The Federal Trade Commission referenced back to a practice this week that regularly upsets the agency, especially in the dealership arena when it comes to vehicle pricing and financing possibilities. It’s the concept of the bait and switch.

When asked about what concerns the FTC most about what unscrupulous dealers might be doing, Jessica Rich indicated what the regulator is most commonly seeing is what she called “bait-and-switch tactics where the advertisement says one thing, but it’s not the price that’s offered once you get to the dealer.

“It may be a special rate or discount but in the fine print are major qualifications that’s only available to people whose birthday is on a Tuesday — that’s a joke — but a very specific group of people,” said Rich, who is director of the FTC’s Bureau of Consumer Protection.

Rich, along with Joyce White Vance, United States Attorney for the Northern District of Alabama, spent nearly an hour on a teleconference after the FTC and 32 law enforcement partners announced the results of what they dubbed “Operation Ruse Control,” a nationwide and cross-border crackdown aimed at what they contend is to protect consumers when purchasing or leasing a vehicle.

Along with the bait-and-switch mention, Rich described the problems the FTC has with advertising disclaimers in fine print along with what she described as “deceptive” add-ons such as warranties that either aren’t fully explained or are integrated into the vehicle price, a practice known as payment packing.

“The deceptive ads with fine print disclaimers, or actually no disclaimers at all sometimes, are really unfortunately quite common,” Rich said. “That’s not to say there aren’t many, many honest dealers in this industry. But there are a lot of deceptive ads out there, and we’re going to keep bringing cases when we see them.”

And in regard to the problems with add-on products, Rich stated, “We have heard that this goes on a lot, and we will be looking for cases in this area. These two cases are the first but they won’t be the last.”

Furthermore, Rich mentioned how the FTC has found several examples of where advertisements or contracts are written in two different languages, resulting in difficulties for certain demographics such as Hispanics where their English proficiency might be limited.

“We at the FTC are very much on the lookout for scams that exploit people’s cultural differences or prey on particular groups. We have a number of initiatives in that area as well,” she said.

Could Finance Companies Be Victims, Too?

After Rich rattled off what dealer misdeeds are aggravating the FTC most nowadays, White Vance chimed in as well, delving into an area impacting finance companies.

First, White Vance acknowledged the parties involved in the settlements aren’t “indicative of what this industry is about because we’ve all had good experiences, and these stories about bad experiences come from consumers who were dealing with highly unethical salespeople. The practices I find to be most troubling are dealerships who inflate a buyer’s income so they can buy a car they can’t afford. Dealers should perhaps encourage strong purchasers who can qualify for loans to be the on-paper purchaser of the car rather than the one the purchaser cannot afford.

“This practice of adding non-existent vehicle accessories, saying you’ve got a moon roof and a high-end stereo on a vehicle that’s just the basic package in order to boost the loan amount,” Vance White continued. “These are practices that the dealers use to enhance their own bottom line without caring at all for the future financial stability of their customers and their family. If you want to talk about offensive, that’s it for me.”

In light of that assessment, White Vance recognized that finance companies could be victims in cases of fraud just like consumers, but “it’s often a fact-specific determination based on what happened in that particular case.”

She added, “Banks certainly need to be checking carefully, but in reality what we’ve seen is they don’t have the opportunity to check every single loan. Sometimes they do become victims.”

However, if finance companies have what White Vance described as “a cozy relationship with the dealer,” who might be producing questionable applications, the institution could end up being culpable of charges, too. But again the U.S. attorney from Alabama emphasized that any charges that might be levied are dependent upon the facts of the specific case.

Agency Collaboration

The FTC and the Consumer Financial Protection Bureau recently reauthorized their ongoing memorandum of understanding. The regulators explained the memorandum outlines the working relationship between the two agencies under the terms of the Consumer Financial Protection Act, and is designed to coordinate efforts to protect consumers and avoid duplication of federal law enforcement and regulatory efforts.

While this week’s enforcement actions didn’t include the CFPB, Rich insisted that federal regulators are collaborating with each other along with state and local authorities, resulting in enforcement actions like what the FTC shared this week.

“It’s a sign that this is a very important message we’re trying to get across both to businesses and to consumers that this type of deception will not be tolerated. It is illegal and there are ramifications. Enforcers at all levels are watching,” Rich said.

“We do find that working with our partners, people like Joyce in Alabama, and many others, does enable us to have greater impact,” she continued. “By working together we can bring more attention to the issue. Here we brought over 250 action across the country and even in Canada. We think it’s very good to work together. We have more of an impact. We’re trying to get a very strong message across.”