FTC Act civil penalties rise based on inflation


In combing through the Federal Register this week, the National Automobile Dealers Association found that the Federal Trade Commission recently announced increases to various civil penalties amounts within its jurisdiction to adjust for inflation.

In particular, that could be associated with collections and repossessions. The regulator stated that the penalties for violations of Section 5 of the FTC Act — which can include unfair or deceptive acts or practices — will increase.

The FTC indicated the penalties would jump from $40,654 to $41,484.

This section of the Federal Register also mentioned that knowing violations of the Fair Credit Reporting Act would increase, too, climbing from $3,817 to $3,895.

The regulator reiterated that it made the moves by “implementing adjustments to the civil penalty amounts within its jurisdiction to account for inflation, as required by law.”

The actions adjusted the figures since the FTC made its most recent update last January.

The FTC certainly keeps a watchful eye on collections activities such as asking for comments about its current rules.

FTC reaches settlement with Texas Toyota dealer over deceptive ads in Spanish newspaper


The complexities of advertising finance terms in a language other than English landed a dealership in regulatory problems with the Federal Trade Commission.

Cowboy AG, a Dallas company doing business as Cowboy Toyota and Cowboy Scion, recently agreed to settle FTC charges that it deceptively advertised financing and leasing terms in ads placed in a regional Spanish-language newspaper.

The FTC’s administrative complaint charged that Cowboy Toyota ran full-page Spanish-language ads claiming that consumers could buy or lease a vehicle at certain favorable terms that were prominently stated in Spanish in the ads, with material limitations to those terms provided only in fine-print English at the bottom of the ads. The complaint alleged the dealerships violated the FTC Act by misrepresenting many claims, including that:

—No down payment was required.

—The advertised low monthly payments were available to consumers who financed their purchases.

—The advertised interest rates, monthly payments and other terms were available to consumers with bad credit.

—Certain new 2016 Toyotas were available for purchase at the time of the ads in 2017.

According to the FTC, Cowboy Toyota’s misrepresentation of the cost of purchasing or leasing vehicles, qualifications or restrictions for financing or leasing vehicles, and the availability of cars violated the FTC Act. Officials indicated the dealership also failed to clearly and conspicuously disclose credit or lease terms they are required to state under the Truth in Lending Act (TILA) or the Consumer Leasing Act (CLA) when they touted certain “triggering” terms of the credit or lease, such as the monthly payment.

Officials believe the proposed order settling the FTC’s charges will ensure that Cowboy Toyota does not engage in the deceptive conduct alleged in the commission’s complaint in the future.

First, the order prohibits the dealership from misrepresenting the cost of financing or buying a vehicle, including terms related to the amount or percentage of the total price needed for a down payment, the number of payments required over the full financing term, and the amount of any payment or repayment obligation over the loan term, including any balloon payment.

Next, the order prohibits Cowboy Toyota from misrepresenting the cost of leasing a vehicle, including the total amount due at lease inception, the down payment required, the acquisition fee, any other payments required at the beginning of the lease and the amount of all monthly payments over the term of the lease. The order also requires the dealership to accurately represent any qualifications or restrictions on a consumer’s ability to obtain offered financing or lease terms, including restrictions based on their credit history.

Furthermore, the order instructs Cowboy Toyota to clearly and conspicuously disclose all financing and lease terms in its ads, as well as all related qualifications or restrictions. In addition, if most consumers likely will not qualify for the credit rate advertised, the order requires the dealership to clearly and conspicuously disclose that fact. It also requires that if a representation is made in one language, any material limitations must also be made in the same language.

Also, the order prohibits Cowboy Toyota from misrepresenting the number of vehicles, makes, or models that are available for purchase or lease, and bars them from violating TILA and its implementing Regulation Z by requiring clear and conspicuous disclosures regarding a variety of purchase or lease terms, including the percentage of any down payment required, the amount of any payment, the amount any finance charge, the terms of loan repayment and the annual percentage rate (APR) associated with a loan.

