Two noncompliant practices consumer advocates often cite to criticize how financing happens at dealerships — yo-yo financing and payment packing — appeared in the rundown of charges made by the Federal Trade Commission against nine Los Angeles-area dealerships and their owners.

This week, the FTC asserted these stores used a wide range of “deceptive and unfair” sales and financing practices, according to an action filed in the U.S. District Court for the Central District of California that seeks to end these practices and return money to consumers.

Officials indicated this matter is the FTC’s first action against a dealer for yo-yo financing tactics: Using deception or other unlawful pressure tactics to coerce consumers who have signed contracts and driven off the dealership lots into accepting a different deal.

The FTC also alleges that the defendants packed extra, unauthorized charges for “add-ons,” or aftermarket products and services, into vehicle installment contracts.

The defendants are:

—Universal City Nissan doing business as Universal Nissan

—Sage Downtown doing business as Kia of Downtown Los Angeles

—Glendale Nissan/Infiniti doing business as Glendale Infiniti and Glendale Nissan

—Valencia Holding Co. doing business as Mercedes-Benz of Valencia

—West Covina Auto Group doing business as West Covina Toyota and West Covina Toyota/Scion

—West Covina Nissan

—Covina MJL doing business as Sage Covina Chevrolet

—Sage North Hollywood Sage Pre-Owned

—Sage Vermont doing business as Sage Hyundai

Along with the Sage Holding Co. and Sage Management Co., the FTC also charged:

—Joseph Schrage, who is also known as Joseph Sage
—Leonard Schrage, who is also known as Leonard Sage
—Michael Schrage, who is also known as Michael Sage

According to the FTC’s complaint, the defendants enticed consumers — particularly financially distressed and non-English speaking consumers — into their dealerships with print, Internet, radio and television ads that made an array of misleading claims. The ads included that vehicles are generally available for the advertised terms and that consumers can buy vehicles for low prices, finance with low monthly payments, or make low down payments. 

Other allegedly misleading claims included that consumers can finance the purchase of vehicles — when in fact they are lease offers — and that the defendants will pay off consumers’ trade-in vehicles, despite the fact that consumers ultimately are responsible for paying off any amount owed on the trade-in.

The FTC also alleged that the defendants use phony online reviews to tout their dealerships and discredit negative reviews that highlighted their unlawful practices. They and their employees or agents allegedly post positive, five-star online reviews that purport to be from objective or independent reviewers without disclosing their relationship to the dealerships.

In addition to the deceptive advertising and marketing allegations, the FTC has charged that several financing tactics of the defendants are deceptive and unfair. As part of the sales and financing process, the defendants offer add-ons such as extended warranties, guaranteed asset protection (GAP) and maintenance or service plans.

The FTC alleged the defendants have violated the FTC Act by charging some consumers for add-ons without their consent or falsely claiming the products were required or were free.

And according to the complaint, in some instances after the consumers have signed contracts, the defendants falsely represent that consumers are required to sign a new contract with different terms. In other instances, the defendants tell consumers who have completed finance contracts that the contracts are cancelled and falsely represent that the defendants are permitted to keep consumers’ down payments or trade-ins. 

When consumers requested compliance with the terms of the contract or refuse the defendants’ demands, the FTC asserted the defendants, in some instances, have falsely represented that consumers will be liable for legal action, including lawsuits, repossession or criminal arrest for a stolen vehicle.

Furthermore, the FTC’s complaint also charges the defendants with violating the Truth In Lending Act and Regulation Z, and the Consumer Leasing Act and Regulation M, for failing to clearly disclose required credit information and lease information in their advertising.

The commission vote authorizing the filing of the complaint against the Sage Auto Group defendants was 2-1, with commissioner Maureen Ohlhausen dissenting.

“The car-buying process is a two-way street,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “The FTC expects dealers to honor their contractual obligations, and will pursue those who use yo-yo financing tactics and pack unwanted costly add-ons onto consumers’ contracts.”