Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC settles junk fee suit with Illinois dealerships, (Dec 20, 2024)

By Jody Coultas, J.D.

The dealership group will pay $20 million to settle the claims and be required clearly disclose offering prices.

Car dealership group Leader Automotive Group and parent company AutoCanada have settled claims that they defrauded consumers looking to buy vehicles, the FTC announced. The FTC and Illinois Attorney General alleged that the companies charged consumers for expensive add-ons without consent and posted fake reviews online. The companies will pay $20 million and must clearly disclose a car’s offering price (FTC v. ACIA17, No. 1:24-cv-13047 (N.D. Ill. Dec. 19, 2024)).

In a complaint filed by the FTC and the Illinois Attorney General, the agencies charge the companies, along with former vice president of U.S. operations James Douvas, with violating the FTC Act and Illinois consumer protection laws. The complaint alleges the defendants have deceived consumers about the price and availability of vehicles, charged them for expensive add-ons without consent, tacked on unwanted junk fees to purchases, posted fake reviews, and failed to disclose that U.S. customers were buying cars imported from Canada, along with other unlawful conduct.

Leader has frequently advertised new and used cars online with low prices designed to entice consumers into their dealerships, but those prices are often false, according to the complaint. Consumers were told the cars has preinstalled add-ons like protective coatings (often under the name Xzilon) and theft protection (under the name LoJack), and that these add-ons were required despite not being included in the advertised price of the car. A survey of Leader customers showed that nearly 80% of them were charged for at least one add-on without authorization or because they were falsely told the add-on was required. The unwanted add-ons also included items tacked on in the financing process like guaranteed asset protection (GAP) coverage and service contracts. Leader salespeople have been paid a commission for these add-on products, in many cases making more from the sale of the add-ons than the commission they are paid for selling the car itself.

The complaint alleged that the add-ons have been wildly profitable for Leader, with dealerships at one point reporting more than 99% profit on them. However, according to the complaint, Leader regularly failed to actually install or apply the add-on products for which they charged consumers without their consent.

Leader also advertised cars that have already been sold, and then directed consumers to more expensive cars with junk fees and surprise “market adjustments” added to the price. Many cars were advertised as being “certified pre-owned” and available at a specific price, but consumers were charged hundreds or even thousands of dollars in additional “certification fees.” Leader has failed to actually do the certification work required by the manufacturer of the car, leaving consumers without the extended warranty that makes certified pre-owned cars attractive in the first place, according to the FTC.

The complaint further alleged that Leader charged exorbitant “reconditioning” fees, which one former sales manager described as “fake fees.” Leader also has sold cars in its U.S. dealerships that were manufactured for the Canadian market without disclosing that to consumers, according to the complaint. Even when done legally, importing these cars into the U.S. typically voids their manufacturer’s original warranty. Leader still deceptively advertised many of these cars as being covered by those warranties.

Also, the complaint alleged that employees were required by management to post fake positive reviews about their dealerships on Google and other review sites. Managers threatened to withhold bonuses and other compensation from employees who did not post fake reviews, and paid employees bonuses for posting fake reviews, according to the complaint. The complaint also alleged that dealerships bullied and pressured consumers into posting five-star reviews, citing one instance in which a dealership refused to give a consumer the keys to a car she purchased until she posted a positive review.

The proposed settlement with Leader and AutoCanada would require them to pay $20 million to be used to provide refunds to consumers. In addition, they would be required to disclose the offering price for vehicles in advertising and other communications, as well as provide the total cost of the vehicle when discussing leases or financing with consumers. The settlement would also require the company to have consumers’ express informed consent before charging them for add-ons and other fees. The case against Douvas is still ongoing.

Companies: Leader Automotive Group; AutoCanada

News: ConsumerProtection FederalTradeCommissionNews IllinoisNews