Finally, the order instructs Cowboy Toyota to comply with the CLA and its implementing Regulation M by prohibiting deceptive lease advertisements and requiring that all ads clearly and conspicuously disclose a range of facts, including that the advertised deal is a lease, the total amount due on delivery, the number and timing of scheduled payments, and whether or not a security deposit is required.

The commission vote to issue the administrative complaint and to accept the consent agreement was 2-0.

The FTC reiterated that the regulator issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the commission issues a consent order on a final basis, it carries the force of law with respect to future actions.

Each violation of such an order may result in a civil penalty of up to $40,654.


Southern California dealer group to pay FTC $1.4 million over advertising issues


The Federal Trade Commission flexed its regulatory muscle again this week.

Officials said a southern California-based dealership group will pay $1.4 million to settle FTC charges that it violated a 2014 administrative order prohibiting the company from misrepresenting how much consumers could pay to finance or lease a vehicle.

The proposed court order resolving the FTC’s complaint against the businesses operating as the Norm Reeves dealerships, bars similar advertising misrepresentations and imposes strict compliance and reporting terms to prevent future violations.

According to the FTC’s first complaint, the defendants made a variety of misrepresentations in advertisements to consumers that violated the FTC Act, falsely leading consumers to believe they could buy vehicles for specific low prices, finance vehicles for specific low monthly payments and/or make no upfront payment when leasing.

Specifically, the FTC charged Norm Reeves with deceptively advertising that consumers could pay $0 up-front to lease a vehicle when, in fact, the advertised price excluded substantial fees and other costs. The ads also allegedly violated the Consumer Leasing Act (CLA) by failing to disclose certain lease related terms. One of the dealerships’ ads also allegedly violated the Truth in Lending Act (TILA) and Regulation Z, by failing to disclose certain credit-related terms.

The orders settling the previous complaint, which the commission approved as final in May 2014, prohibited the dealerships from misrepresenting the cost of purchasing a vehicle with financing, or any other material fact about the price, sale, financing, or leasing of a vehicle in its ads.

The orders also addressed the defendants’ alleged TILA and CLA violations by requiring the dealerships to clearly and conspicuously disclose terms required by these credit and lease laws.

Officials explained the proposed court order announced this week settles the FTC’s civil penalty complaint that the defendants violated the 2014 order by misrepresenting the total cost of vehicle financing or leases to prospective buyers, or misrepresenting the offer’s availability to all consumers.

They added the order also settles commission charges that the defendants failed to disclose, or did not clearly and conspicuously disclose, credit and lease information required by TILA and the CLA, and failed to maintain proper records, in violation of the order.

In addition to prohibiting future misrepresentations about the material costs and terms of vehicle financings or leases, the order requires the defendants to comply with TILA, Regulation Z, and the CLA. It also provides for a $1.4 million civil penalty and contains strong compliance and reporting requirements to ensure compliance with its terms.

The commission vote authorizing the staff to file a complaint for civil penalties and to approve a proposed consent in settlement of the court action was 2-0. The complaint and proposed order were filed in the U.S. District Court for the Central District of California, having been referred back to the FTC by the Department of Justice.

The proposed order settles the FTC complaint against:

—Norm Reeves Honda Superstore Cerritos
—Norm Reeves Ford Superstore Cerritos
—Norm Reeves Lincoln
—Norm Reeves Hyundai Superstore
—Cerritos Infiniti
—Norm Reeves Honda Superstore Huntington Beach
—Conant Auto Retail Group and the Car Group
—Toyota San Diego and Scion San Diego
—Norm Reeves Honda Irvine
—Norm Reeves Volkswagen
—Norm Reeves Buick GMC
—Norm Reeves Acura of Mission Viejo
—Port Charlotte Honda and Port Charlotte Volkswagen
—Norm Reeves Honda Superstore West Covina

FTC reinforces auto industry enforcement priorities


Coinciding with the regulator offering a deeper explanation of its revamped Used Car Rule, Tom Pahl of the Federal Trade Commission made the opening presentation during the National Policy Conference, hosted this week by the National Independent Automobile Dealers Association.

