FTC Builds Case For New Car Dealer Rule With Complaint Alleging Junk Fees And Discriminatory Lending Practices

On October 18, 2022, the Federal Trade Commission (FTC) announced a settlement resolving allegations that Passport Automotive Group, a Maryland-based automobile dealer group, packed junk fees into the cost of the vehicles it sold to consumers and discriminated against Black and Latino consumers by charging them higher costs and fees.  As part of the settlement, Passport promised to change its business practices and will pay more than $3.3 million to be used to refund consumers harmed by Passport’s illegal conduct.

The FTC’s complaint, filed in federal court in Maryland as part of the settlement, alleges that Passport advertises vehicles at specific prices, but when consumers attempt to purchase the vehicles for the advertised price, Passport charges them hundreds of dollars in additional fees for inspection, reconditioning, preparation, and certification. But, the FTC alleges, Passport already included those costs in its advertised prices, and therefore was double charging consumers to the tune of millions of dollars. The FTC complaint also alleges that Passport unlawfully charged “Black and Latino consumers extra inspection, reconditioning, vehicle preparation, and certification fees more frequently and in higher amounts than similarly situated non-Latino White consumers.”

The FTC’s settlement with Passport is notable in at least two respects. First, the settlement comes at a time when the FTC appears poised to adopt a rule for new car dealers that will impose significant limits on how dealers advertise to bring customers into dealerships and also impose requirements for disclosures that dealers must provide up-front at the outset of negotiations with customers.  Industry groups have challenged whether the FTC has demonstrated that such wide-ranging regulation of new car dealers is needed; the agency will likely argue in response that the continued need for it to bring cases against ownership groups like Passport shows that problems in the industry persist and that more comprehensive rules are needed.

Second, the settlement is notable because the FTC commissioners were not unanimous in voting to authorize agency staff to file the complaint and stipulate to a final order. Commissioner Noah Phillips dissented and argued that the inclusion of a count in the complaint alleging that Passport had engaged in “unfair” conduct in violation of Section 5 of the FTC Act was improper because the FTC Act was not an antidiscrimination statute.  Commissioner Phillips argued that this count was “entirely gratuitous” because the conduct it condemns was already covered by other claims, so that the “sole reason for its inclusion is to announce to the world that the FTC has expanded its unfairness jurisdiction to include antidiscrimination.”  Commissioner Christine Wilson issued a separate concurring and dissenting statement in which she joined in Commissioner Phillips’ dissent and also dissented from Passport’s president and vice president being held personally liable.