FTC Posts $20 Million Settlement With Dealer Group For Alleged Deceptive Practices

On Thursday, December 19, 2024, the Federal Trade Commission (FTC) and Illinois Attorney General announced a massive $20 million settlement with Leader Automotive Group, the operator of 10 dealerships in and around Bloomington, Illinois, for alleged unfair and deceptive acts and practices in connection with the sale of motor vehicles in violation of Section 5 of the FTC Act and Illinois state law. The FTC reported that the $20 million proposed monetary judgment was the largest to date recovered by the FTC in its ongoing effort to curb deceptive sales practices by auto dealers.

Allegations Against Dealer Group

In a complaint filed in federal court in Illinois contemporaneously with the settlement announcement, the FTC and Illinois Attorney General alleged the dealer group lured customers to its 10 locations with prize mailers or “enticingly low [online] prices.” Once the customer arrived, the dealerships increased the price by “adding hundreds to thousands of dollars more,” by “charging for additional, undisclosed junk fees” and for optional “add-ons, either by falsely claiming that they are required or by sneaking them into transactions without consumers’ knowledge or consent.” The complaint also alleged that the dealerships manipulated their online reputations by inducing employees to post “fake, positive online reviews” to boost their overall customer rating and to “conceal truthful negative reviews” left by actual customers. The complaint also alleged the dealer group sold vehicles initially sold into the Canadian market without disclosing to consumers that the manufacturer’s warranty was void once the vehicles were imported into the United States.

The proposed Settlement and Stipulated Order submitted by the parties with the complaint asks the federal court to enter a permanent injunction barring the dealer group and its dealerships from engaging in similar conduct in the future. The dealer agreement also agreed to pay a $20 million judgment, with $200,000 allocated to the people of the State of Illinois and the remainder to be paid to the FTC to distribute in the form of consumer refunds and to provide other relief. Notably, the settlement does not resolve claims against a former senior executive officer of the dealer group in his individual capacity, suggesting a more aggressive enforcement approach by the FTC and state law enforcers going forward.

Ongoing FTC Enforcement and Rulemaking Push

This most recent enforcement action follows similar settlements with dealer groups in Maryland and Arizona and is part of an ongoing push by the FTC and state law enforcers to curb deceptive acts and practices in the automotive retail market. In October 2024, a Texas-based dealer group filed a lawsuit in federal court in that state seeking to enjoin as unconstitutional the FTC’s administrative proceeding against that dealer group over alleged junk fees and discriminatory lending practices. Briefing on the dealer group’s preliminary injunction motion and the FTC’s competing motion to dismiss is expected to be completed by year-end, and the FTC has stayed the underlying administrative proceeding for a period of four months while the federal court considers those motions.

In addition to these enforcement efforts, the FTC has been pushing for the past year to implement its “Combating Auto Retail Scams” or “CARS” Rule, which would target allegedly misleading advertising and sales tactics by new car dealers by imposing upfront disclosure requirements and prohibiting material misrepresentations in connection with new car sales. The FTC first launched the CARS Rule in December 2023, but paused the scheduled July 2024 effective date pending resolution of an administrative challenge filed with the U.S. Court of Appeals for the Fifth Circuit by the National Automobile Dealers Association (NADA) and another industry trade association. NADA argued its appeal to an apparently skeptical three-judge panel of the Fifth Circuit in October 2024, but no decision has yet been issued.  It remains to be seen whether the CARS Rule will continue to enjoy the support of a majority of FTC commissioners once the U.S. Senate has confirmed a successor to Commissioner Lina Khan, who has been serving in a holdover capacity since her term expired in September 2024.