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FTC to investigate deceptive car dealer practices

Consumer Reports News: March 16, 2011 02:21 PM

The Federal Trade Commission announced yesterday that it will begin looking into sales, financing, and leasing practices at car dealerships around the country. New car dealers garner the third highest number of complaints to the Better Business Bureau after cable and satellite TV providers and cell-phone carriers. (They also have a high rate of complaint resolution, according to BBB spokesperson, Kelsey Owen.) The agency will hold a series of round-table discussions around the country to speak with consumer advocates, car dealers, and other industry participants, beginning on April 12th in Detroit.

In particular, the FTC wants to look into dealer-arranged financing and leasing, which it says, “…can be a complicated, opaque process and could potentially involve unfair or deceptive practices.” Last year when Congress created the Consumer Financial Protection Bureau, it gave the FTC authority over consumer financing fraud.

The round-table discussions will focus on complaints related to discrimination against minorities and members of the U.S. armed services. The FTC will also target potentially deceptive practices in financing, including interest rate markups and up front payments, and payments “packed” to include unnecessary add ons.

These types of complaints have been widespread in the industry for decades. While modest markups in interest rates are legal, many other practices are not, such as packing payments (essentially selling consumers something they did not agree to buy), exorbitant interest-rate markups, and discrimination.

Representatives from the National Automobile Dealers Association (NADA) plan to attend the discussions to make the case that dealer financing helps some consumers buy a car who otherwise couldn’t, that dealerships provide financial education for consumers, and that existing laws are adequate to combat the problem.

Rosemary Shahan, president of Consumers for Auto Reliability and Safety, agrees that current laws already forbid many the types of deception that lead to complaints today. But she says the problem is that state and federal agencies have not enforced those laws. “The single most important thing the FTC could do is enforcement,” Shahan says. “There’s a lot of activity in auto sales and lending that’s already illegal.”

Shahan points out that most fraud cases against car dealerships have been brought by federal agencies in response to corporate complaints such as those from “floorplan” lenders--the banks that loan money to car dealers to finance their inventory.

Holding discussions on the issue could be the first step toward increasing enforcement to protect consumers from unscrupulous practices.

The FTC discussions are open and free to the public. Consumers who want to participate can preregister by emailing their name and affiliation to

Eric Evarts

For more on buying a new car, see our buying advice and Ratings.

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