Pahl covered a variety of topics during his 45-minute opportunity behind the lectern at the Dupont Circle Hotel, located less than a test drive distance away from the White House and Capitol Hill. Pahl told nearly 200 dealers, service providers and other industry representatives that working with organizations such as NIADA is beneficial to helping consumers understand the intricacies of acquiring and financing a vehicle.

Pahl also recapped some of the most recent FTC actions. What might be a thorn for dealers and finance companies, Pahl noted that the regulator is trying to make civil investigative demands “more streamlined” and “more transparent of what info we’re seeking.”

Reinforcing the assessment of compliance expert Randy Henrick, who described the situation in more detail here, Pahl also mentioned how the FTC is continuing to watch dealer advertising closely when it comes to stores promoting financing options. Many FTC investigations are connected to “truthful statements in advertising to consumers,” according to Pahl, who back in February was appointed as acting director of the FTC’s Bureau of Consumer Protection.

While certainly busy, Pahl went on to point out that the FTC likely won’t be highly active in rule making, rather focusing on regulations already in place.

Pahl urged dealers and finance companies to leverage the guidance available on the FTC’s website as a path to making business decisions that are compliance with the regulator’s mandates. Another example is what the FTC just delivered in response to a request from the National Automobile Dealers Association.

The legal team at Hudson Cook highlighted that the FTC issued a guidance document answering certain frequently asked questions about the revised Used Car Rule and the revised Buyers Guide.

The material that’s available here explained that the 2016 amendments don’t change the essential requirements of the Used Car Rule. The regulator insisted the changes include certain revisions to the Buyers Guide to give consumers more information and to make it easier for dealers to disclose manufacturer and third-party warranties. Here is a summary of what’s new:

—The revised Buyers Guide recommends that consumers get a vehicle history report before buying a used car and sends them to ftc.gov/usedcars for more information on how to get one.

—The revised Buyers Guide directs consumers that before buying a vehicle, they should visit safercar.gov to check for safety recalls.

—There’s a new description in the revised Buyers Guide of an “As Is” sale to clarify that “As Is” refers only to whether the vehicle is offered with a warranty from the dealer.

—The revised Buyers Guide adds boxes dealers can check to indicate whether a vehicle is covered by a third-party warranty and whether a service contract may be available.

—The revised Buyers Guide adds a box dealers can check to indicate that an unexpired manufacturer’s warranty applies.

—The new English-language version of the Buyers Guide adds a statement in Spanish advising Spanish-speaking consumers to ask for the Buyers Guide in Spanish if the dealer is conducting the sale in Spanish.

—On the back of the revised Buyers Guide, air bags and catalytic converters have been added to the list of major defects that may occur in used vehicles.

NADA offers strategy to handle Equifax concerns

TYSONS, Va. - 

The National Automobile Dealers Association cautioned store managers and personnel that they’re likely to see two trends surface with regard to the Equifax security breach as customers arrive in the showroom or service drive.

Mark Scarpelli, who is the 2017 NADA chairman, specified the two probable scenarios in a blog post the association shared last Friday. Scarpelli mentioned dealerships are likely to get questions from customers about the breach itself as well as a potential increase in credit freezes and fraud alerts on credit applicants’ credit reports.

“Equifax has stated that information from as many as 143 million people in the United States was compromised,” wrote Scarpelli, who is president of Raymond Chevrolet and Raymond Kia in Antioch, Ill., and co-owner of Ray Chevrolet and Ray Chrysler-Jeep-Dodge-Ram in Fox Lake, Ill.

“Given the number of people affected and the sensitive type of information exposed, dealers should understand the basics of the breach and what it means for their customers,” he continued.

“If dealership personnel do get questions, it is important to first explain that the reported breach occurred at Equifax, and does not involve the dealership, data stored at the dealership or dealership processes,” Scarpelli went on to state.

