Tag Archive | "FTC"

FTC Approves Final Changes to Used Car Rule


WASHINGTON, D.C. — The Federal Trade Commission announced final amendments to its Used Car Rule today. The agency has sought public comments on a series of proposed changes to the rule, which requires car dealers to display a window sticker, or “Buyers Guide,” on used cars offered for sales.

The guide discloses whether the dealer is offering to sell a used car “as is” (without a warranty), or with a warranty. If the sale is with a warranty, the Guide discloses the terms and conditions, including the duration of coverage, the percentage of total repair costs the dealer will pay, and the vehicle systems the warranty covers. In states that do not permit “as is” used-car sales, dealers must use an alternative guide that discloses whether the sale is with a warranty or with implied warranties only.

In December 2012, the FTC sought public comments on proposed changes to the Buyers Guide as part of its systematic review of all of the agency’s rules and guides. In response to comments received, the agency sought comments on additional proposed changes to the Used Car Rule and invited comments on alternative approaches that public commenters proposed for the vehicle history disclosure and the “As Is” statement.

As announced today, the commission is revising the Buyers Guide by changing the description of an “As Is” sales, and placing boxes on the face of the Buyers Guide dealers can check to indicate whether a vehicle is covered by a third-party warranty and whether a service contract may be available. The FTC is also providing a box dealers can check to indicate that an unexpired manufacturer’s warranty applies.

Additionally, the agency is adding air bags and catalytic converters to the Buyers Guide’s list of major defects that may occur in used vehicles. It’s also adding a statement that directs consumers to obtain a vehicle history report and to check for open recalls, as well as a statement in Spanish that advises Spanish-speaking consumers to ask for the Buyers Guide in Spanish if the dealer is conducting the sale in Spanish.

The FTC will also provide a Spanish translation of the statement that dealers may use to obtain a consumer’s acknowledgement of receipt of the Buyers Guide.

The amended rule permits dealers to use their remaining stock of Buyers Guides for one year after the effective date of the amended Rule.

For more information, click here. “Fillable” versions of the Buyers Guide in English and Spanish are available at FTC.gov.

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Nine-Store Los Angeles Group Charged With Payment Packing, Yo-Yo Financing


WASHINGTON, D.C. — The Federal Trade Commission today charged nine Los Angeles-area dealerships and their owners with a wide range of deceptive, and unfair sales and financing practices, including payment packing and using “yo-yo” finanicng tactics. According to the FTC’s announcement, this is the first time the regulator has filed an action against an auto dealer for engaging in yo-yo financing.

The FTC’s complaint, filed in the U.S. District Court for the Central District of California, also charges the dealerships with violating the Truth in Lending Act and Regulation Z, as well as the Consumer Leasing Act and Regulation M for failing to clearly disclose reguired credit and lease information in their advertising. The regulator is seeking to end the alleged practices and return money to consumers.

“The car-buying process is a two-way street,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection, in a statement. “The FTC expects dealers to honor their contractual obligations, and will pursue those who use yo-yo financing tactics and pack unwanted costly add-ons onto consumers’ contracts.”

Charged were Universal Nissan; Kia of Downtown Los Angeles; Glendale Infiniti and Glendale Nissan; Mercedes-Benz of Valencia; West Covina Toyota/Scion; Sage Covina Chevrolet; Sage Pre-Owned; and Sage Hyundai. All are owned and operated by Sage Auto Group.

According to the FTC’s complaint, the dealerships enticed consumers — particularly the financially distressed and non-English speakers — into their showrooms with print, internet, radio and television advertisements that featured misleading claims, including that vehicles could be purchased at lower prices than the dealerships were prepared to sell them for. The dealerships also falsely advertised that customers would receive lower monthly payments and be able to provide smaller down payments for specific cars, the FTC charged.

Other tactics included advertising finance offers that were really leases. The dealerships also falsely advertised that they would pay off consumers’ trade-in vehicles. The FTC also charged the dealerships with using phony online reviews, including ones posted by their own employees, to tout their dealerships and discredit negtative reviews highlighting their illegal practices.

The dealerships were also charged with violating the FTC Act’s prohibition on deceptive and unfair acts or practices for including F&I products like service contracts and GAP in customers’ deals without their knowledge. In some cases, car buyers were told the products were free.

In some instances, according to the complaint, consumers were forced to sign new contracts with different terms than the contract they had already signed. In others, the dealerships allegedly told consumers who completed finance contracts that their agreements had been canceled and that the dealerships were permitted to keep the down payments or trade-ins. If the consumers argued these claims, the FTC charged, the dealerships claimed they could take legal action them if they did not comply.

The FTC’s complaint also lists Joseph Sage, Leonard Sage, Michael Sage, Sage Holding Company Inc., and Sage Management Company Inc. as defendants. The commission’s vote authorizing the filing of the complaint against Sage Auto Group defendants was 2-1.

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FTC Announces Significant Hike to Civil Penalty Maximums


WASHINGTON, D.C. — Violations of the Federal Trade Commission’s prohibition on unfair or deceptive acts or practices are going to get more expensive come Aug. 1. That’s when the commission’s interim final rule aimed at increasing a variety of civil penalties takes effect.

