Automotive Group Sued by the Federal Trade Commission
Passport Automotive Group, its president, Everett Hellmuth, and its vice president, Jay Klein, will pay more than $3.3 million to settle an FTC lawsuit. In the FTC's complaint, the FTC alleges that Passport regularly advertises certified, reconditioned, or inspected cars at specific prices, but then adds extra certification, reconditioning, or inspection fees that it falsely claims consumers are required to pay.
Allegations of Violating the FTC Act and the Equal Credit Opportunity ActThe FTC also alleges that Passport charges Black and Latino consumers hundreds of dollars more in financing costs and fees, on average, than white consumers. In its complaint against Passport, the FTC alleges that the company has for years violated the FTC Act and the Equal Credit Opportunity Act by:
- Charging illegal junk fees: Passport advertises cars as “certified,” “inspected,” or “reconditioned” at specific prices, but the FTC alleges that when customers try to pay the amount advertised for those vehicles, Passport adds hundreds or thousands of dollars in fees. These fees either increase the price over what was advertised or negate any discounts the consumers negotiated. The complaint cites one case in which a vehicle advertised for $24,050 was, in fact, sold for $26,440 due to illegal add-on fees. Passport frequently describes the extra fees it charges to customers for inspection, reconditioning, or certification as required.
- Discriminating against Black and Latino customers: The complaint alleges that Passport regularly charges Black and Latino customers more in financing costs and fees than they charge non-Latino white customers. Although Passport claimed that it had a policy to prevent discrimination, the complaint alleges that Passport did not even enforce or monitor the policy.
Key Takeaways on the FTC LawsuitThere are three key takeaways from this enforcement. First, the FTC is watching for dealers and making sure their advertised price is the same as what a customer pays. In addition to the FTC, TxDMV investigates all reported violations of advertising laws here in Texas. Typically, a first violation results in a cure letter from TxDMV. However, TxDMV has the ability to both terminate your license and fine you $10,000 per violation. Texas Occupations Code § 2301.651 states the board may take action to revoke or suspend a license or deny an application if the license holder: (3) violates this chapter or a board rule or order; or (4) violates ANY LAW relating to the sale, distribution, financing, or insuring of motor vehicles; or willfully defrauds a purchaser and/or Texas Occupations Code § 2301.801 provides if the board determines that a person has violated this chapter, a rule adopted or order adopted under this chapter” the board may impose a civil penalty not to exceed $10,000 for each violation. Each act of violation and each day a violation continues is a separate violation.
Second, if you have a written policy that is not followed, it may be used against you. In this instance, Passport had a policy that exceeded that required by law, but it was found to be just a written policy and not one followed. This is important to keep in mind as you create your own policies. Too often, I received advertisements targeting dealers offering a one size fits all policy to purchase. Sometimes these policies exceed 50 pages and are extremely robust but think hard before adopting such a policy as also means your agreeing to do 50 pages worth of things.
Finally, the FTC is not satisfied with just targeting the dealership, but also the leadership of a dealership.