FTC’s fair lending report highlights auto dealer practices

Shady auto dealer practices take center stage in the Federal Trade Commission’s latest report on its 2022 enforcement activities related to fair lending. Each year, the FTC submits a letter to the Consumer Financial Protection Bureau recounting actions it took tied to the Equal Credit Opportunity Act, a law to combat discrimination in lending. Last year, the agency nabbed two large multistate auto dealers in enforcement actions alleging they used unfair and deceptive practices to discriminate against Black and Latino customers.

First, in an enforcement action against North American Automotive Services, Inc. (also known as Ed Napleton Automotive Group based in Illinois), the FTC joined the State of Illinois in alleging that Napleton illegally tacked on unwanted “add-on” products such as payment insurance and paint protection. According to the agency, Black customers at dealerships, located in Illinois, Florida, Pennsylvania and Missouri, “were charged approximately $190 more in interest and paid $99 more for similar add-ons than similarly situated non-Latino White customers.” In addition to a $10 million settlement with monetary relief for harmed consumers, the dealer agreed to establish a fair lending program that would cap the interest markup that they charge consumers.

In a second action, the FTC alleged that Maryland-based Passport Automotive Group imposed higher borrowing costs on Black and Latino consumers than non-Latino White consumers. The FTC found that the dealer used a discretionary interest rate markup practice resulting in “statistically significant” higher markups charged to these customers. It also found that these consumers were charged higher amounts in fees for “extra inspection, reconditioning, vehicle preparation, and certification…” The dealer agreed to pay approximately $3.3 million to settle the action, some of it to refund harmed consumers. Like Napleton, Passport was also required to establish a fair lending program, which would include assurances that an interest markup rate is either eliminated or the same for all customers.

The FTC is currently conducting a rulemaking on auto sale practices. Before long, we will be able to assess how vigorous a new regulation will be in protecting consumers from unfair practices in this sector.

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