginia, state that the dealers systematically deceived and overcharged car buyers, "costing them millions of dollars in junk fees and unwanted add-on products". It is also alleged that the dealerships, their management company, and the dealer principal and several other executives advertised prices that wouldn't be honored and falsely claimed that the customers were required to obtain financing through their dealerships
The FTC alleges that the dealerships advertise deceptive prices on its website and in advertising, promoting vehicles for sale at a price not available to the vast majority of its customers. Only when the customers get to the dealership do they learn that the price is significantly higher because they don't qualify for rebates, or that they must pay significant additional fees. The allegations go on to say that 88% of consumers who purchased a vehicle from these dealerships from 2020 to 2023 paid an average of more than $2,000 from the advertised price.
Further, the complaint alleges that buyers were forced to finance their vehicles through the dealerships, and in some cases, buyers looking to pay cash or with pre-approved outside financing were told the advertised price would not be honored. The FTC claims that a third of potential buyers were told that financing through the dealership was mandatory to purchase the vehicle at the advertised price and that this financing charged higher interest than what they'd obtained on their own, which could result in costing them thousands of dollars over the financing term.
Lastly, the FTC asserts that add-on products were sold to which the buyers did not consent, and that they were told these products were mandatory. It is alleged that 68% of the buyers were charged for products they did not agree to purchase or were told were mandatory.
What's It All Mean?
Similar to the case in Illinois, the FTC has shown that it will aggressively attack dealers that don't stick to advertised prices, that add "junk fees" and other mandatory charges, and that misrepresent financing requirements. As it's been prone to do the past few years, it has once again pursued executives and owners individually.
Despite the Cars Rule (Vehicle Shopping Rule) being in litigation limbo, the FTC has again demonstrated the importance it places on the "offering price", transparent advertising, and dealers obtaining express informed consent for all goods and services purchased. These concepts are here to stay, regardless of what happens with the litigation, so get to work.
This Doesn't Apply to Me, Does It?
We know some independent dealers read material like this and think it doesn't apply to them. Afterall, the FTC is choosing to focus on large franchise groups. Guess again, folks. The legal requirements are the same whether you are an independent dealer selling 10 cars a month or if you are a large dealer group selling hundreds of vehicles.
As we are prone to point out, plaintiffs lawyers pay close attention to actions taken by the FTC and use complaints like this to hone in on ripe claims to make against dealers. You'd better believe that copycat lawsuits will follow.
Tip of the Week
Sorry to sound like a broken record, but please start the New year off right by reaching out to us to examine your advertising, marketing and sales practices in an effort to identify potential risk. These issues will continue to be a magnet for lawyers and regulators, so it's vital to look at your practices through their eyes and make appropriate adjustments as needed. As always, KEEP CALM & CALL IGNITE.
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