According to its website, the FTC has approved final amendments to Commission Rule 1.98 that adjust the maximum civil penalty dollar amounts for violations of 16 provisions the regulator enforces, as required by the Federal Civil Penalties Inflation Adjustment Act Improvement act of 2015. The act directs agencies to implement a “catch-up” inflation adjustment based on a prescribed formula.

The maximum civil penalty amount will increase from $16,000 to $40,000 for the following violations and others listed in the Federal Register Notice:

  • Section 5(l) of the FTC Act: Final commission orders issued under section 5(b) of the FTC Act
  • Section 5(m)(1)(A) of the FTC Act: Trade regulation rules issued by the commission under section 18 of the FTC Act that address unfair or deceptive acts or practices, and other laws enforced by the commission that provide for civil penalties by reference to section 18
  • Section 7A(g)(1) of the Clayton Act: Premerger filing notification requirements under the Hart-Scott-Rodino Improvements Act

The Commission vote to publish the Federal Register Notice amending Commission Rule 1.98 was 3-0.

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Tom Hudson Joins Dealer Summit Roster


TAMPA, Fla. — Prominent consumer finance attorney Thomas B. Hudson has agreed to speak at the upcoming Dealer Summit, organizers said Wednesday. The event will take place May 3–5, 2016, at the Sheraton Riverwalk Tampa Hotel. Hudson’s session, “Subprime and BHPH Dealers: How Regulators Have Changed Your Business Model,” will begin at 2 p.m. on Wednesday, May 4.

“Tom Hudson is universally admired as a dealer advocate and unwavering voice of reason,” said Greg Goebel, president of DealerStrong. “We couldn’t have asked for a better speaker to tackle this important topic.”

Hudson is a partner in the Washington, D.C., office of Hudson Cook LLP and one of the automotive industry’s foremost legal minds. He a frequent speaker and prolific writer, authoring a number of legal guides and publications and serving as a regular contributor to Auto Dealer Today and F&I and Showroom magazines.

Hudson is expected to analyze recent enforcement actions by federal regulators and their effect on automotive finance, including special finance and the buy-here, pay-here (BHPH) segment. Dealers must be willing to adapt to a “new business landscape” and change their business models, he warned, or face legal action that could cost them their livelihoods.

“There are two kinds of dealers in the world — those who know that the regulatory ground has shifted beneath them and those who don’t,” Hudson said. “Dealers need to understand and conform to the new rules or get out of the business before the regulators force them out.”

Registration for Dealer Summit is open at the event’s website. Dealers who register by April 1 will enjoy a $100 early-bird discount. They will also have access to several pre-show activities, including F&I Think Tank and Jim Ziegler’s Profit Masters.

For information about exhibition and sponsorship opportunities, contact show chair David Gesualdo via email hidden; JavaScript is required or at 727-947-4027.

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GM, Jim Koons and Lithia Settle FTC’s Complaints Regarding CPO Claims


WASHINGTON, D.C. — The Federal Trade Commission (FTC) announced today that General Motors, Jim Koons Management and Lithia Motors Inc. have agreed to settle the regulator’s allegations that each touted rigorous inspections for certified pre-owned vehicles, but failed to disclose that some of the vehicles they were selling were subject to unrepaired safety recalls.

According to the FTC, Jim Koons Management, which has 15 dealerships in the Mid-Atlantic region, and Oregon-based Lithia Motors Inc., which operates more than 100 stores in the West and Midwest, are two of the largest retailers of used cars in the nation.

“Safety is one of the biggest considerations for consumers shopping for a car,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “So companies touting the comprehensiveness of their vehicle inspections need to be straight with consumers about safety-related recalls, which can raise major safety concerns.”

The FTC’s complaint against General Motors cites the company’s representations regarding certified pre-owned vehicles, such as: “Our 172-point vehicle inspection and reconditioning process is conducted only by highly trained technicians and adheres to strict, factory-set standards to ensure that every vehicle’s engine, chassis, and body are in excellent condition. The technicians ensure that everything from the drivetrain to the windshield wipers is in good working order, or they recondition it to our exacting standards.”

The FTC alleged that GM advertised numerous certified pre-owned vehicles at its local dealerships using these claims without disclosing that certain used cars offered for sale were subject to previously announced open and unrepaired recalls for safety issues.

According to the FTC’s complaint, those cars subject to recalls had defects that can cause serious injury, including a key ignition switch defect that can affect engine power, power steering, braking and airbag deployment, problems in the body control module connection system that can affect braking, and chassis electronic module defects that can cause engine stalls.

The FTC’s complaint against Jim Koons, which also does business as Jim Koons Automotive Cos., notes the company’s purported guarantee that: “Every certified Koons outlet vehicle must pass a rigorous and extensive quality inspection before it can be sold. Our certified mechanics check all major mechanical and electrical systems and every power accessory as part of our rigid quality controls.”