Scarpelli suggested that dealerships should review guidance provided by the Federal Trade Commission regarding the Equifax matter. He also recommended that the FTC’s guidance can be even more help if F&I office personnel spot a fraud alert or encounter a frozen credit report.

“Dealers and their employees should also be aware that there are already scammers trying to take further advantage of the Equifax breach by calling consumers and trying to obtain personal information through false pretenses,” Scarpelli wrote.

The NADA chairman closed by touching on one other compliance element the Equifax incident might give dealerships a chance to re-examine.

“Lastly, this is a good reminder for dealers to revisit their Red Flags program to ensure that they are taking the required steps to detect and prevent scammers from opening a line of credit using someone else’s information,” he wrote in the blog post here.

NJ Hyundai dealer agrees to 8 conditions in settlement with attorney general


What law enforcement determined to be deceptive practices associated with dealership advertising of financing options recently surfaced again — this time in New Jersey.

Garden State attorney general Christopher Porrino and the state’s Division of Consumer Affairs announced that a Middlesex County dealership has agreed to pay $136,000 and change the way it does business in order to resolve the division’s consumer fraud investigation of the dealership’s advertising, sales and leasing practices.

Officials said Sansone Hyundai, located on U.S. 1 in Avenel, entered into the settlement to end the division’s investigation of its alleged activities, including failing to disclose the total price for certain advertised vehicles and charging consumers for aftermarket merchandise that was listed at “no charge” on certain leases and sales contracts.

In a consent order with the division, Sansone Hyundai, among other things, agreed to:

—Comply with all applicable state and/or federal laws, rules and regulations, including the Consumer Fraud Act, the Motor Vehicle Advertising Regulations, the Automotive Sales Regulations and the Consumer Leasing Act

—Not misrepresent the terms and conditions of any financing or lease plan

—Not add and charge for aftermarket merchandise, such as window etch or service contracts, without consumers’ knowledge and/or authorization

—Not represent to consumers that certain dealer-installed options and/or aftermarket merchandise are mandatory when, in fact, they are not

—Not sell consumers aftermarket merchandise that overlaps or provides similar benefits in part to merchandise the consumer has already purchased through the lease or sale transaction

—Accurately reflect in leases the “gross capitalized cost” as required by the consumer leasing act

—Provide consumers with an opportunity to review all leases and/or sales documents and/or aftermarket contracts prior to signing

—Not identify the advertised prices of a motor vehicle by reference to the MSRP sticker, when the vehicle includes an addendum to the MSRP sticker that reflects a higher total price

 “Consumers should be able to purchase a new car without having to worry about misinformation and hidden costs,” Porrino said. “This settlement ensures that consumers will receive transparency and honesty from this dealership, as required by law.”

As previously mentioned, Sansone Hyundai also agreed to make a $136,250 settlement payment to the state.

“Dealerships must fully disclose all costs and fees associated with the purchase or lease of a vehicle before consumers sign on the dotted line,” said Steve Lee, director of the Division of Consumer Affairs. “We will continue to enforce the laws and regulations in place to ensure consumers have the facts they need to make informed decisions.”

The settlement Sansone Hyundai reached included a fine only a fraction of what’s been handed out earlier this year.

For example, the Federal Trade Commission announced back in March that the Sage Automotive Group — which includes nine Los Angeles-based dealerships, its holding and management companies and two individuals — agreed to pay more than $3.6 million in order to settle charges that it used deceptive and unfair sales and financing practices, deceptive advertising and deceptive online reviews.

Hudson Cook rolls out 7th edition of CARLAW F&I Desk Book


CounselorLibrary.com, publisher of automobile financing and leasing legal compliance services and part of the Hudson Cook portfolio, announced that it has updated its popular CARLAW F&I Legal Desk Book. Winner of the Axiom Business Book Award, the book gives readers 363 things to know about dealer finance laws and regulations. 

Now in its seventh edition, CARLAW F&I Legal Desk Book — The Answer Book for Finance and Insurance Professionals, presents a law-by-law, regulation-by-regulation guide through the legal maze that dealers face every day. Authored by Thomas Hudson, Michael Benoit, Ralph Rohner and the attorneys at Hudson Cook, this new edition reflects the latest updates to the federal laws and regulations affecting F&I practices. 

