FEDERAL TRADE COMMISSION - PowerPoint Presentation

Slide1

FEDERAL TRADE COMMISSION

Overview of the

Division of Financial Practice’s Auto ProgramSeptember 2013

Division

of

Financial Practices

Bureau of Consumer

Protection

Teresa Chen Kosmidis

Staff AttorneySlide2

The FTC enforces various consumer protection laws, including the FTC Act, which prohibits unfair and deceptive trade practicesThe FTC has jurisdiction over most non-bank entities

The FTC’s RoleSlide3

Section 5 of the FTC Act broadly prohibits “unfair and deceptive acts or practices in or affecting commerce.”Deception: a material representation or omission that is likely to mislead consumers acting reasonably under the circumstances

Unfairness: practices that cause or are likely to cause substantial injury to consumers that are not outweighed by countervailing benefits to consumers or competition and are not reasonably avoidable by consumersFlexible law that can applied to many different situations, entities and technologies

FTC Act FundamentalsSlide4

Examples of Other Laws/Regulations/Rules that Impact Auto:Truth-in-Lending Act (“TILA”) and “Regulation Z”

Fair Credit Reporting Act (“FCRA”), as amended by Fair and Accurate Credit Transactions Act (“FACTA”)Fair Debt Collections Practices Act (“FDCPA”)Consumer Leasing Act (“CLA”) and Regulation MHolder in Due Course Rule

Used Car Rule

FTC Act FundamentalsSlide5

Auto dealers are an increasingly important area for the FTC and for consumersSecond biggest financial transaction some consumers will make

Dodd-Frank (July 2011) made the FTC the primary federal enforcement agency for auto dealers and gave the agency new authority to issue rules in this areaIn response, DFP launched a new auto program

FTC and DFP Auto OverviewSlide6

The FTC has broad jurisdiction over “persons,” “partnerships,” or “corporations” acting in interstate commerce, except for banks and certain other entities (15 USC §

45(a)(2))Per the Dodd-Frank Act, the FTC has:Exclusive jurisdiction over many dealers (“predominantly engaged” in sales or leases and servicing, “routinely” assigns financing to third parties)Concurrent jurisdiction with CFPB over (non-bank) lenders and “buy here, pay here” dealers

APA rulemaking authority in auto finance area

FTC v. CFPB JurisdictionSlide7

Negative Equity

Cases“We’ll pay off your trade no matter what you owe.”Dealer websites and youtube.com

In fact, dealers included the amount of the negative equity in the loan package for the new vehicle.Administrative complaints filed against five dealerships April – May 2012

Law Enforcement – Negative Equity CasesSlide8

Section 5 Deception Allegations:“we’ll pay off your trade, no matter what you owe”

is false and misleadingAlleged TILA (three cases):Used “trigger terms” (specific payment, rate)No disclosure of APR, balloon payments, etc.

Alleged CLA (two cases)Failure to disclose certain lease related terms

Law Enforcement – Negative Equity Cases Slide9

Consent OrdersCease the representations and comply with TILA and CLA

Maintain and produce records upon request (5 years)Initial compliance report and follow-up reports upon requestNotify the FTC about changes in business (dissolution, sale, merger, etc.)Order effective for 20 years

Law Enforcement – Negative Equity Cases Slide10

Hope for Car Owners and NAFSO VLM (Auto Debt Consulting)

Charged hundreds of dollars in up-front feesBased on bogus promises to help consumers reduce monthly loan payments and avoid repossessions Once up-front fees were collected, did nothing to obtain promised loan modifications

Denied refunds Judgments entered against companies and individual defendants:Ban defendants from marketing auto loan modifications and other debt relief servicesProhibit misreps

about other products or services

Law Enforcement – Auto Loan Mod CasesSlide11

Hope for Car Owners

Stipulated judgment against individual defendantDefault judgment entered against corporate defendantMonetary relief: $362,388 (suspended as to the individual)

NAFSO VLM (Auto Debt Consulting):Stipulated order with two corporate and two individual defendantsMonetary relief: $279,728 (suspended as to the individual)

Law Enforcement – Auto Loan Mod CasesSlide12

Two car dealers from Maryland and Ohio

Agreed to settle charges that they falsely advertised the cost or available discounts for their vehiclesDon White’s Timonium Chrysler:Charged with advertising dealer discounts that were not available to the typical consumer

Consumers actually needed to qualify for rebates to get priceGanley Ford:Charged with misrepresenting vehicles were available at discount

In fact, discounts applied only to specific, and the more expensive models

Law Enforcement – Deceptive Auto Ad CasesSlide13

Don White’s Timonium Example:

2013 Chrysler 200 Limited Sedan was advertised as:MSRP $27,320Dealer Discount - $7,499

Internet Price $19, 821But the “Dealer Discount” depended on qualifications and restrictions not adequately disclosed

Law Enforcement – Deceptive Auto Ad CasesSlide14

Ganley Ford Example:

NEW 2013 FORD F-150$12,000OFF MSRP!

