FTC Orders Auto Dealers to Pay $85,000 Civil Penalty over Allegedly Deceptive Advertising Practices

On August 18, the FTC announced that three Texas-based auto dealers will pay an $85,000 civil penalty to resolve allegations that they violated a 2014 administrative order prohibiting them from deceptively advertising the cost of buying or leasing a car. The FTC complaint alleges, among other things, that since receiving the 2014 order, the auto dealers frequently misrepresented offers to finance or lease motor vehicles by “focusing only on a few attractive items, such as a low monthly payment or annual percentage rate, while concealing material terms that add significant extra costs or that limit who can qualify for the advertised prices.” In addition to the $85,000 civil penalty, the proposed consent order bars the defendants from (i) deceptively advertising a vehicle’s cost of purchase with financing, the cost of leasing, or any other material fact regarding price, sale, financing or leasing; (ii) misrepresenting who is likely to receive financing or leasing and who qualifies for specific finance or lease terms; and (iii) violating the Truth in Lending Act’s and the Consumer Leasing Act’s requirements to clearly and conspicuously disclose credit and lease terms.

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CA Governor Signs Bill to Amend the California Vehicle Code

On July 25, California Governor Edmund Brown signed into law Assembly Bill (AB) 516. The bill amends or repeals various sections of the California Vehicle Code, and adds Section 4456.2. Pursuant to new section 4456.2, the Department of Motor Vehicles (Department) is required to develop a system for dealers and lessor-retailers to electronically report the sale of a vehicle before it is delivered to the purchaser. The bill outlines minimum requirements for the new dealer reporting system, including assignment of a unique report-of-sale number to each transaction, which must be displayed on the report of sale forms and any temporary license plate. The new system must be ready for operational use no later than January 1, 2019. In addition, AB 516 increases the document processing charge that a dealer may impose on the purchaser or lessee of a vehicle. Specified fee changes will also take effect January 1, 2019.

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Treasury Adopts Methodology for Monitoring the Affordability of Auto Insurance

On July 13, the Treasury Department announced that the Federal Insurance Office (FIO) adopted a methodology for monitoring the affordability of auto insurance. Under the Dodd-Frank Act, the FIO is authorized to monitor the extent to which affordable personal automobile insurance is made available to traditionally underserved communities and consumers, minorities, and low- and moderate-income (LMI) persons. Pursuant to the new methodology, FIO will calculate affordability by using an affordability index that divides the average annual personal automobile liability premium by the median household income for identified majority-minority or majority-LMI ZIP codes. If the Affordability Index does not exceed to 2%, then FIO will consider personal automobile liability insurance affordable. Finally, to monitor the availability of auto insurance, FIO will obtain and analyze aggregated premium data in addition to using publicly available data through the U.S. Census Bureau.

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FTC Approves Consent Order Against Two Ohio-Based Auto Dealers

On July 14, the FTC announced the approval of a final consent order against two Ohio-based auto dealers to resolve allegations that they failed to make certain advertising disclosures in violation of the FTC Act, the Consumer Leasing Act (CLA), and the CLA’s implementing Regulation M. Specifically, according to the FTC’s November 2015 complaint, the auto dealers’ lease advertisements (i) failed to disclose, or adequately disclose, that typical consumers would not qualify for advertised terms; and (ii) displayed a monthly payment amount without clearly and conspicuously disclosing terms required by the CLA and Regulation M. Pursuant to the consent order, the auto dealers are prohibited from, among other things, (i) advertising the amount of any payment, or the length or any payment term, without also clearly and conspicuously disclosing all related qualification restrictions, such as those based on the consumer’s credit score; (ii) misrepresenting payment terms; and (iii) advertising payment terms without clearly and conspicuously disclosing terms required by the CLA and Regulation M.

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CFPB Monthly Complaint Snapshot Highlights Consumer Loan Complaints

On June 28, the CFPB released its monthly complaint report focusing on consumer loans, including vehicle loans and leases, installment loans, title loans, and pawn loans. According to the report, of the 906,400 consumer complaints across all products the CFPB has received as of June 1, 2016, approximately 38,500 were in the consumer loans category. Findings regarding consumer loan complaints highlighted in the report include: (i) just over half of consumer loan complaints pertain to vehicle loans, with installment loans following at 31 percent; (ii) consumers most often complain about issues related to servicing the loan, lease, or line of credit; and (iii) additional common consumer loan complaints include encountering problems when shopping for a loan, when taking out a loan, and when consumers are unable to repay a loan.

This month’s report includes a “sub product spotlight” to highlight complaints specific to auto lending, which make up 60 percent of the 38,500 consumer loan complaints the CFPB has received since July 21, 2011. Consumer loan complaints specific to auto lending include, but are not limited to: (i) payment processing issues, such as consumers not having their accounts debited timely and correctly; (ii) confusion over fees and interest rates; (iii) repossession of vehicles without notification; (iv) misleading advertising at “Buy Here Pay Here” dealerships; and (v) insufficient warranty coverage, with consumers alleging that they believed they were required to purchase warranties that did not end up covering basic repairs as they expected. Read more…

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