“Formatted in a straightforward Q and A design, (the book) addresses many of the everyday compliance issues dealers face and includes links to the actual laws and regulations discussed in each chapter,” the publisher said.

The 390-page book is designated as the official textbook for the Association of Finance and Insurance Professionals’ Certified F&I Professional Program, and is available for $49.95 (plus shipping and handling) by going to this website.   

5 reforms when FTC issues civil investigative demands


If a federal investigation into your dealership or finance company ever happens, perhaps here is some good news regarding how it might unfold.

Federal Trade Commission acting chairman Maureen Ohlhausen on Monday announced several internal process reforms in the agency’s Bureau of Consumer Protection that are designed to streamline information requests and improve transparency in commission investigations.

The FTC explained the reforms are part of Ohlhausen’s efforts to further the agency’s mission to protect consumers and promote competition without unduly burdening legitimate business activity.

“It is our duty to carry out our vital mission in the most effective and efficient way possible,” Ohlhausen said. “The changes announced today will reduce unnecessary and undue burdens of FTC investigations without compromising our ability to protect American consumers.”

This past April, Ohlhausen announced new internal working groups on agency reform and efficiency to improve processes and focus resources where they will do the most good for the public. As part of this initiative, Ohlhausen directed the Bureau of Consumer Protection to identify best practices to streamline information requests and improve transparency in investigations. 

The process reforms announced on Monday addressed civil investigative demands (CIDs) in consumer protection cases and include:

—Providing plain language descriptions of the CID process and developing business education materials to help small businesses understand how to comply

—Adding more detailed descriptions of the scope and purpose of investigations to give companies a better understanding of the information the agency seeks

—Where appropriate, limiting the relevant time periods to minimize undue burden on companies

—Where appropriate, significantly reducing the length and complexity of CID instructions for providing electronically stored data

—Where appropriate, increasing response times for CIDs (for example, often 21 days to 30 days for targets, and 14 days to 21 days for third parties) to improve the quality and timeliness of compliance by recipients.

In addition, to ensure companies are aware of the status of investigations, the FTC said it will adhere to its current practice of communicating with investigation targets concerning the status of investigations at least every six months after they comply with the CID.  

At least one compliance expert applauded the FTC’s actions. Steve Levine currently is chief legal and compliance officer at Ignite Consulting Partners.

"I’m encouraged by the acting chairman’s proposals for internal reform,” Levine said in an email to SubPrime Auto Finance News. “These will increase transparency and understanding and help small businesses meet the expectations of the FTC. 

“I’m especially glad to see emphasis on plain language and business education as CIDs can take a small business by surprise and they are often unprepared to respond as quickly as is required,” continued Levine, who also has been chief legal and compliance officer of AutoStar Solutions, Sigma Payment Solutions and SecureClose as well as general counsel for Regional Acceptance Corp.

The FTC noted Ohlhausen initiated this project in part to address concerns raised by members of Congress and the American Bar Association Antitrust Section’s Presidential Transition Report about the investigational burdens on legitimate companies.

“The agency continues to consider other reforms,” the FTC said.

FTC distributing more than $109K through settlement with Regency Financial Services


Consumers involved in an auto finance regulatory matter more than two years old will soon begin to receive refund checks from the Federal Trade Commission for an average amount of $380.

The FTC said it is mailing 288 checks totaling more than $109,000 to people who paid an up-front fee to Regency Financial Services, which the regulator said promised to get them better terms for their auto financing. According to the FTC, the company and its chief executive officer, Ivan Levy, did not provide the promised services and failed to honor their “money-back guarantee.”

In July 2015, the defendants agreed to pay money to settle the lawsuit. The settlement banned them from telemarketing, and from selling debt relief products or services.

Affected consumers will receive full refunds based on information they reported to law enforcement.

