With actions possibly coming against another 11 dealerships in the Big Apple, New York attorney general Eric Schneiderman raked in a multi-million dollar settlement with three dealerships on Wednesday in a development associated with the alleged unlawful sale of credit repair and identity theft prevention services, and other “after-sale” items.
Schneiderman reached this settlement with:
— Paragon Motors of Woodside, which does business as Paragon Honda
— Worldwide Motors, which does business as Paragon Acura
— Civic Center Motors, which does business as White Plains Honda
Officials explained the agreement, which returns more than $13.5 million in restitution to consumers, concludes an investigation into these dealerships for the alleged sale of finance office products to 15,000 consumers — items that in some cases added more than $2,000 in “hidden costs and fees” onto the sale or lease price of a single vehicle.
Under a consent order agreement signed by the companies that operate the Paragon dealerships, they will also pay $325,000 in penalties, fees and costs to New York State.
This settlement is part of the attorney general’s wider initiative to end the practice of what officials described as “jamming,” unlawfully charging consumers for hidden purchases by dealerships.
As part of the wider investigation, Schneiderman’s Consumer Frauds Bureau recently obtained a consent order that shut down Credit Forget It (CFI), a New York company that sold the unlawful credit repair and identity theft prevention services to dealerships. The dealerships turned around and sold those service contracts at a higher price.
The attorney general indicated it is a violation of state and federal law to charge upfront fees for services that promise to help consumers restore or improve their credit, and contracts that violate the law are void.
Furthermore, the agreement requires Paragon to pay $6 million into a restitution fund administered by a third-party administer to be distributed to Paragon consumers with CFI contracts and to provide each of the about 15,000 consumers with a $500 “settlement card” that can be applied to one or more of the following from Paragon:
— The purchase or lease of any new or used vehicle
— Certain services or maintenance, such as oil changes, tire rotations, tire repairs, and wheel alignments
— Certain accessories, such as mats and replacement windshield wipers.
The Paragon dealerships are located at 57-02 Northern Boulevard and 56-02 Northern Boulevard in Woodside, N.Y., and 344 Central Avenue, in White Plains, N.Y.
Details of Paragon Investigation
The attorney general’s investigation found that Paragon used fraudulent, deceptive and illegal methods to sell the approximately 15,000 CFI contracts to consumers. That investigation into the three Paragon dealerships found that, between 2010 and 2014, they used deceptive sales tactics, including charging consumers for credit repair services and other “after sale” items without their knowledge or by misrepresenting that the services were free.
According to the investigation, and starting in at least March 2010, Paragon entered into an arrangement with CFI to sell its customers CFI’s credit repair and identify theft protection services. Every time Paragon charged a consumer for these services, officials explained the stores violated state and federal laws banning upfront fees for these services.
After a consumer worked with a salesperson to choose a vehicle, Schneiderman’s office said they met with an F&I manager, who attempted to sell them additional products such as extended warranties, a security system and credit repair services.
In many instances, the investigation showed, Paragon simply charged consumers for the credit repair services and concealed that they were charging consumers. In others instances, Paragon allegedly falsely told consumers, who said they did not need or want the services, that the services were free. Some consumers were sold the services without their knowledge despite the fact that they had excellent credit.
In addition to charging consumers for credit repair and identity theft prevention services without their knowledge or consent, officials said the Paragon dealers added on charges for other after-sale items, such as tire protection and Lo-Jack, without clearly disclosing what they were charging for such items. The costs of these items were often bundled into the vehicle sale price and not separately itemized.
“As a result, often unbeknownst to the consumer, the price of the car stated on purchase and lease documents was inflated by the amount of these after-sale items,” Schneiderman’s office said.
The attorney general’s investigation further found that the dealerships failed to provide required disclosures, such as a consumer’s rights to cancel the credit repair services contract.
In addition, Schneiderman’s office said the dealerships sometimes negotiated purchase and lease terms with consumers in Spanish and then only provided contracts and documents in English. New York City law requires that when the terms of an installment agreement are negotiated in Spanish, the seller must provide documents translated in Spanish.
The settlement prohibits Paragon from:
— Selling, offering to sell or marketing credit repair and identity theft services in connection with the sale or lease of a vehicle
— Selling, offering for sale, or providing to consumers any after-sale product or service unless, prior to such sale, certain material terms, including price, are disclosed verbally and in writing
— Misrepresenting the price of the vehicle in final lease or sale contracts
— Negotiating any terms of a sale or lease with a consumer in a language other than English without providing a translation of certain material documents in the language in which the terms were negotiated before the consumer signs these documents
— Failing to provide consumers with sales or lease agreements that clearly and conspicuously itemize each after-sale product or service and its price
The Paragon dealers, all of which are owned by the same individuals, claim to sell or lease approximately 1,000 new and used vehicles a month
More Settlements & Consent Orders
Besides the Paragon dealerships, the attorney general’s office reached a $41,000 settlement with L.I. Autoworld, which does business as Generation Kia in Bohemia, N.Y., in Suffolk County. The settlement came after an investigation found the company fraudulently sold CFI services and other after-sale products.
