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What Do the FTC and IL AG Allege?
The lawsuit alleges numerous federal and state unfair and deceptive acts and practices (“UDAP” violations) as well as violations of the federal Used Car Rule. The lawsuit goes into extensive detail about the defendants’ alleged conduct. Some key allegations include:
- Deceptive Price Advertising: Advertising false low prices to lure customers, then requiring expensive, pre-installed add-ons not included in the advertised price. The defendants also allegedly manipulated pricing tools such as the “Deal Gauge” used by Cars.com to give the impression that the defendants’ pricing was more competitive than it actually was.
- Unauthorized Charges for “add-ons”: Charging consumers for add-ons such as protective coatings, theft protection, and GAP coverage without consent, and sometimes failing to provide the promised products–including products that were represented to have been pre-installed.
- So-Called “Junk” Fees: Adding “certification” and “reconditioning” fees, often without providing the associated benefits like extended warranties.
- Canadian Cars Misrepresentation: Selling vehicles to American consumers that were manufactured for the Canadian market without disclosing that fact and associated warranty limitations.
- Fake Reviews: Employees and customers were pressured or incentivized to post fake positive reviews.
- Destruction of Evidence: Employees were directed to destroy pricing documents (deal worksheets and “pencil” documents) to conceal inflated charges and deceptive practices.
- Misleading Prize Promotions: The dealers used illegal prize mailers to lure customers, falsely suggesting that recipients had won valuable prizes to entice them into visiting the dealerships.
- General Advertising Violations: Some advertisements misrepresented vehicle availability, and other advertisements failed to make required disclosures under state and federal law (including Regulation Z-related disclosures).
- Used Car Rule Violations: Failure to provide copies of Buyers Guides to purchasers of used vehicles.
The allegations in this case are broadly consistent with other recent enforcement actions against dealers and are reflective of the FTC’s intense focus on dealer advertising and F&I practices.
What Should You Know About The Settlement?
Remember this is a settlement, and none of these allegations have been proven or admitted. However, as part of the stipulated order settling the case, the defendants agreed to pay $19.8 million to the FTC and $200,000 to the Illinois Attorney General’s fund. The order also includes a permanent injunction prohibiting the corporate defendants from misrepresenting costs, fees, or optional services, violating Illinois state statutes, or violating the FTC Act.
Furthermore, the order imposes specific requirements on the corporate defendants that align with the FTC’s CARS Rule (a.k.a. Vehicle Shopping Rule). These include obtaining express, informed consent for all charges and stating the “Offering Price” in any advertisement or communication that references a specific vehicle, monetary amount, or financing terms. The “Offering Price,” defined similarly to its meaning in the CARS Rule, must represent the actual sale price of the vehicle, excluding only required government charges. Additional obligations under the order include compliance reporting, recordkeeping, and monitoring requirements. Notably, the individual defendant is not included as a party to the stipulated order.
What Should Dealers Do?
In light of this case, dealers should carefully evaluate and strengthen their compliance programs to ensure adherence to both federal and state laws governing advertising, pricing, and consumer transactions. The allegations and settlement underscore the FTC and state attorneys general’s commitment to aggressively pursuing deceptive practices, even in the absence of the CARS Rule. Dealers should prioritize clarity in pricing and advertising, obtain consent for all add-ons and fees, and accurately represent all product features and services offered. Additionally, dealerships must be prepared for heightened scrutiny, as evidenced by the bipartisan (the FTC voted 5-0 in favor) support for this enforcement action.
ComplyAuto’s Guardian provides unparalleled tools to assist dealerships by automating compliance checks, scanning advertisements, and conducting deal jacket audits. Leveraging AI-based technology, Guardian is tailored to help dealerships comply with both current regulations and future requirements under the CARS Rule. This tool offers an efficient solution for navigating federal and state regulations, helping to ensure consistent, accurate compliance practices in a dealership’s operations. Reach out to ComplyAuto today to learn more about the most powerful AI compliance tools available.
Author: Brad Miller, Chief Compliance/Regulatory Officer, Head of Legal, ComplyAuto
