Why it matters

Continuing its efforts to accelerate enforcement actions against fraudulent practices in the auto industry, the Federal Trade Commission (FTC) recently reported the results of its Operation Ruse Control. The new suits tackle issues, including deceptive advertising, fraudulent add-ons, and auto loan modification, with alleged violations ranging from the Federal Trade Commission Act to the Truth in Lending Act to the Consumer Leasing Act. Two of the new cases represent the first legal challenges filed by the agency involving add-ons as part of the FTC’s expanded authority over auto dealers under the Dodd-Frank Wall Street Reform and Consumer Protection Act. “For most people, buying a car is one of the largest purchases they’ll make,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said in a statement. “Car ads must be truthful, loan terms must be clear, and dealer practices must be honest. That’s why our partners are working together to crack down on deceptive marketing about car sales, leasing and financing.” The auto industry has been on the radar of several regulators recently, from a suit filed by the Department of Justice alleging discriminatory lending to a proposal from the Consumer Financial Protection Bureau to begin supervising large, nonbank automobile lenders. Operation Ruse Control should remind all financial product providers, regardless of industry, that advertisements are being closely analyzed for potentially misleading or deceptive statements.

Detailed discussion

Working together with 32 other law enforcement authorities both in the United States and Canada, the Federal Trade Commission (FTC) has targeted lenders in the automobile industry with Operation Ruse Control. The agency has been involved in a total of 252 enforcement actions as part of the operation—187 in the U.S. and 65 in Canada.

With the goal of protecting consumers when purchasing or leasing a car, the authorities have made both civil and criminal charges ranging from deceptive marketing of car title loans to automotive loan application fraud to deceptive add-on fees.

Announcing the filing of six new cases, the FTC made use of its expanded authority over auto dealers under the Dodd-Frank Wall Street Reform and Consumer Protection Act for the first time in suits against National Payment Network, Inc. (NPN) and Matt Blatt Inc. (MB).

California-based NPN violated the Federal Trade Commission Act with a deceptive auto payment program, the FTC charged. Both in its network of dealerships as well as online, the defendant claimed that the program would save consumers money—but failed to disclose that it tacked on various “significant” fees that cancelled out any possible savings from the program, according to the administrative complaint. The fees averaged $775 on a standard five-year loan for items like a “Deferred Enrollment Fee” and a processing fee for every debit from a customer’s bank account.

As for the MB case, the Commission said the New Jersey dealerships similarly ran afoul of the FTC Act by failing to disclose the fees associated with its add-on service, despite claims that the payment program would save consumers money. For each consumer that enrolled in the program, MB dealerships received a commission, pressuring the defendant to sign consumers up, the agency said.

To settle the charges, NPN and MB agreed to consent orders prohibiting them from future misrepresentations that a payment program will save consumers money unless the amount of savings is greater than the total amount of fees and costs. Deceptive statements that the program can “improve, repair, or otherwise affect” a consumer’s credit record are also banned.

In addition, MB will pay $184,000 to the FTC while NPN promised to provide $1.5 million in refunds to consumers and waive $949,000 in fees to current customers.

Of the four other new cases filed by the FTC, three involve deceptive advertising. Cory Fairbanks Mazda, Jim Burke Nissan, and Ross Nissan tricked consumers with ads featuring attractive sales, leasing, or financing options. Fine print disclaimers revealed that the deals weren’t as good as they sounded, the agency said, and in some ads, the disclaimers failed to disclose relevant terms.

In one ad, Cory Fairbanks Mazda touted a 2014 Mazda for $12,995 with $0 down and monthly payments of just $169. But the fine print on the ad explained that the offer was contingent upon $3,000 down plus various fees.

For their alleged violations of the FTC Act, the Truth in Lending Act, and the Consumer Leasing Act, the dealerships must clearly and conspicuously disclose the terms of any deals and are prohibited from misrepresentations about any material facts related to the price, sale, financing, or leasing of a vehicle, such as purchase cost.

In the final case, the Commission filed a complaint in Florida federal court requesting a halt to the operations of Regency Financial Services and its CEO. The defendants charged customers up-front fees to negotiate an auto loan modification on their behalf and provided nothing in return in violation of the FTC Act and the Telemarketing Sales Rule, the agency claimed. Granting the motion, the court also froze the defendants’ assets. The FTC said it will pursue a permanent injunction against the defendants and attempt to recover ill-gotten gains for consumer refunds.

To read the complaints, consent decrees, and other court documents in the six cases, click here.