According to the attorney general’s investigation, L.I Autoworld used deceptive sales tactics to sell CFI’s credit repair services and other after-sale items to consumers. Officials said the dealership failed to provide sufficient time for consumers to review their financing documents and sometimes failed to give consumers copies of those documents, and enticed consumers to enter into high monthly payments with the false promise that the consumer could refinance in six months.
As part of that agreement reached earlier this year, officials said Generation Kia made $16,000 in payments, reimbursing 24 consumers. That restitution is profits the company made off consumers related to the unlawful CFI contracts they sold.
In addition, the attorney general indicated the dealership paid more than $20,000 in restitution to a dozen other consumers who were subjected to deceptive business practices. Generation Kia also paid a $5,000 penalty.
The settlement requires Generation Kia to stop using deceptive and misleading sales tactics and to provide documents and disclosures required by law, including the itemization of the cost of after-sale items in sale and lease agreements.
The attorney general’s consent order with Credit Forget It and its two principals, Damien Bullard and Michael Morgan, dissolved the company and enjoined it and its principals from marketing, promoting, selling, or engaging in the “credit services business” in violation of the law or from misrepresenting the services they offer.
The order also required Credit Forget It and its principals to instruct all dealerships to whom they distributed contracts for credit repair services for sale to consumers to stop selling these services and to remove all promotional materials and contracts from their dealerships.
It further ordered the dissolution of Credit Forget It.
If Credit Forget It and its principals do not comply with these terms, they must pay $2 million, according to Schneiderman’s office.
More Possible Actions Ahead
Schneiderman also served notice of his intent to sue 11 dealerships that allegedly engaged in similar practices. Those stores include:
— Westchester Autoplex, which does business as Honda of New Rochelle, 25 East Main Street, New Rochelle, N.Y.
— G. Hylan Motors Corp., which does business as Staten Island Honda and Staten Island Nissan, 1232 and 1220 Hylan Boulevard, Staten Island, N.Y.
— Huntington Honda, 1055 E. Jericho Turnpike, Huntington, N.Y.
— GPB 8, which does business as Nissan of Huntington, 850 East Jericho Turnpike, Huntington Station, N.Y.
— GPB 9, which does business as Volkswagen of Huntington, 838 East Jericho Turnpike, Huntington Station, N.Y.
— Plaza Motors of Brooklyn, which does business as Plaza Honda, 2740 Nostrand Avenue, Brooklyn, N.Y.
— Plaza Hyundai, 2740 Nostrand Avenue, Brooklyn, N.Y.
— Plaza Oldsmobile, which does business as Plaza Toyota, 2733 Nostrand Avenue, Brooklyn, N.Y.
— Louzoun Enterprises, which does business as Queensboro Toyota, 62-10 Northern Blvd, Woodside, N.Y.
— Potamkin New York, which does business as Potamkin Hyundai, 2495 2nd Ave., Manhattan
The office is continuing to investigate other New York dealers that sold or sell after-sale services, including Manfredi Auto Central on Staten Island, which allegedly sold more than 1,400 CFI contracts.
The attorney general filed a motion to compel documents from Manfredi, after it refused to comply with an investigatory subpoena.
“When consumers shop for a car, they deserve to be dealt with honestly and fairly — and not to be misled by auto dealers who use deceptive tactics to fleece their own customers,” Schneiderman said.
“New York consumers must beware: Car dealerships sometimes pad their pockets by charging for worthless after-sale items, which inflate the price of their car,” he continued. “These items are often ones that consumers don’t need, did not ask for and often are not even told about.
“Businesses need to make a profit to survive, but it’s illegal to do so by duping consumers,” Schneiderman added.
New York City Department of Consumer Affairs Commissioner Julie Menin praised the actions by Schneiderman’s office.
“A car is one of the biggest purchases many consumers make and we must do everything we can to protect them from unscrupulous auto dealers,” Menin said. “DCA has taken an innovative and aggressive approach, investigating dealers’ relationships with banks, creating a safe, affordable and transparent auto loan, and obtaining restitution for consumers harmed by predatory actors.
“We’re thankful to the attorney general for his hard-hitting actions against businesses that are deceiving New York City consumers,” she went on to say.