While many dealerships have adapted to the age of internet shopping, some dealers have increased their deceptive practices to make up for the loss of profit on new car sales. The FTC has responded with an increased crackdown on these "stealerships," and some penalties could mean prison time.
According to Automotive News, The Federal Trade Commission's Bureau of Consumer Protection announced the results of "Operation Ruse Control." The initiative brought 252 "enforcement actions" against dealerships and lenders including: deceptive advertising, criminal automotive loan application fraud, odometer fraud and deceptive marketing of car title loans. Most of the violations carry heavy fines, but if the charges are criminal in nature such as conspiracy fraud or wire fraud, dealership employees could face anywhere from five to up to twenty years in prison.
One of the cases involved National Payment Network Inc. a provider of loan acceleration programs. According to the FTC, NPN was charged with deceptively pitching consumers a bi-weekly auto payment program, that NPN says would save them money. However, the average fee of $775 that NPN charged for such a program often negated any savings.
In a related case, the FTC charged Matt Blatt Inc. and Glassboro Imports, which owns two dealerships in New Jersey, for failing to disclose or adequately disclose the fees associated with NPN's add-on service. As a result of the investigation, NPN will refund more than $1.5 million to consumers, and waive another $949,000 in fees to current customers. Matt Blatt also will pay $184,000 to the FTC.
Ironically, a Matt Blatt dealership is just minutes from my house here in New Jersey, I have attempted to deal with their staff on a few occasions when shopping for local customers. Needless to say that dealership was not very accommodating when questioned about the details of their pricing and financing. Due to a lack of transparency, I sent my customers elsewhere.
In addition to the financing violations, the FTC found several dealerships engaging in "bait and switch" advertising practices. Often customers will encounter promotional ads, but the price of the vehicle on the ad is different than the price offered to them at the dealership. The FTC also says that several dealerships do not disclose the "fine print" such as disclaimers, required down-payments, and loan APR clarification.
They even created a nice, handy info-graphic on what to be aware of -
The National Automobile Dealers Association, maintains that the results of the FTC investigation are isolated cases and not a representation of the entire dealership network. NADA spokesman Jared Allen said that the findings are not -
"...indicative of any systemic problems within the auto industry — nor, as the agencies acknowledged, are they reflective of the overwhelming number of honest businesses that make up the nation's franchised dealer network."
While these issues may not be a "systemic" problem, throughout the course of the investigation the FTC found that poor people and minorities often fall victim to these deceptive tactics. I can tell you from experience that the dealerships in poor areas that are accustomed to dealing with sub-prime and less educated customers are more likely to engage in "stealership" tricks.
The FTC says that protecting consumers remains a top priority and will continue to investigate and partner with other agencies to go after fraudulent dealerships and lenders.
"For most people, buying a car is one of the largest purchases they'll make...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." - Jessica Rich, Director of the FTC's Bureau of Consumer Protection.
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