The complaint alleges that some cars were subject to unrepaired recalls, including those involving the key ignition switch, alternator-related defects that could cause unexpected vehicle shutdown or an electrical fire, and a rear suspension defect that could result in a fuel leak or fire.

The FTC’s complaint against Lithia Motors cites claims the dealer group made about its “60- day/3000-mile warranty, including: “… Vehicles are put through an exhaustive 160-checkpoint quality assurance inspection. … We inspect everything from the tires and the brakes to suspension, drive train, engine components and even the undercarriage.”

The FTC’s complaint alleges that some of the cars Lithia advertised were also subject to unrepaired recalls involving defects in the key ignition switch and other safety issues.

Under the proposed consent orders, which would remain in effect for 20 years, the companies are prohibited from claiming that their used vehicles are safe or have been subject to a rigorous inspection unless they are free of unrepaired safety recalls, or unless the companies clearly disclose the existence of the recalls in close proximity to the inspection claims. The proposed orders also would prohibit the companies from misrepresenting material facts about the safety of used cars they advertise.

These proposed orders will also require the companies to inform recent customers, by mail, that their vehicles may have an open recall. For GM, this requirement applies to certified pre-owned used vehicles purchased between July 1, 2013, and the final order date. For Lithia, the requirement applies to Lithia Warranty used vehicles purchased during the same time period. For Koons, it applies to certified used vehicles purchased between July 1, 2013, and June 15, 2015.

The FTC’s actions are part of its ongoing crackdown on deceptive advertising, officials said. Since 2012, the FTC has brought 40 actions in auto-related transactions.

The commission vote to issue the administrative complaints and to accept the consent agreements was 4-0. The FTC will soon publish a description of the consent agreement packages in the Federal Register, the regulator said. The agreements will be subject to public comment for 30 days, beginning today and continuing through Feb. 29, 2016, after which the commission will decide whether to make the proposed consent orders final.

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FTC Proposes Survey of Consumer Experience in Financing Auto Purchases through Dealers


The Federal Trade Commission has announced plans to conduct a survey of consumers regarding their experiences in buying and financing automobiles at dealerships, reports JDSUPRA BUSINESS ADVISOR.

According to the supplementary information in the notice soliciting comments on the proposed survey, the survey “is intended to inform the [FTC] about current consumer protection issues that may exist and that could be addressed through FTC action, including enforcement initiatives, rulemaking, or education.” The survey will involve in-person interviews of consumers located by a survey research firm, who had purchased an automobile from a dealer in the previous six months and used financing offered or arranged by the dealer to make the purchase.

The interview subjects must have kept the credit documentation he or she received as part of the financing transaction. After conducting five sample interviews to test the survey questionnaire, the FTC plans to interview 40 consumers, with the option to interview 40 more if it deems additional interviews are likely to be helpful. The FTC wants approximately half of the initial 40 consumers to have “prime” credit scores and the balance to have “subprime” credit scores.

The areas on which the interviews will focus include:

  • the consumer’s experience in shopping for and selecting an automobile;
  • the process of agreeing to a price for the automobile;
  • the trade-in process, if applicable;
  • the consumer’s experience in obtaining financing;
  • additional products or services offered by the dealer;
  • post-purchase contacts between the consumer and the dealer; and
  • the consumer’s overall perception of the purchase experience.

The FTC is soliciting comments in advance of seeking clearance for the survey from the Office of Management and Budget. Comments will be due on or before 60 days after the FTC’s notice is published in the Federal Register.

In addition to its authority to enforce the FTC Act’s general prohibition of unfair or deceptive acts or practices, the FTC has authority to enforce various other consumer protection regulatory statutes against auto dealers, including the Truth in Lending Act, the Consumer Leasing Act, and the Equal Credit Opportunity Act (ECOA). In recent years, the FTC has been aggressively using such authority by bringing enforcement actions against auto dealers for deceptive advertising and other allegedly unlawful practices.

During 2011, the FTC conducted three motor vehicle “roundtables” at which panelists discussed consumer protection issues related to the selling, financing, and leasing of motor vehicles. In connection with the roundtables, the FTC requested and received public comments on specific consumer protection issues. The FTC also has produced consumer education materials concerning vehicle purchasing and financing, including an informative booklet “Understanding Vehicle Financing,” it produced in cooperation with the American Financial Services Education Foundation and the National Automobile Dealers Association.

With the FTC now signaling its intent to step up its involvement in regulating the practices of auto dealers, the Consumer Financial Protection Bureau (CFPB) should reconsider its extra-jurisdictional efforts to regulate auto dealers through actions against assignees of retail installment contracts. Those actions have been strongly criticized by Congress. In November 2015, the House of Representatives passed H.R. 1737, the “Reforming CFPB Indirect Auto Financing Guidance Act,” which would nullify indirect auto finance guidance that the CFPB issued in March 2013. Also in November 2015, Republican members of the House Financial Services Committee released a Staff Report that is highly critical of the CFPB’s automotive ECOA enforcement initiative with respect to what the guidance characterized as “dealer markup.”

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