A recent $4 million Federal Trade Commission settlement with a Connecticut auto dealer serves as a warning shot to the automotive industry on hidden fees, said three Harris Beach Murtha attorneys who write a regular column for the Massachusetts State Auto Dealers Association magazine.
Attorneys Thomas S. Vangel, James F. Radke and Lindsey M. McComber, members of the firm’s Automotive and Vehicle Dealerships Industry Team, wrote in their column the FTC and state attorneys general are working together and actively focused on the automotive industry and cracking down on hidden fees.
The Connecticut Attorney General and the FTC brought a lawsuit against a Connecticut dealership alleging unlawful conduct at the dealership, including requiring customers to pay additional amounts for certified pre-owned vehicles and collecting other fees without consumer authorization. Specifically, the complaint alleged the dealership’s data showed consumers were told they had to “certify” used cars advertised as “certified pre-owned,” and the dealership inserted charges, such as total loss protection, into financing agreements without consumers’ knowledge or consent.
The Connecticut AG and the FTC alleged these actions were unfair and deceptive acts and practices in violation of Section 5 of the FTC Act and other state consumer protection laws. In short, Section 5 of the FTC Act provides an act is considered unfair if it causes substantial injury to consumers and is not outweighed by countervailing benefits to consumers or to competition, and is deceptive if it is likely to mislead the consumer.
The $4 million settlement is just one of many happening across the country, the attorneys noted, including a $3.1 million settlement with a Maryland dealer accused of miseleading consumers by falsely advertising low prices and then adding mandatory fees and other charges during the car buying process.
“Dealers need to take note – this severe penalty is not unusual and is becoming more common as the FTC has chosen to focus on the automotive industry,” they wrote.
While Massachusetts dealers must follow Section 5 of the FTC Act, the attorneys noted the state’s motor vehicle regulations are outlined in 940 CMR 5.00 and include similar requirements with respect to hidden fees. The statute requires advertising to include all charges of any type which are necessary or usual prior to delivery of such vehicles to a retail purchaser, including without limitation any charges for freight, handling, vehicle preparation, and documentary preparation, but excluding taxes and optional charges for the dealer’s preparation of title and assistance in registering a vehicle.
“Additionally, under 940 CMR 5.02, dealers are likewise prevented from refusing to sell a motor vehicle in accordance with a price at which the dealer has advertised or otherwise represented previously,” they wrote. “It is also considered an unfair or deceptive act for a dealer to advertise motor vehicles for sale at a specified price when the price does not include certain standard equipment which such vehicles are ordinarily equipped with unless the advertisement clearly and conspicuously discloses that such equipment is not included in the advertised price.”
The attorneys advised dealers to review their vehicle advertising programs to ensure all fees and eligibility conditions are clearly communicated in such advertising.
“Compliance will help prevent costly litigation and the reputational harm that comes along with these claims,” they wrote. “As such, dealers must examine add-on practices to ensure mandatory products are included in prices and should also retrain staff and establish protocols to ensure compliance.”
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