FTC settles motion towards D.C.-area auto vendor group over unlawful charges and discrimination allegations

On October 18, 2022, the Federal Commerce Fee (“FTC”) announced a settlement with a Washington, D.C.-area auto vendor, Passport Automotive Group (“Passport”), resolving allegations that it had deceived customers by including unlawful “junk” charges onto automotive costs and charging Black and Latino customers greater financing prices and costs.  Below the phrases of the settlement, Passport can pay greater than $3.3 million in shopper redress.

The FTC’s complaint, filed in federal district courtroom for the District of Maryland, alleges that Passport advertises automobiles as “licensed,” “inspected,” or “reconditioned” at particular costs, however then provides tons of or hundreds of {dollars} in charges to the marketed costs.  These charges both improve the worth over what was marketed or negate any reductions the customers negotiated.  The FTC alleges that Passport claimed that the fees for inspection, reconditioning, or certification had been required once they had already been included within the marketed worth, and, in some situations, auto producers particularly prohibited them from charging separate certification prices.  These alleged misrepresentations are the idea for the FTC’s causes of motion for misleading practices underneath Part 5 of the FTC Act.

The FTC additionally alleges that Passport discriminated towards Black and Latino customers by charging them extra in financing prices and costs than they charged to non-Latino white customers.  Passport had a regular vendor markup of two% (past the underwritten financing of the installment contract), however every of its dealerships was given discretion to scale back or get rid of the markup, leading to Black and Latino clients being charged extra.  Whereas Passport had an anti-discrimination coverage, the FTC alleges it was not enforced or monitored.  Because of this, the FTC claims Black and Latino customers paid, on common, greater than $291 and $235 in curiosity, respectively, and had been extra prone to should pay additional charges than non-Latino white customers.  The criticism alleges that these acts represent discriminatory finance practices underneath the Equal Credit score Alternative Act (“ECOA”), in addition to unfair discrimination in violation of Part 5 of the FTC Act.

Whereas the FTC’s therapy of discrimination as an unfair follow triggering FTC Act legal responsibility is novel, it’s in keeping with previous statements by a number of of its Commissioners, in addition to the expansive view not too long ago taken by the CFPB of its UDAAP authority.  In a March 2020 assertion in regards to the FTC’s settlement with Liberty Chevrolet, then-FTC Commissioner Rohit Chopra stated “…the alleged conduct is against the law underneath the [ECOA], nevertheless it additionally violates the FTC Act’s prohibition on unfair practices.  Utilizing disparate affect evaluation and different instruments, the Fee can use its unfairness authority to assault dangerous discrimination in different sectors of the financial system.” 

Extra not too long ago, within the FTC’s action against Napleton Automotive Group in March 2022, FTC Chair Lina Khan and Commissioner Rebecca Kelly Slaughter issued a statement saying they’d have additionally supported a rely alleging unfair acts and practices underneath the FTC Act in mild of the clear disparate hurt to customers who should not ready to keep away from it.  Whereas acknowledging that the FTC’s unfairness authority to handle discrimination is proscribed, the 2 Commissioners detailed a framework for use for evaluating discrimination underneath its unfairness authority. 

Earlier that very same month, the CFPB announced it might train its supervisory authority underneath the Shopper Monetary Safety Act to scrutinize discriminatory conduct as an unfair follow unbiased of federal truthful lending legal guidelines.  It achieved this via amendments to its exam manual pertaining to UDAAP moderately than via the rulemaking course of. which is being challenged in court by the U.S. Chamber of Commerce and other trade groups on the grounds that it violated the Administrative Procedure Act.  It’s value noting that the Chamber filed its case in a Texas federal district courtroom, so any eventual attraction of that case would go to the Fifth Circuit, which held final week that the CFPB’s funding mechanism is unconstitutional in Community Financial Services Association of America v. Consumer Financial Protection Bureau

Along with the financial settlement, Passport has agreed to ascertain a good lending program that may, amongst different issues, require every of its dealerships to get rid of any vendor markups on installment mortgage financing or to cost the identical markup price to all customers. Passport has additionally agreed to not cost charges with out categorical, knowledgeable consent from its clients.  In 2018, Passport agreed to a settlement with the FTC to resolve allegations that it had mailed greater than 21,000 faux “pressing recall” notices to customers with a purpose to lure them into its dealerships.  Passport’s President and Vice President had been additionally events to each settlements.

The FTC licensed the motion and settlement by a 4-1 vote. Former Commissioner Noah Joshua Phillips dissented, on the grounds that the criticism included a reason for motion for “Unfair Discrimination” pursuant to Part 5 of the FTC Act.  Whereas advising he would have agreed that the discrimination claims had been correctly introduced underneath ECOA, Commissioner Phillips felt that the FTC was improperly making an attempt to show Part 5 into “an undefined antidiscrimination statute.”  As talked about above, though that is the primary time the FTC has used its UDAP authority underneath Part 5 of the FTC Act to handle discrimination as an unfair follow, it has been foreshadowed by the statements of a number of Commissioners and known as for by shopper advocates, together with the Pupil Borrower Safety Middle, which has advocated for this expansive interpretationAs we have discussed in the context of the CFPB, this begs the query as to why a change of this magnitude is just not being made via the rulemaking course of.

Along with the announcement of the settlement, the FTC printed a shopper alert, “Discriminatory financing and bogus fees at the car dealer? No thank you,” advising customers to buy round for financing, fastidiously learn the phrases and settlement when purchasing for a automotive, and to stroll away if vital.  The FTC additionally printed a weblog put up on its web site, “$3.3 million FTC settlement with Passport drives home importance of fair lending,” which highlights 4 classes realized for firms:  (1) conduct an ECOA compliance verify, (2) company officers could also be on the hook for the misconduct of their firm, (3) precise practices – not simply insurance policies on paper – matter, and company insurance policies “gained’t paper over unlawful practices on the gross sales ground,” and (4) discriminatory conduct might be “unfair” underneath the FTC Act.

The motion towards Passport indicators that the FTC is dedicated to expansively wielding its present authority underneath the FTC Act to handle unfair and misleading practices as a instrument to handle discrimination.  The Passport settlement additionally sends a transparent sign that the FTC is exercising its enforcement authority towards charges it considers “junk” charges and isn’t ready to finish the rulemaking course of it has initiated with the Motor Vehicle Dealers Trade Regulation Rule and Unfair or Deceptive Fees Trade Regulation Rule that would address, among other things, “junk” fees and bait-and-switch advertising tactics.