A Los Angeles-based auto group will pay more than $3.6 million to the Federal Trade Commission to settle charges that the company used deceptive and unfair sales and financing practices as well as phony online reviews.
The agency alleged that Sage Automotive Group—comprised of nine L.A. dealerships, their holding and management companies, and two individuals—violated Section 5 of the Federal Trade Commission Act by developing and posting deceptive online reviews, engaging in unfair sales and financing practices, and disseminating other misleading advertising.
The FTC claimed that the defendants enticed consumers with false ads and misleading claims, touting low prices and low monthly payments that were not available. Worse, Sage then engaged in "yo-yo" financing tactics by using deception or other unlawful pressure to coerce consumers who signed purchase contracts into accepting different financing deals.
For example, one ad promised a Nissan Versa for "$38 a month" and "$38 down." But the $38 per month applied only for the first six months, with $179 per month due after that, the agency alleged, with the fine print also noting that the deal required $2,695 at signing.
The defendants also used fake online reviews to promote their dealerships, including positive, five-star reviews that purported to be from objective or independent reviewers, but were really posted by employees and agents who did not disclose their relationship to the dealerships, the agency alleged. One employee's glowing review read: "I would like … to state that this dealership is truly exceptional and I really appreciate the way they treat their clients."
As for deceptive financing tactics, the FTC asserted that defendants tacked on unauthorized charges for "add-ons" (such as extended warranties and maintenance or service plans) into financing deals, often without consumers' consent or after telling them the products were required or free. In some instances, the dealerships also tricked consumers into changing the terms of their contracts by telling them they were required to sign a new contract with different terms, while other consumers were informed that their contracts were cancelled and the defendants had the right to keep the consumers' down payment or trade-in vehicle.
In addition to the $3.6 million payout—which will be returned to consumers—Sage is prohibited from making misrepresentations related to advertising, add-on products, financing, and endorsements or testimonials. Also banned: violations of the Truth in Lending Act, Regulation Z, the Consumer Leasing Act, and Regulation M, along with any unlawful conduct when a sale is cancelled (such as failing to return a down payment or trade-in).
To read the complaint and stipulated order in FTC v. Universal City Nissan, click here.
Why it matters: The allegations involved in the case "illustrate key consumer protection principles applicable to all marketers," particularly the false advertising and phony review claims, the FTC noted in a blog post about the case. Acting Chair of the FTC Maureen K. Ohlhausen dissented from the Commission vote to approve the stipulated order but did not comment on her decision.