Nearly two years ago, Levy and Regency Financial Services settled the complaint where the FTC alleged that they violated the FTC Act and Telemarketing Sales Rule by promising consumers services to stop the repossession of their vehicles, and to obtain lower interest rates and monthly installment payments for an upfront fee of $499. The FTC’s complaint also alleged the company failed to honor its “money-back guarantee.”

In addition to the bans on telemarketing and debt relief services, the defendants also agreed to a judgment of $330,000 to redress the victims of their scheme. The settlement order also prohibited the defendants from misrepresenting the terms or rates that are available for any loan or extension of credit and the ability to improve a consumers’ credit rating.

6 FTC initiatives meant to eliminate wasteful regulations


Along with planning a workshop to examine financial issues and scams that can affect military consumers, the Federal Trade Commission said this week it is moving “aggressively” to implement presidential directives aimed at eliminating wasteful, unnecessary regulations and processes.

Acting chairman Maureen Ohlhausen acknowledged excessive regulation and bureaucracy can create significant burdens on the public, while diverting scarce resources from the agency’s core mission to protect consumers and promote competition.

“I welcomed the president’s directive, and we’re already working hard to achieve it,” Ohlhausen said. “The FTC will continue to pursue the right answer for consumers, but we will work hard to get there as efficiently as we can.

“We are focusing our resources where they will do the most good for the public and eliminating wasteful, legacy regulations and processes that have outlived their usefulness. American taxpayers deserve and expect nothing less from us,” she continued.

Though only in the early days of the new administration, the FTC highlighted that the following initiatives are already underway:

1. New groups within the Bureau of Competition and the Bureau of Consumer Protection are working to streamline demands for information in investigations to eliminate unnecessary costs to companies and individuals who receive them.

2. Both enforcement Bureaus are reviewing their dockets and closing older investigations, where appropriate.

3. The entire agency continues to work to identify unnecessary regulations that are no longer in the public interest.

4. The Bureau of Consumer Protection is actively reviewing closed data security investigations to extract key lessons for improved guidance and transparency.

5. The Bureaus of Consumer Protection and Economics are working together to integrate economic expertise even earlier in FTC investigations to better inform agency decisions about the consumer welfare effects of enforcement actions.

6. Because the agency said great ideas often come from within, Ohlhausen established a new capability within her office to collect and review ideas on process streamlining and operational efficiency opportunities from across the agency.

These initiatives are only the first steps, according to Ohlhausen, who added, “improving efficiency and productivity never stops in the private sector, government should operate no differently.

“I intend to keep focused on this issue, working collaboratively with career staff and agency leadership to identify and implement further streamlining and process improvements,” she went on to say.

Military workshop

The FTC announced today that it is hosting a workshop in San Antonio on July 19 to examine financial issues and scams that can affect military consumers, including active duty servicemembers in all branches and veterans.

Officials indicated the workshop also will mention FTC resources available to military consumer advocates and representatives on financial readiness and fraud prevention, including the FTC’s Military Consumer Toolkit, available at Military.Consumer.gov. The toolkit can allow personal financial managers, counselors and others in the military community to share practical financial readiness tips and can be individually customized and easily shared on social media.

“Servicemembers and veterans have made great sacrifices to serve our country,” Ohlhausen said. “Protecting military consumers through law enforcement and education is a top priority of the commission.”

The FTC’s Military Consumer Financial Workshop: Protecting Those Who Protect Our Nation will bring together military consumer advocates, consumer groups, government representatives (local, state, and federal), military legal services and legal clinics (including those at universities), all service branches, and industry representatives.

Topics of discussion at the daylong event include:

• Auto purchase, financing and leasing

• Student and other lending, including installment credit practices

• Information security issues

• Financial literacy and capability, including identity theft and financial resources

• Avoiding scams

Panelists interested in participating in this workshop should email any relevant information to: militaryconsumerworkshop@ftc.gov.

The workshop, which is free and open to the public, will take place at Trinity University’s Chapman Auditorium in San Antonio. A detailed agenda will be published at a later date.