But deal only available for 2013 Ford F-150 (MSRP $47,000); not for less expensive, like base model F-150 (MSRP $23,670)

Law Enforcement – Deceptive Auto Ad CasesSlide15

Complaints Alleged:

Don White’s Timonium – violated Section 5 by misrepresenting that a specific discount and price are generally available to consumersGanley Ford – violated Section 5 by representing that vehicles are available at a specific dealer discount, but failing to disclose that this discount is only available for some but not all of the vehicles advertised.

Law Enforcement – Deceptive Auto Ad CasesSlide16

Orders prohibit:Advertising discounts unless they are accompanied by clear and conspicuous disclosures of any material qualifications or restrictions

Misrepresenting:Existence or amount of any discount, rebate, bonus, incentive or price

Existence, price, value, coverage or features of any product or service associated with the motor vehicle purchaseNumber of vehicles available at particular priceAny other material fact about the price, sale, financing or leasing of motor vehicles

Law Enforcement – Deceptive Auto Ad CasesSlide17

FTC v. Franklin’s Budget Car Sales:

Peer-to-Peer (P2P) network accesses dealer’s computer network, publishes info (name, DOB, SSN, etc.) for approx. 95,000 customersAdministrative Complaint alleged:Sec 5 misrep

that dealer took reasonable and appropriate measure to protect dataFailure to take steps required by Safeguards Rule to protect dataFailure to provide annual privacy notices and an “opt-out” provision on sharing info with third parties (Privacy Rule)Consent Order: cease alleged misreps

and implement comprehensive security program per Safeguards Rule

Law Enforcement – P2P Network Access Case Slide18

Holder Rule (FTC Trade Reg. Rule):“Holder Rule” (16 CFR §

433): subsequent holder of consumer debt contract is subject to consumer’s claims and defenses against original seller Some courts held that consumer can only get affirmative recovery (get money back, not just defend against action) from holder if the seller’s breach warranted rescission, or goods were worthless

Advisory Opinion (May 2012): plain language of rule means consumer can get affirmative recovery even if complete rescission not warranted

Holder Rule Slide19

Used Car Rule Issued in 1984

Intended to prevent oral misreps and omissions by used car dealers concerning warranty coverageRequires various disclosures through a window sticker, called the “Buyers ‘Guide” and in sales contracts

Recently amended to make technical changes and edits to the Spanish version of the Buyers ‘GuideRecent proposed changes to encourage consumers to seek information about vehicle history (period for comments closed and currently under review)

Used Car Rule Slide20

Used Car Rule After conducting inspections, the FTC sent warning letters to 11 used car dealerships in Arkansas

Warning the dealers to display the Buyers’ Guides in a clear and conspicuous location on all used carsThe FTC has brought more than 80 actions since the Rule took effect, with civil penalties exceeding $1 million

Used Car Rule Slide21

Purpose was to gather information on auto finance and leasing issues and consider possible initiatives, such as areas for enforcement, business and consumer education, or other appropriate measuresRoundtables held in Detroit (April 2011), San Antonio (August 2011), and D.C. (November 2011)

Auto RoundtablesSlide22

Examples of Attendees at RoundtablesConsumer protection agencies (FTC, CFPB, state consumer protection offices)

Consumer advocacy groups (CRL, NCLC)Industry groups (NADA, NIADA, NAFA)Lending companiesDealers

Private law firms (business and consumer)Auto finance newsOther interested groups

Auto RoundtablesSlide23

Several areas of concern emerged:Basic misrepresentations by some dealers

Product add-ons that are not disclosedDealer “markups” in which the dealer marks up the buy rate from the lender before offering the rate to consumers“yo-yo” financing, in which a consumer buys a car with one rate but is later told the rate went up

Auto RoundtablesSlide24

Recent Press:Brian Ross – yo-yo financing segment

PressSlide25

Other issues raised at roundtablesInterest rate markups

Yo-yo financingMisrepresentationsInterest ratesNo down payment

Product add-ons

More info – ftc.gov

Additional Info about RoundtablesSlide26

FTC resourcesfor car buyersSlide27

consumer.ftc.govSlide28
Slide29
Slide30

FTC resourcesfor auto dealersSlide31

business.ftc.govSlide32
Slide33

Using FTC resources

Order free materials from

bulkorder.ftc.gov Visit ftc.gov/subscribe to sign up for Consumer and Business Blog updates.

Visit

consumer.ftc.gov

and

business.ftc.gov

and bookmark auto resource pages

Link, post, tweet, blog, adapt. All FTC materials are in the public domain. Slide34

FEDERAL TRADE COMMISSION

Overview of the

Division of Financial Practice’s Auto ProgramSeptember 2013

Division

of

Financial Practices

Bureau of Consumer

Protection

Teresa Chen Kosmidis

Staff Attorney