On October 24, the FTC and the Wisconsin Department of Justice (DOJ) announced a $1.1 million settlement with a group of Wisconsin auto dealers for allegedly charging customers illegal junk fees and unlawfully discriminating against American Indian customers. The action was brought under the FTC Act, the Equal Credit Opportunity Act (ECOA), the Wisconsin Deceptive Trade Practices Act, and the Wisconsin Consumer Act.
The complaint alleges that the defendants deceived customers into paying junk fees by charging for additional “add-on” services and products without customers’ consent. The complaint further alleges that the defendants misled customers into thinking the add-on services were mandatory.
According to the complaint, the defendants also engaged in unlawful discrimination by charging American Indian customers higher fees and financing costs. American Indian customers were charged junk fees at a higher rate than non-Latino White customers. In total, American Indian customers paid on average approximately $1,362 more in junk fees since 2016, and $1,374 since ownership changed in 2019. The defendants additionally charged American Indian customers approximately $401 more on average in interest rate markups. The disparity has increased since new ownership took over in 2019.
The proposed settlement requires the defendants to stop their unlawful practices and pay $1 million to be used to refund affected consumers. Specifically, the defendants will be enjoined from misleading customers into purchasing add-ons and must obtain consumers’ express informed consent before charging them for any add-on services or products. The settlement also requires the defendants to establish a comprehensive fair lending program that will allow consumers to seek outside financing and cap the additional interest markup charged to the defendants’ consumers.
The former owners have agreed to a separate settlement that requires them to pay $100,000 and permanently wind down their businesses. The settlement funds will go toward refunding affected consumers.
Putting It Into Practice: This is not the first time the FTC has brought an enforcement action against a group of auto dealers for discriminatory practices or junk fees in the car buying process. (See more of our posts on related FTC enforcement activity here and here). In light of the Commission’s focus on the auto industry, dealers should review their business practices to ensure compliance with consumer protection and be on high alert for potential discriminatory outcomes in their business activities to avoid running afoul of the law. In particular, the requirement under the consent order to cap the potential profit a dealer can make by via interest rate mark-ups is notable in that it leverages the enforcement playbook that the CFPB first employed in 2013. That playbook was set forth in a compliance bulletin that was later expressly deemed null and void following a joint resolution passed by Congress and signed by the President in 2018. In light of this latest settlement, auto dealers should expect that the FTC and the DOJ are likely to intensify their scrutiny of auto dealers that allegedly engage in excessive and discriminatory interest rate markups. In addition, auto finance companies should remain cognizant of potential state-level enforcement action, notwithstanding the CFPB’s diminished capacity to bring similar actions under Dodd-Frank following the rescission of the above-mentioned 2013 compliance bulletin. (See prior post related to a 2021 New York settlement here.)