This year’s April Fool’s Day was no joke for a large group of dealership owners with locations across the Midwest and Southeast United States. On Friday, April 1, 2022, the Federal Trade Commission (FTC) and the Illinois Attorney General’s Office announcement a record $10 million settlement to resolve claims that North American Automotive Services, Inc. (also known as Ed Napleton Automotive Group) and eight of its Illinois and Florida dealerships duped consumers by charging hundreds or even thousands of dollars more than the advertised price for these vehicles in order to obtain unwanted “extra” products.
the Complaintfiled Friday by the FTC and the Illinois Attorney General’s Office in federal court in Illinois, alleges that the dealer group and its dealers “attract[d] consumers in their dealerships with low advertised prices”, but then “[a]nearly a process that often takes hours. . . gift[ed] consumers with a stack of complex and highly technical documents”, “rush[ed] consumers through the closing process, which typically requires documents over 60 pages” and “insert[ed] fees for complementary products in these documents without obtaining express informed consent from consumers. These complementary products included extended warranties/service contracts, GAP insurance and paint protection. The complaint also alleged that the dealership group and its dealers discriminated against black consumers in financing vehicle purchases.
In a file submitted at the same time Stipulated order, while neither admitting nor denying the allegations in the Complaint, the Dealer Group agreed to the entry of a permanent injunction prohibiting it and its Dealers from engaging in similar conduct in the future. . He also agreed to pay a judgment of $10 million, $50,000 as a voluntary contribution to the Illinois Attorney General’s compliance fund and the balance being “deposited in a fund administered by the [FTC] be used to relieve consumers. The FTC’s announcement flagged this as “a record monetary judgment for an FTC auto loan case,” and included a warning from Samuel Levine, director of the FTC’s Consumer Protection Bureau: “Especially as families struggling with rising car prices, dealerships cheating their customers can expect to hear from us.
OEMs have the right to expect dealers to act legally and ethically
No OEMs were involved in the FTC’s investigation, and that’s no surprise, since the dealerships are independently owned and operated businesses. Nevertheless, manufacturers own the brand and have a right to expect dealers to act legally and ethically in the sale of motor vehicles. When a dealer engages in illegal behavior, this behavior can have a negative impact on the image of the brand or brands that the dealer represents in a local market. Of course, virtually all dealership agreements require dealerships to refrain from engaging in illegal and/or fraudulent behavior. They also often contain more general provisions requiring dealers to do their best to represent and promote the brand. An OEM can take steps, where appropriate, to ensure that its brand is not tarnished by illegal or unethical dealer conduct.
In recent weeks, some manufacturers have expressed concern to dealers about retail prices that sometimes exceed the manufacturer’s suggested retail price (MSRP) by several thousand dollars, undermining the perception that consumers have of their brands. The US Department of Justice (DOJ) also recently warned that it would monitor price-fixing deals hiding behind supply chain disruptions, prioritizing “industries particularly affected by supply disruptions”. This most recent enforcement action by the FTC and the Illinois Attorney General’s Office suggests that dealers whose advertising states or implies that vehicles are available at a dealership at or near the MSRP, while in makes these dealers demand retail prices well above MSRP. , may attract the attention of regulators. To the extent Dealer’s advertising violates federal and/or state consumer protection laws, such advertising may also violate Dealer’s agreement with its OEM, depending on the particular language of that agreement.
Expect More FTC Reviews of the Auto Retail Industry
The FTC’s most recent enforcement action is not the first against a dealership and is in fact part of a long-term focus on the auto retail market since the 2010 Dodd-Frank Act. gave the FTC new, expanded authority over motor vehicle dealerships. As noted on the FTC’s Auto Marketplace webpage: “Since 2011, the FTC has collected information about potential consumer protection issues that may arise when selling, financing, or leasing motor vehicles through a series of roundtables and soliciting public input.”
As part of its investigation into dealer practices, the FTC released two staff reports in July 2020. The first, Buckle Up: Navigating Auto Sales and Financing, warned that the reseller “should only make accurate and non-misleading advertising statements to consumers, announce the terms that are actually available, and clearly and prominently disclose the material qualifications or limitations of any advertised offering.” The second, a accompanying report of the FTC’s Bureau of Economics, assessed the impact of various dealer practices on consumers, including “drip pricing”, where dealers increase the total price of a vehicle, for example by offering extras after the price of the car has already been negotiated. Given all of this, OEMs and dealers should expect continued scrutiny of dealer advertising and financing practices.