Prominent Dealer Group Learns That Enforcers Aren’t Joking Around About Vehicle Price Advertising And Financing

April Fool’s Day this year was no joke for a prominent dealer ownership group with locations in the Midwest and Southeast United States. On Friday, April 1, 2022, the Federal Trade Commission (FTC) and Illinois Attorney General’s Office announced a record-setting $10 million settlement to resolve claims that North American Automotive Services, Inc. (also known as the Ed Napleton Automotive Group) and eight of its Illinois and Florida dealerships duped consumers into paying hundred or even thousands of dollars over the advertised price for those vehicles to obtain unwanted “add-on” products.

The Complaint, filed on Friday by the FTC and Illinois Attorney General’s Office in federal court in Illinois, alleges that the dealer group and its dealerships “lure[d] consumers into their dealerships with low advertised prices,” but then “[a]fter an often hours-long process . . . present[ed] consumers with a stack of complex, highly technical documents,” “rush[ed] consumers through the closing process, which typically requires paperwork that is more than 60 pages deep” and “insert[ed] charges for add-on products in these documents without obtaining consumers’ express informed consent.” These add-on products included extended warranties/service contracts, GAP insurance, and paint protection.  The complaint also alleged that the dealer group and its dealerships discriminated against Black consumers in connection with financing vehicle purchases.

In a contemporaneously filed Stipulated Order, while not admitting or denying the allegations of the Complaint, the dealer group agreed to entry of a permanent injunction barring it and its dealerships from engaging in similar conduct in the future.  It 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 into a fund administered by the [FTC] to be used for consumer relief.”  The FTC announcement reported this as “a record-setting monetary judgment for an FTC auto lending case,” and contained a warning from Samuel Levine, Director of the FTC Bureau of Consumer Protection:  “Especially as families struggle with rising car prices, dealerships that cheat their customers can expect to hear from us.”

OEMs Have A Right To Expect Dealers To Act Legally and Ethically

No OEMs were implicated in the FTC’s investigation, and this is not surprising, since dealers are independently owned and operated businesses.  Nevertheless, manufacturers own the brand and have a right to expect that dealers will act legally and ethically in connection with the sale of motor vehicles.  When a dealer engages in illegal conduct, that conduct can have a negative impact on the image of the brand or brands that dealer represents in a local market.  Of course, virtually all dealer agreement require dealers refrain from engaging in illegal and/or fraudulent conduct. They also often contain more general provisions requiring that dealers use best efforts to represent and promote the brand.  An OEM can take steps, where appropriate, to ensure that its brand is not tarnished by unlawful or unethical dealer conduct.

In recent weeks, some manufacturers have expressed concern to dealers about retail selling prices that are sometimes thousands of dollars in excess of the Manufacturer’s Suggested Retail Price (MSRP), inflicting harm on consumer perception of their brands.  The U.S. Department of Justice (DOJ) also recently warned that it would be watching out for price fixing agreements hiding behind supply chain disruptions, giving priority to “industries particularly affected by supply disruptions.”  This most recent enforcement action by the FTC and Illinois Attorney General’s Office suggests that dealers whose advertising states or implies that vehicles are available at a dealership for a price at or near MSRP, when in fact those dealers are demanding retail prices well in excess of MSRP, may draw the attention of regulators.  To the extent dealer advertising violates federal and/or state consumer protection laws, that advertising may also constitute a breach of the dealer’s agreement with its OEM, depending on the particular language of that agreement.

Expect More FTC Scrutiny Of Automotive Retail Industry

The FTC’s most recent enforcement action is not the first against a dealer, and is actually part of a long-term focus on the automotive retail market since the Dodd-Frank Act in 2010 gave the FTC new and expanded authority regarding motor vehicle dealers. As noted on the FTC’s Auto Marketplace webpage:  “Since 2011, the FTC has been gathering information on possible consumer protection issues that may arise in the sale, financing or lease of motor vehicles through a series of roundtables and by seeking public comments.” 

As part of its investigation into dealer practices, the FTC issued two staff reports in July 2020.  The first, Buckle Up: Navigating Auto Sales and Financing, warned that dealer “should make only accurate and non-misleading advertising claims to consumers, advertise terms that are actually available, and clearly and conspicuously disclose material qualifications or limitations on any advertised deal.”  The second, a companion report from the FTC Bureau of Economics, assessed the impact of various dealer practices on consumers, including “drip pricing,” where dealers increase the total price of a vehicle by, for example, offering add-ons after the price of the car has already been negotiated.  Given all of this, OEMs and dealers should anticipate continued heighten scrutiny of dealer advertising and financing practices.